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Positive Outlook for Agriculture Sector Despite Short Term Pain

Volatile markets will continue affecting many agricultural businesses in the short term, but with continued growth in both global population levels and the global economy, there is light at the end of the tunnel for a competitive UK farming sector.

This is according to Andrew Naylor, Head of Agriculture at Lloyds Bank, who says that a telling sign of the struggle in UK farming at the moment is that gross domestic output in agriculture remains 9.2% lower than its peak, whereas the UK overall is currently 2.7% above its Quarter 1 2008 peak.

Andrew Naylor, Head of Agriculture at Lloyds Bank

Andrew Naylor, Head of Agriculture at Lloyds Bank

He says the picture is mixed at the moment, depending on which market you are in. “A bumper harvest in the US has left grain stores bulging, driving down global grain prices.,” he explains. “This is positive news for livestock farmers but not so good for arable producers. At the same time, other input prices, such as fuel and fertiliser, will reduce as global oil and gas prices fall.

“The counter side is that external pressures on agriculture are squeezing incomes further. The supermarket ‘price wars’, for example, are placing increasing strain on suppliers – indeed, a new report suggests insolvency among food companies increased by 28% over the past year, in comparison to an 8% fall in company liquidations in the economy as a whole. And on the demand side, Eurozone economic weakness continues.”

Mr Naylor says that looking ahead, the overall UK economy is predicted to grow at 2.5-3%. “However, this means Sterling is likely to further strengthen against the Euro. This not only makes UK exports less attractive to the Eurozone, but also has a negative impact on the exchange rate of Euro-denominated subsidy payments into Sterling. Some protection against this can be found by discussing risk management solutions with your bank,” he explains.

But agriculture is also expected to grow – albeit at 0.5% next year. However, quarter-on-quarter output in Quarter 2 2014 is up 1.4% compared with the same period last year and, despite continued slow growth in Europe, the UK economy has shown seven consecutive quarters of growth.

“The US market also continues to show recovery, which is good news for exports. Continued growth in global population and the global economy will also provide plenty of opportunities for a competitive UK agriculture sector. Indeed, there is clear evidence that UK agriculture exporters are already finding new markets further afield.”

Lloyds bank

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