While the falling price of fertiliser is good news for farmers, there are some almost hidden costs that will need to be watched this year. One of the main ones we are increasingly hearing about is the rapidly rising cost of trade credit.
Some farmers may have got into the habit of using credit from their fertiliser or grain supplier as a “bridging loan” – leaving months between the time of purchase and when they clear their accounts.
That will prove to be a very costly exercise in 2023. Looking through the credit terms available from farmer suppliers, interest is generally charged on accounts that go unpaid for more than 30 days. The rates of interest on accounts vary from high to very high – and are only set to rise further as the year progresses.
The reason behind this is how suppliers calculate the interest charge. Generally, they benchmark to another interest rate and add a margin. For example, one of the suppliers we looked at charges interest at three-month euribor + 7%.
“Three-month euribor” is an international benchmark interest rate that is closely tied to the rate at the European Central Bank. So, when the ECB hikes rates, euribor moves higher which then automatically pushes the interest on store credit higher.
The ECB has hiked rates by 2.5% since July and has indicated it is going to probably go another 1.5%.
A 4% increase in the cost of credit may not sound like much but it can have a huge knock-on effect when it is calculated monthly.