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INTEREST PAYMENTS ON debt averaged 15 % of farm income in 2016 , according to Farm Business Survey ( FBS ) figures released in January .

The size of interest payments varied hugely between farms . Last year 15 % of farm businesses had to increase borrowings or sell off assets to cover the interest payments on their debts . For a further 7 % of businesses , net interest payments totalled over 50 % of farm income . Yet one third of farms made no interest payments at all , or received interest on their deposits .

The average level of farm debt was £ 188,500 per farm in 2016 , an increase of just 1.2 % (£ 2,300 ) on the previous year . Pig and poultry farms had the highest levels of debt , averaging £ 350,000 per business . This is closely followed by the dairy sector , where the average debt was £ 325,000 per farm . The average cereals farm has liabilities of £ 204,200 . Grazing beef and sheep farms had lower levels of borrowings averaging just £ 63,300 in Less Favoured Areas and £ 92,100 elsewhere in the country .

‘ interest payments are now taking up a larger chunk of income than before ’

Rachel Lawrence from the University of Cambridge , one of the institutions involved in the FBS explains the figures . “ It ’ s not necessarily the level of debt or size of the interest payments that ’ s important here , but the ability of a business to make the payments . This reflects a longer term trend , five years ago average net interest payments made up just 7 % of farm income , increasing to take up 15 % of the average farm income today .”

‘ It ’ s a worrying trend as it can divert funds from other aspects of the business ’

“ This is the result of a combination of factors , as average net interest payments have increased ; farm incomes have declined , so interest payments are now taking up a larger chunk of income than before . The impact has been greatest on mixed and lowland beef and sheep farms where payments averaged 20-21 % of income . For dairy businesses this figure was 17 % and for pig , poultry and cereals farms it was 14 %. It ’ s a worrying trend as it can divert funds from other aspects of the business , making important business decisions and key changes more difficult ” adds Ms Lawrence .

However , farms still have scope to borrow and invest ; the average farm net worth is £ 1.75 million , and the average gearing ratio is just 10 %, reflecting the

high value of assets that most farms own . “ The gearing ratio is a measure of the longer term financial viability of the farm and this low average figure suggests farm businesses are still able to meet their longer term investment needs ” explains Ms Lawrence .

The survey measures liabilities as the total debt a farm holds including mortgages , long term loans , monies owed for hire purchases , leasing and overdrafts . Net interest payments as a proportion of farm business income is an

indication of whether farms can afford to pay the interest on their debts .

Balance Sheet Analysis and Farming Performance , England 2015 / 2016 – Results from the Farm Business Survey is published by the Department for Environment Food and Rural Affairs ( Defra ) and can be downloaded from : https :// www . gov . uk / government / statistics / balance-sheetanalysis-and-farmingperformance-england .

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