Overdraft use across all agricultural sectors during 2022 by AIB customers was at its “lowest level in five years” according to the bank, which reported pre-tax profits of €880 million today (Wednesday, March 8).
Donal Whelton, head of agriculture with AIB, said the level of “overdraft utilisation” was a “key indicator of the financial strength of the sector” last year.
Whelton added: “2022 delivered another strong performance in the agri sector for AIB, during a time of many changes that challenged farmers throughout the year.
“Demand for new money continued to be robust, albeit there was an understandable slowdown in quarter one of the year given the uncertainty around the increasing costs and availability of inputs brought on by the Russian-Ukraine conflict”.
According to the bank’s head of agriculture, as 2022 progressed and “output prices responded to the increasing costs of production”, confidence levels among farmers recovered and AIB saw “increased new money demand”.
AIB’s total income increased by 21% to €2,895 million last year, according to the bank’s 2022 annual financial report.
The report highlighted that agriculture accounted for 3% of AIB’s loan book in 2022 and that “loans and advances to customers amounted to €1.7 billion”.
The bank also identified “transition risks” for the agriculture sector in its latest annual report, which included:
- Impact on beef and dairy farming profitability due to increased carbon prices and inability to pass through costs on products to customers;
- Changing customer preferences away from traditional animal-based products reduces demand;
- Increased focus on sustainability credentials in order to continue to serve key export markets and access grants and additional funding;
- Some viability challenges for sub-scale farmers that fail to access additional grants and EU level funding.
According to AIB’s head of agriculture, many of its agri-customers are “uncertain about how policy changes” will impact their farms this year.
Whelton added: “2022 saw the introduction of an emission reduction target of 25% by 2030 for agriculture under our obligations in the Climate Action Plan and many farmers, if not already on their transition journey, are looking to adapt management practices that will assist their farm contributing to this reduction target.
“This is coming on the back of the new Common Agricultural Policy (CAP) programme which will come into effect in 2023 and the different implications for each farmer.”
He said in addition, the review of the Nitrates Action Plan in 2022 and the introduction of new cow banding in the dairy sector “will have an impact for some farmers” and contribute to increased demand for land, both in the land purchase market and also the land rental market.
“One of these changes alone would create a great impact, combined they will majorly affect the Irish agricultural landscape,” Whelton said.