Danish farmers, already hit by lower food and land prices and higher production costs, are struggling to get new credit from banks after years of investing heavily in production facilities, land and technology.
“We have calculated that as many as nine to 10 per cent of the farmers are in acute financial problems,” Lone Saaby, deputy director in the Danish Agricultural Association, told Reuters.
Years of rising land prices increased farmers’ net capital. Some used that capital to invest heavily and are now being squeezed by falling land prices and earnings.
“Our concern is that farmers will have trouble getting access to new liquidity,” Saaby said.
Younger farmers, who bought farms after 2005, and those who had overinvested, were in the most trouble, she said.
Denmark is the world’s largest exporter of pigs, and farming contributed 81 billion Danish Crowns ($14.76 billion) to the country’s gross domestic product in 2007, about 4.8 per cent of total GDP.
Nordic banking group Nordea says it is prepared to help farmers with promising long-term prospects get through the economic crisis. But negotiations with farmers have got tough, and some have been asked to sell their farms or trim production.
“2009 will be a tough year for Danish farmers,” Soren Porsbjerg, head of agriculture at Nordea, said, but added that much less than nine to 10 per cent of Nordea’s farm customers were in acute financial trouble.
In its 2008 financial report, the bank had a net loan loss of 192 million euros ($260.6 million) which included collective provisions for losses on pig farmers, but did not break out a separate amount.
“We have prepared for losses in the pig sector in 2009, but we are early in a crisis, and we don’t know how the crisis is going to develop,” he said.
Danish regional bank Spar Nord Bank, said much of its expected loan losses in 2009 would be due to farmers but the bank expected much of the potential loss to be regained when markets rebound.
“The long-term out look is good for Danish farmers. It doesn’t seem the world’s population is likely to get any less hungry in the future,” director Lars Moller said.
Moller believed the situation was grave but said farmers should be able to draw on increased bank credit lines if they were able to show they can make an operational profit at normal crop and livestock prices.
Spar Nord said farmers’ circumstances varied widely and the bank had already asked a number of clients to quit while they can still make a profit.
“We certainly haven’t stopped lending out more money. We have a lot of queries and do accept new clients. But focus is on running the businesses and not only on collateral,” Moller said.