Following the outbreak of the Coronavirus in Wuhan, China and the spread of it across the world, the world economic markets have seen a massive slow down. The result has been all world markets taking a dip in the last few weeks.
On the 11 March the UK government slashed interest rates by 0.5% and have taken measures to pump billions of pounds into UK businesses.
These targeted actions have made me wonder, how would a world recession, which economists have talked about for a while, affect UK farming businesses.
- Continued low interest rates
One positive effect will be the continuation of low interest rates. Over the past 24 months we have seen debt at its cheapest for almost a generation. I spoke to a leading high street bank recently and they have again indicated that long term interest rates will remain.
As I have previously mentioned, fixing your debt may again be worth revisiting. The benefit of this is security of knowing your cash outflow and, in comparison to the past, at very cheap long term borrowing costs.
However, consideration is needed if you are going to repay the debt before the end of its term or have plans to. This is because you may be hit with early repayment penalties.
- Lenders attitude towards lending
As we saw during the last financial crisis in 2008/09 lenders will again look to review their “debtor book”. The banks lending has been more tightly governed since the last recession. As a result it is likely that the banks will put more scrutiny on your business performance and any new lending for projects will be harder to obtain.
- Land Prices
Looking at the land market at the moment the average price per acre of land in the UK is £7,500/acre. Following the last recession the land price rose from around £5,000/acre in 2008 to £7,000/acre in 2010. This is due to investors, such as hedge funds, looking for “safe haven assets”.
It is therefore likely that as a result, we will see a demand for land increase and therefore price may also increase for at least a short term period.
Any recession will affect the cash available for consumers to spend on food and luxury items.
The impact of this will lead to a squeeze on prices. Of course farming businesses have seen fluctuating prices in more recent years and have reacted well to review and cut costs where needed.
The points mentioned will have an impact on farming business. However, given the financial strength of most farming businesses’ balance sheets and the continued need for food in the long term, farming businesses with good proactive management and support from their advisors will make it through.