‘Banks will use benchmarked figures to assess farmers’ lending risk’

Benchmarked performance is now the key determinant when it comes to farmers securing finance, according to Bank of Ireland’s Head of Agriculture John Fitzgerald.

Where dairy is concerned, he said that the bank works on the basis of a milk price of 30c/L being the norm over a five-year period.

“And in fact, the figures for the past 10 years would show that 32c/L has been the average return paid to Irish dairy farmers during that period.

“But above and beyond this we seek to assess a producer’s ability to secure additional price bonuses and to produce milk as efficiently as possible.”

There are industry standards available, where both farmgate returns and production costs are concerned. And we will bench mark farmers seeking additional finance against these indices.

Fitzgerald added that specifically where milk is concerned, there seems to be growing confidence within the sector that markets have turned the corner.

“On the back of this farmers are showing an increased willingness to  re-engage with Bank of Ireland,” he said.

Fitzgerald confirmed that significant numbers of milk producers are now seeking retrospective financing for capital investment projects undertaken over the last couple of years and financed, to date, from cash flow.

“Many of these projects were undertaken at a time when cash flow balances within dairy were extremely positive,” he said.

The average level of farm debt within the milk industry is €64,000. In relative terms this is not a significant amount of money.

“Over the years, dairy has shown itself to be a very resilient sector.

“As a consequence, we are happy to look at retrospective funding for projects, provided the current performance levels being achieved within the business stack up.

We will look at past accounts to assess how a business has performed historically. But when it comes to looking ahead, gauging future performance is the critical factor.

Fitzgerald said that other sectors, including beef and tillage, had not experienced the cash flow boost that has characterised dairy over recent years.

“But we continue to actively lend money to farmers, across the widest range of enterprises. Cereal growers are under significant pressure at the present time and beef prospects remains challenging.

“But each farm business is unique and this is reflected in our lending policies. If we believe that a farmer has a viable future, then we will respond accordingly.

“Where interest rates are concerned, we do not implement a one size fits all policy. We operate within an open market and we have to remain competitive,” he said.