Weekend Opinion: More loans for farmers only means more debt
Am I the only guy in Ireland who thinks that burdening production agriculture with more debt is a bad thing?
Because this is the very scenario we are looking at in the wake of the Government’s Budget commitment to make ‘cheap loans’ available to farmers.
I will come back to the issue of whether or not the finance on offer is actually that cheap. But here’s the fundamental reality: money that is secured by way of a loan has to be paid back at some stage in the future.
Outstanding debt of all kinds remains a burden on any business, until such times as it is paid back in full.
A lot of people seem to be of the view that money at 2.95% represents manna from heaven. Personally, I think it is an absorbent level of interest, given that bank rates across the EU currently stand at 0.5%.
And let’s not forget that some of the banks are not that far off actually charging people with money in savings accounts for that privilege.
To date, Minister Creed has given us the outline of the new scheme. But delivery of same will be left in the hands of Ireland’s commercial banks.
It will be truly interesting to gauge how these organisations deal with the matter. As the old saying goes, bankers are more than happy to hand out umbrellas on a sunny day but want them back the instant it starts raining.
These sharp suited ladies and gentlemen also operate on a profit only basis. They will, obviously, want their cut out of the €150m fund announced by Minister Creed.
So will the 2.95% interest rate announced by the Minister be the actual rate on offer to farmers from the likes of Allied Irish Bank and Bank of Ireland? The New Year should tell an interesting story in this regard.
But, if it turns out that the banks are straight jacketed into a 2.95% interest rate deal, they can then take the ‘university route’. Parents with children at college will know only too well that, ostensibly, there are no course fees to be paid, but there is still the little matter of the registration fee to be sorted out.
Banks are past masters at coming up with fee structures that would win awards for their mind-boggling complexity and wherewithal to continuously suck funds from account holders.
By the way, if anyone thinks the banks really are the farmer’s friend, then think again. The past week has seen Ulster Bank sell off part of its agri loan book in Northern Ireland. This, of course, means that if it ever comes to putting up ‘for sale’ notices at the bottom of farm lanes, the organisation in question will have no part in this process. It’s all about optics and not being seen as the bad guy.
The other dimension to the loan scheme is the ‘cute’ way in which Minister Creed directed the €11m exceptional aid money from Brussels – and the national top-up (a total of €14m) allowed for under the measure – in the direction of the €150m loan fund.
This seems a very unfair way of utilising the money on-offer from Brussels, given that not every farmer in Ireland will want to avail of the loan scheme.
On the other hand, every producer would welcome with open arms a direct boost to their cash flows, no matter how small the amount.
At the very least, Minister Creed should have formally met with all relevant stakeholder organisations to confirm the Government’s commitment to a national top-up. Thereafter, the members of the group should have been offered the opportunity to advise on how best the €25m could have been spent.
Endorsement of the loan scheme, in my opinion, also opens up a can of worms in regard to the way Brussels provides future support to the farming sectors.
The past two years have seen EU Farm Commissioner Phil Hogan highlight, repeatedly, the role that can be played by the European Investment Bank in pump priming agriculture. I am reliably informed that this may well be part of a process to wean farmers off direct payments and point them in the direction of so called ‘cheap’ finance.
Fundamentally, this approach to farm support would be a total disaster for production agriculture. And the bad news is that the EU now has a role model in Ireland when it comes to peddling this point of view.