Memorandum submitted by Barclays PLC (RPA
03)
1. Barclays PLC is a UK-based international
financial services group engaged primarily in banking, investment
banking and investment management. In terms of assets employed,
Barclays is one of the largest financial services groups in the
United Kingdom. Barclays has been involved in banking for over
300 years and operates in over 60 countries, including Ireland,
Spain, Portugal, France, Italy and Germany. It has 76,200 employees
and over 2,900 branches world-wide.
INTRODUCTION
2. Barclays is the largest single lending
brand in UK agriculture, with over £2 billion lent to the
farming industry. Its teams of rural and agricultural managers
provide banking facilities to farming businesses throughout England
and Wales, and parts of Scotland.
3. This submission addresses two specific
issues on which we were invited to comment regarding the impact
of the delays in making payments to farmers in England under the
Single Payment Scheme:
(a) cost to the agricultural industry in
England incurred by additional and extended borrowing; and
(b) possibility of farm bankruptcies resulting
from the delays.
BACKGROUND
4. The Mid-term review of the Common Agricultural
Policy, implemented in January 2005, marks a fundamental change
in the public support provided to farming businesses. Prior to
reform, farming businesses received a range of payments associated
with a variety of specific support measures, such as the Arable
Area Payment Scheme (AAPS), Sheep Annual Premium Scheme (SAPS),
Suckler Cow Premium Scheme (SCPS), Beef Special Premium Scheme
(BSPS) etc. Payments were received at various times of the year,
with the majority, including AAPS and SAPS, received in the autumn.
Beef payments were typically received in two instalments: an advance
payment in the autumn, followed by a final payment in the spring
of the following year.
5. In 2005 all CAP direct payments were
superseded by the Single Payment Scheme, which is to be paid during
a payment window from December 2005 to June 2006.
COST TO
THE AGRICULTURAL
INDUSTRY INCURRED
BY ADDITIONAL
AND EXTENDED
BORROWING
6. The cost to the agricultural industry
of the delayed Single Payment is two-fold: for borrowers it will
lead to higher interest charges as a result of increased borrowing,
and for farmers with interest bearing cash deposits, their income
will be reduced due to reduced credit balances. In practice, interest
charged on lending will be higher than interest paid on deposits,
but for the purpose of this exercise, an interest rate of 6.0%
has been used as a basis of estimating the combined cost of the
delay for the farming industry in England.
7. It is understood that the total payments
under the Single Payments Scheme is to be £1.7 billion (€2.5
billion) in England for 2005.
8. The following estimates of the additional
cost to the industry are based on three scenarios:
(a) Single Payment received in March 2006.
(b) Single Payment received in June 2006.
(c) 50% interim payment received in March
2006, with balance paid in June 2006.
Table 1
ESTIMATED TOTAL COST OF DELAYED PAYMENTS
IN 2005-06 (ENGLAND)
| £ million |
Single Payment
received in March 2006 |
25 |
Single Payment
received in June 2006 |
50 |
50% interim payment
received in March 2006,
with balance received in
June 2006
| 38 |
| |
9. To put these costs in context, total interest charges
on all lending to farmers in the UK during 2004 was £526
million; at an average rate of interest of 6.6%. Total income
from farming in the United Kingdom was £3.0 billion (DEFRA;
Agriculture in the UK2004).
10. Table 2 provides a broad estimate of the additional
interest charges incurred on additional borrowed money for three
farm types:
Table 2
ESTIMATED COST OF ADDITIONAL BORROWING FOR THREE FARM
TYPES
| Three-month delay £
| Six-month delay £ |
| 1,000 acre cereals farm | 1,500
| 3,000 |
| 100 cow dairy farm | 200
| 400 |
| 1,000 ewe upland sheep farm | 300
| 600 |
| | |
11. The estimates, in both tables, are based on the delay
from the beginning of the Single Payment Scheme payment window
in December 2005. It should be borne in mind however that even
if payments had been made in December 2005, additional interest
costs would have been incurred, compared to previous years, since
payments for most old schemes were received before December eg
SAPS (£294 million in 2004) received in October; AAPS (£900
million in 2004) received in November.
POSSIBILITY OF
FARM BANKRUPTCIES
RESULTING FROM
PAYMENT DELAYS
12. Barclays rural and agricultural managers are well
aware of the impact that delayed payments will have on their farming
customers' cash-flows and have been discussing how they can best
provide additional facilities as the payments are awaited. Overdraft
facilities have already been increased for a high proportion of
livestock and arable farming customers. Barclays has also provided
farming customers with a specific Single Payment Loan, where the
bank considers lending up to 100% of the subsidy payment, with
the repayment arranged to coincide with receipt of the Single
Payment.
13. Barclays has repeatedly assured customers of support
while awaiting a Single Payment. In Barclays view a late cheque
will not turn a good business into a bad one. It is vital that
farming businesses are able to continue to trade without having
to resort to selling crops and livestock early, or having to seek
additional credit from suppliers. There is every reason for the
banks to be as supportive as possible within the usual canons
of good lending by providing facilities at times like this.
14. As the largest single lending brand in UK agriculture,
Barclays has a long established relationship with, and strong
commitment to, the UK's farming sector. The response outlined
above is consistent with the support, service and products we
have provided during several periods of difficulty for UK Agriculture,
including outbreaks of Foot and Mouth disease and Classical Swine
Fever.
15. Fortunately bankruptcies are rare in farming business,
and we do not expect any significant increase in the probability
of bankruptcies as a result of payment delays. Nevertheless, the
delay in payments is not welcomed; it incurs additional interest
charges for farming business, many of whom can ill afford any
additional costs to their business.
Euryn M Jones
Agricultural Policy Director
November 2005
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