博鱼体育集团

How does a farmer sell 750,000 chickens after all the original buyers withdraw overnight?

It鈥檚 a puzzle that one UK-based livestock farmer had to grapple with after Covid-19 forced its hospitality partners to temporarily close during lockdown.

鈥淲hen Covid hit, hotels shut down overnight so this farm had three-quarters of a million chickens that were too big for the supermarkets 鈥� and that they couldn鈥檛 sell,鈥� says Bradley Smith, an agriculture finance specialist who works with farmers, landed estates and private landowners for 博鱼体育集团 Frank鈥檚 Finance team.

鈥淚f you鈥檙e averaging around £2 a chicken, that is a big value of stock that is sitting on your farm, eating every day, and getting bigger. Fortunately, they managed to find a home for them, but it caused two weeks of stress and panic for the business until they did.鈥�

A £600,000 Coronavirus Business Interruption loan was enough to give the farm in question some breathing space before business recovered five months later. Their story reflects a broader surge in landowners seeking to leverage finance to offset pressures caused by the pandemic, Brexit and most recently the war in Ukraine, which has prompted costs for critical products such as fertiliser to rocket.

To date, around 37% of farmers have already diversified, a figure that is growing year-on-year, says Bradley.

鈥淭here have been very good and very bad years for most agricultural industries over the last three to four years and those peaks and troughs seem to be widening, so it makes sense that businesses are looking to soften that uncertainty with more stable and diverse income streams.

鈥淎t the same time, interest rates have been very low 鈥� they still are, if you consider they were sitting at 5%鈥�6% for a long time. So, naturally, businesses have wanted to take advantage of that.鈥�

Diversifying income

Recent examples include a farm that turned a number of disused barns and buildings across its 3.5-acre estate into a thriving commercial and residential lettings business.

鈥淭hey had a massive amount of redundant buildings and over the last decade, while the cost of borrowing has been so low, have been raising capital to invest and build out those properties as and when they are approached by prospective tenants,鈥� explains Bradley. 鈥淪o, they鈥檒l upgrade a building specifically for a tenant and then move on to the next and do the same.鈥�

As a result, the farm has grown its yearly rent roll from £500,000 to £1.2 million 鈥� with an average yield of 20%.

鈥淭hat really is securing their farm for the future and the next generation because they鈥檙e becoming less reliant on the peaks and troughs of farming. Before they get out of bed in the morning, they鈥檝e got £1.2 million a year coming through the door.鈥�

Helped by the pandemic-driven trend for staycations, tourism has also become a popular alternative, with farms in scenic locations transforming their land into glamping or B&B destinations.

Sustainable schemes, too, are rising, with a number of renewable projects in the pipeline offering multiple benefits for landowners, says Bradley. 鈥淵ou have the very big schemes such as a 100-acre site where the farm gets free energy and charges a ground rent to the solar business, which are often backed by big investment houses like pension funds.鈥�

Smaller scale schemes include installing solar panels on buildings that require energy, which can be particularly beneficial for energy-hungry farms, says Bradley.

鈥淚 work with one farmer who produces ice-cream so needs a lot of energy during the summer months. They have a solar farm which keeps their energy bills down.鈥�

Green schemes

These green schemes are often cheaper to fund, says Bradley. 鈥淲hether it鈥檚 a discount on the lending rate or a discount on the fee, if you can find a green project, chances are there鈥檒l be lenders out there chomping at the bit to lend to it.

鈥淩emember, lenders have all committed to lend 5% of their book to green areas, which none of them are currently hitting, so they need projects to come forward to invest in.鈥�

That said, there are some things borrowers should watch out for. 鈥淐ertain banks seem to be shying away from renewing interest-only deals where they might need to churn a bit of their debt book,鈥� says Bradley.

鈥淏ut all that means is when a five-year commercial term lend comes to an end, they鈥檒l have to rebank. I鈥檝e been helping a number of borrowers find interest-only deals elsewhere.鈥�

Overall, lenders are generally very keen to lend to the sector, it鈥檚 just about finding the right banks who are interested in your area, says Bradley.

鈥淏anks all have different appetites for different parts of farming, and every other business, depending on any exposure they鈥檝e had to it in the past. So, if one bank says no, it鈥檚 not that it鈥檚 a bad deal, it鈥檚 just about marrying those positions together.鈥�