Rising milk price sees dairy investment confidence grow

Rising milk prices are having a positive impact on dairy farmers’ confidence when it comes to investing in their businesses, according to AIB’s Dr. Anne Finnegan.

Speaking at the AIB Shed Talk at Sunday’s Tullamore Show, the AIB Head of Agri Sector said: “The dairy sector continues to invest this year.

“I think dairy farmers held off last year; but, from a cashflow perspective, it didn’t turn out to be the worst year.

“In the bank, we look at overdraft utilisation and that stayed relatively stable last year. It has declined again this year, as cash balances are up and investment has picked up.”

Finnegan continued to say that the really good dairy farmers and those positioned to invest in their businesses are moving ahead with their plans.

Touching on the investments being made by tillage farmers, the AIB representative said that investment in the sector has remained relatively stable.

They have come through four very difficult years, in terms of margin, and that’s tempered the investment appetite. Notwithstanding that, investment in machinery and equipment is ongoing as upgrades are required.

Moving on to beef, she said: “From our own market research, beef farmers are telling us that their appetite to invest is slowing at the moment and it’s really due to Brexit and CAP.

“Where we are going to see a bit of a slowdown in beef is from the commercial beef farmer. The full-time farmer is questioning what money they are putting into the farm today and where that’s going to take them,” she said.

Farm debt

Finnegan added: “One of the things that we don’t really appreciate about farming is the level of debt that farmers have paid down.

“Farm debt, in aggregate, peaked in 2009 and it’s now 40% lower than it was at that time. While there is a lot of investment ongoing in the sector, farmers are paying down debt at a higher rate than they are taking it on.”

One of the key advantages for the Irish farmers versus his/her counterpart in either New Zealand or Europe, she said, is that they are not hampered by the level of debt primarily related to land.

“I think one of the real opportunities is the unlocking of land in Ireland without having to take that debt with it and that’s maybe strange to hear from a bank; but I think that’s maybe one of the key strengths into the future.”

Brexit

Finnegan also spoke on the issue of Britain leaving the EU, stating: “Brexit poses significant challenges for the majority of Irish SMEs [Small and Medium Enterprises], including farmers.” She urged all SMEs to take account of how a ‘worst case scenario’ Brexit may impact their business.

Speaking about Ipsos MRBI research commissioned by AIB, Finnegan said that it is understandable that less than one in five Irish farmers were actively factoring Brexit into their future business plans given current uncertainty levels.

Farmers are clearly concerned about the effect of Brexit, she noted, with three in four expressing concern for their businesses post-Brexit, in particular regarding market uncertainty, reduced output prices and declined direct payment receipts.

Finnegan encouraged farmers to factor in the potential impacts of Brexit and to consider how they might better prepare their farm enterprises to withstand any medium to long-term consequences of Brexit.

“From a farmer’s perspective, given that they are price takers, all they can do in the face of a significant external threat such as Brexit is to focus on what is within their control,” she said.

Farmers should look within the farm gate and focus on cost effectiveness and improving on-farm efficiencies to mitigate Brexit risks.

“I’d encourage farmers and small businesses to seek professional help as necessary and plan for the worst case scenario. Anything better will result in the business being better positioned,” Finnegan concluded.