Farming is a risky proposition. Storms and pestilence play havoc with output and geopolitics can eliminate demand. In the US, farm debt has grown to 1980s levels on an inflation adjusted basis. Plenty of farmers the world over do not make a bean beyond government subsidies.
Little surprise then that lenders servicing the $5tn sector have either thrown in the towel or evolved into more universal banks like France’s Crédit Agricole and the Netherlands’ Rabobank. Newcomer Oxbury is going against the grain in its bid to become the UK’s first dedicated agricultural bank in a century.
UK farmers should rejoice. They command little attention from today’s financiers, accounting for just a per cent or so of the big banks’ balance sheets. Nor have they been singled out for attention from any of the new generation of fintech and other challengers. Why would they? Farming working capital moves to its own seasonal beat. Disease can wipe out crops or livestock. Trade wars can hurt demand.
The numbers illustrate bankers’ distaste for the sector. Throughout the developed world agriculture commands a lower share of bank loans than it does of economic output. In the UK loans have fallen by a quarter in the decade to 2018, the latest figures available. Instead, the financing burden has shifted to the supply chain, in the form of trade credit — up a third since 2008. Those trends are unlikely to shift this year amid post-Brexit trade deals, a new subsidy regime and pandemic-skewed supply and demand dynamics.
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Agriculture is on the wane across much of the developed world, not least the UK where there are now just 280,000-odd farms. An estimated 70 per cent increase in demand for food by 2050 will necessitate at least $80bn in annual investments, the World Bank reckons.
For investors, agricultural banks can bear many of the hallmarks of their non specialist peers. Agricultural Bank of China is the biggest player. Its market cap even exceeds that of universal players like Citigroup. Shares move pretty much in lockstep with the nation’s other big three banks. Japan’s Norinchukin, meanwhile, has given the raciest Wall Street banks a run for their money — though not in a good way. It was forced to raise billions of dollars after making bets on US subprime mortgages in 2008 and has retained a taste for CLOs, holding Yen 7.7tn worth in “senior, triple-A rated” paper as at end-March. That at least is one risk that Oxbury’s backers, mostly agricultural players, will not be taking.
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