High street banks "a drag" on farming industry's investment capacity

Commentary

Tim Coates, the co-founder of Oxbury Bank, says that in countries with specialised agriculture banks, agriculture is a higher per cent of the country's GDP and says that Oxbury’s mission is to transform the farm and food value chain through the provision of financial technology and excellent customer service. 

They say that money makes the world go round and right now everyone is focussed on the costs of everything increasing- double-digit inflation is back – fuelled by the unwinding of pandemic restrictions, supply-chain fragility, higher energy costs and the ongoing war in Ukraine. And the sector with some of the most extreme price rises is the one on which we all depend – farming and food. 

Even with our relatively small land mass, agriculture is a critically important sector of the UK economy beyond its caloric utility: it has a GDP of £26.7bn; provides for 60 per cent of domestic food consumption; accounts for four million jobs and stewards the natural environment of over 70 per cent of the UK’s land area. 

Despite being a historically resilient and critically important UK economic sector, agriculture’s productivity and ability to invest in its future is being held back by its reliance on traditional finance markets, which have failed to modernise and invest in their service propositions to the sector and provide for its specialist requirements for short-term working capital. 

There has been no specialist bank dedicating its expertise to the UK agriculture sector since 1945. This is also true in Germany – where, in both countries agriculture is 0.7 per cent of GDP.

But where there is a historic dedicated provision, for example, in France with Credit Agricole and the Netherlands with Rabobank, the GDP contribution from agriculture is 1.4 per cent - I propose that this correlation is not an accident. Today, over 75 per cent of the UK agriculture market is dominated by four incumbent high street banks. 

Farmers have been underserved by traditional finance market

Agriculture has very specific finance needs, particularly in finding support for its working capital requirements while also ensuring finance is available for long-term investment and is not ‘trapped’ supporting day to day operations. Unfortunately, this is too often the reality for many UK farm businesses.

The sector has been underserved by the traditional finance market – acting as a drag on the industry’s investment capacity. Crucially, in 2017, trade credit accounted for more lending than bank overdrafts for the first time: the short-term finance market is evidentially broken and the value of trade credit extended by the sector itself supporting the agriculture sector is now 10 per cent greater than bank overdrafts.

The lack of available working capital from mainstream lenders ties up significant capital for SMEs and leaves them less able to invest in the business efficiency, productivity and diversification transformations required to thrive. 

Incumbent banks have failed to modernise their wider service offering to the agriculture sector. Agri-banking represents a tiny part of their business, accounting for at most two per cent of commercial lending. Given higher priorities elsewhere, incumbents have under-resourced their IT and digital platforms leaving farmers – used to relying on advanced digital solutions in other parts of their operations – with outdated legacy systems. 

On top of the retreat in short-term finance capability, this lack of investment and focus from the major finance players has genuinely hampered the farming industry’s push to innovate and improve productivity across the sector. These financial pressures come at a time when the industry is facing-up to a wide range of significant, transformational challenges, including environmental concerns, covid recovery, the fallout from Brexit and the need to invest in the productive Agtech technologies of the future.

Designed by farmers for farmers 

Oxbury is the UK’s only bank 100 per cent dedicated to serving British farmers. Our model is based on combining deep agriculture finance and banking expertise, with a bespoke and scalable proprietary fintech platform – we are an AgTech with a banking license.

And that has allowed us to complete over £150 million in loan facilities to farm businesses in the first 12 months of lending – with more than £250 million in additional committed lending offers in the process of completion.

Our approach to data and technology, combined with deep knowledge of the sector we serve enables us to provide unique lending solutions for farmers at competitive rates – Our revolving credit solution – Oxbury Farm Credit – is designed specifically to address farmers’ cashflow issues.

This is a strategic alternative to an overdraft and a line of credit to manage capital so that the farm business can invest in modernising and expanding. It is fully integrated with the agricultural supply chain, enabling data-driven insights and surety of payment as well as increasing the farmer’s ability to manage cashflow.

Our nimble fintech infrastructure is not found elsewhere in agri-finance; while our competitors are mainly using operating outdated, inflexible and expensive mainframe technology, Oxbury’s unique propriety technology platform, Oxbury Earth, provides our clients legacy-free, cloud native banking platform on scalable microservice architecture linking APIs to best of breed services and an agile, flexible and internationally portable system.

The platform offers a first-rate customer experience, quicker credit decisions and enables our digitally enhanced Agricultural Relationship Manager proposition, 100 per cent focussed on supporting customer borrowing needs. 

As a result, we are pioneering supply chain innovations – with each transaction, we gather real-time data to allow anonymised analysis of inputs delivery, usage and value.

This powerful data source combined with our analytics capability allows us to develop a range of data-driven products which not only help inform our risk decisions, but also help farmers benchmark geographic, sector and farm-specific performance and provide food producers and retailers with greater transparency and control of their agri-supply chains.

We have a number of pilot projects in place with major UK retailers that enable the ongoing survival of the entire agri value chain from farm to fork, across key product lines in the beef and poultry sectors. 

For the AgTech revolution to succeed and ensure the ongoing secure supply of affordable, nature-friendly and nutritious food, British farmers need to be supported by finance that they can understand, supported by a banking partner that they can trust. Oxbury’s mission is to transform the farm and food value chain through the provision of financial technology and excellent customer service. 

We have proven our technology and model in the UK and are actively discussing the international opportunity in a number of countries worldwide to take this technology-driven approach to agri-finance and work with both other financial institutions and agri-business via embedded finance and product development to continue our mission to support farming and food production survive and thrive.