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Investment by agricultural businesses hits record levels

Agricultural businesses have made record levels of capital investment in the last year, encouraged by generous tax allowances, says BNP Paribas Leasing Solutions.  In the 12 months to the end of June, investment by agricultural businesses hit £7.1 billion, up from £6.8 billion the previous year.* BNP Paribas Leasing Solutions says that while a dip in global food prices is affecting farmers’ profitability, many are keen to maintain productivity and are investing in machinery and infrastructure to increase yields and reduce costs in the long term.

Comments Tristan Watkins, UK Country Manager at BNP Paribas Leasing Solutions:

It is all too easy for farmers to neglect or hold back on investment when lower food prices- or some other issue- is placing pressure on cash flow. Ensuring that spend on equipment, new farming technology and infrastructure continues is vital, however, to maintaining profitability in the long term.”

BNP Paribas Leasing Solutions says that increased investment may be driven in part by investment in cutting edge technology, including renewable energy technologies, ‘self-milking’ machinery and precision farming techniques, such as the use of GPS systems, to target herbicides and pesticides where they are most needed.

A recent survey undertaken by DEFRA shows that 24% of arable businesses had introduced one innovative practice in the last year, with 9% introducing two or more. Precision farming was one of the most popular, with 27% of those surveyed introducing the techniques. 14% introduced new renewable energy and water management**.

Tristan Watkins adds:

With farming income so dependent on global food prices, it’s important for farmers to keep their costs like fertilizer or energy bills as low and predictable as possible.  As well as the environmental benefits, that’s one reason why technologies like precision farming are of such interest.

Many of these technologies are also labour-saving.  Quite apart from improving the yield, self-milking machines do away with early morning milking.  Making the lifestyle less physically punishing is one way to keep the current generation of farmers working and to encourage the next generation to stay on the farm.  With the average age of a farmer now 59, that’s a serious issue.”

BNP Paribas Leasing Solutions says that investment in new equipment and machinery has been supported in particular by the Annual Investment Allowance, which offers tax relief at 100% on qualifying expenditure in the year of purchase.  It stands at £500,000 for any purchases in use by the end of December.  From January, the Annual Investment Allowance will be £200,000.

*Year to 30 June, the latest figures available.  Figures cover farming, forestry, and fisheries, excludes investment in land.
**Year to November 2014. Based on responses from 363 cropping businesses.

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