Why Danish farmers are not over the crisis yet

Farming businesses in Denmark are growing rapidly, but are often heavily financed. The majority of these loans are concluded at variable percentages. This means that interest charges can rise quickly. Added to this is the drought of last summer and falling land prices. In short: Danish farmers have not yet recovered from the crisis.

The agricultural and livestock sector in Denmark, like in many other countries, is characterized by economies of scale. The average area for the arable sector increased from 2005 to 2017 hectares from 52 to 76. The number of pigs per farm increased from 1.500 to just under 4.000 heads, while the average number of dairy cows increased from 85 to nearly 200 per farm. 

The increase in scale makes Danish farms more financially resilient, according to the conclusion of the National Statistical Office of Denmark. At the same time, the conclusion is that the agricultural sector has not yet recovered from the effects of the international economic recession in 2008 and 2009, which hit the sector hard at the time.

High indebtedness
The debt burden has hardly been reduced in the past decade. In 2017, the total debt on the farmers' balance sheet amounted to €46,7 billion, compared to €2010 billion in 47,6. These figures show that, despite low inflation and attractive interest rates, Danish farmers have made little repayments on loan capital. The average debt amount in 2017 was about €3,35 million per farm.

By way of comparison: in the Netherlands the average debt amount is considerably lower. Agrimatie figures show that the average credit value in 2016 was about €0,9 million per company. The solvency (ratio of equity versus debt) is much lower in Denmark.

In 2016, this financial key figure was on average 33,5% for arable farms, 18,1% for dairy farms and 26,3% for pig farms. In the Netherlands the percentages are respectively 81%, 66% and 54%.

Mostly variable interest
Statisticians in Denmark are concerned about how the debts will be repaid. This is because the share of variable rate contracts (85% of the total) is remarkably high. This has worked out well in recent years, because interest rates in the eurozone have been extremely low for some time.

This resulted in declining interest expenses (from €1,5 billion in 2010 to €1 billion in 2017). However, when interest rates pick up again, the repayment pressure for Danish farmers will increase. Also, the signals that indicate a impending rate hike increasingly apparent in the eurozone.

Consequences of the drought
The drought of last summer also comes into play. This has, especially in Denmarkcaused a lot of damage. The damage is currently estimated at 4,5 trillion Danish kroner (€604 million). According to various estimates by the Danish agricultural research center Seges, an additional 300 farms have fallen into the red as a result. This increases the number of companies experiencing severe weather to 1.800 (out of 9.500) companies.

In the first 8 months of this year, about 100 Danish farmers filed for bankruptcy; pig farming in particular is in difficult waters. The pig prices This year, they reached the lowest level since 2007. The price of animal feed has also risen sharply, partly as a result of the ongoing drought.

The bubble of Danish soil
In addition, Danish agricultural land is not exactly reliable and stable collateral. In the 90s, many (Dutch) farmers emigrated to Denmark, partly because land prices were much lower there. In combination with the good earnings in pig farming as a result of the swine fever in the Netherlands, land prices rose sharply until 2005.

The stricter environmental regulations (such as those relating to land-relatedness), in combination with the good yields, pushed up land prices further. The land purchases and upscaling were easily financed, with limited interest and repayment pressure. When the financial crisis hit in 2008, the price of land initially continued to rise. Ultimately, the crisis did affect financial returns and many companies ran out of liquidity.

The latter was due to the sharp rise in financing costs. This has caused many agricultural companies to go bankrupt. As a result, the price of land has fallen considerably in 4 years: from €35.000 to €15.000 per hectare.

Many companies for sale
The average land price in Denmark is around €2018 per hectare in mid-19.000, with a declining trend. If you google 'emigration to Denmark', you will see a lot of offers. 70 companies are already listed on the Farmers Emigration website; from dairy to arable farms and varying from 40 to more than 280 hectares. The ample supply is a cause of the fact that land prices are currently falling.

However, the starting situation for farming in Denmark is not entirely prosperous. After all, with rising interest rates and falling land prices, Danish companies will soon be flooded. The conclusion that the Danish agricultural sector has not yet recovered (10 years later) from the effects of the economic recession is probably the correct one, and a poignant one at the same time.

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