Have you built a resilient business to overcome challenges?

By Ailish Byrne, Head of Agri, Ulster Bank

Farming is a challenging business at the best of times, and the increased volatility evident in the sector over the last few years – either due to weather, price or unexpected individual on-farm challenges – is a reality that the sector must learn to manage.

The best way to overcome these challenges is to build a resilient business. The Irish farm sector is strong when debt levels, output levels and input costs are analysed, but everyone must look inside their own farm gate to see how their own farm business measures up.

Debt

The debt levels on Irish farms have nearly halved in the last decade to €3.5 billion. Only one third of Irish farmers have farm business-related debt and their debt level on average is €30,000.

However, the number of farms with debt varies by the type of enterprise.

Dairy farmers are the most active investors with 60% of dairy farmers having debt, averaging at €100,000 per farm. This trend will most likely continue.

There are a number of farmers who have invested heavily in their farms over the last few years, but our most indebted Irish farmers still compare well to their international counterparts.

Debt to asset levels on Irish farms are quite low by European standards. The low levels of debt on Irish farms compared to our international competitors can help mitigate the worst impacts of price volatility and help to position farmers to invest and expand to exploit the opportunities that arise.

Output

The value of agricultural output was stagnant from 1990 up to 2010, but has experienced a resurgence over recent years. The sector has been boosted, in particular, by the abolition of milk quotas in 2015 which has led to the expansion in dairy output.

This increase in output has predominately been achieved with the 1.4 million dairy cows in Ireland today, who are producing 62% more milk than the same number of cows were in 1988.

Costs

The competitive position for Ireland within the EU, for the milk, beef, cereals and sheep sector, is positive when cash costs are measured as a percentage of total output.

The competitive advantage of Ireland’s livestock sectors lie in the ability to utilise grazed grass as a major feed source.

Irish farmers will need to continue to build on that advantage of growing and utilising more grass per hectare, converting that grass as efficiently as possible into saleable product with a low capital cost and labour-efficient systems of production.

Challenges

While the sector has many strong attributes, in terms of debt levels, increased output and low production costs, there are some challenges facing the sector.

The sector will continue to face challenges such as Brexit, possible reductions in the CAP budget, expanding output while, at the same time, playing its role in delivering national and EU environmental targets.

The main challenge facing the sector is the low level of profitability in some farming activities. In 2017, average family farm income across all farm enterprises was €31,411.

On dairy farms, the average income was almost three times this figures at €88,069 while on cattle farms, income was half the national average.

Also, the degree to which incomes of Irish farmers are dependent on direct payments is a challenge, as there is low market income on farms outside the dairy and intensive pig and poultry sectors.

Ulster Bank understands the opportunities and challenges facing the sector and it takes a long-term view of the agricultural sector to support farmers in building resilient businesses.