A lot of caution is currently “being exercised” by financial institutions when it comes to lending to farmers because of the “massive uncertainty” surrounding the nitrates derogation, according to a leading economist.
Tadhg Buckley, chief economist and director of policy with the Irish Farmers’ Association (IFA), told Agriland that there is now both a “distinct lack of confidence” among dairy farmers when it comes to investing and “a lot of caution” from banks in relation to lending.
Buckley said unless confidence can be restored for both sides of the equation then he believes investment levels are going to be impacted.
“Due to the massive uncertainty surrounding the nitrates derogation and also how the reduction to 220kg of organic nitrogen (N)/ha was handled over the last 18 months farmers have no idea what direction they are going in and whether any investment they make will simply be a stranded asset,” the IFA chief economist said.
Nitrates derogation
Some farmers have told Agriland that they believe banks are more strenuously “stress testing” loan requests from dairy farmers against the backdrop of the changes to the nitrates derogation.
It is understood that there are ongoing internal conversations within financial institutions currently involving regulators and credit risk departments about why they are stress testing to 220 and not 170 kgN/ha.
According to Donal Whelton, head of agri with AIB, the lack of “clarity” around the future of the nitrates derogation is now a key issue for the wider agri sector.
“It is very difficult for farmers to plan long term when they don’t know what parameters or what regulations they will have to farm to post 2026.
“It is no different for us and no different for the wider industry – we would all like clarity brought to this sooner rather than later to allow farmers to make long term investment plans that they can be reasonably confident in making,” Whelton said.
He said that AIB began stress testing at 220kgN/ha this time last year – 12 months in advance of the reduction in the derogation limit to 220kgN/ha from January 1, 2024.
Whelton added: “We were having those conversations with our customers and we were stress testing guys over 220 over the last 12 months back to the 220 and what the impact of that would be and factored that into our repayment capacity analysis.
“That is still the lie of the land today we’re not stress testing back to 170 currently. All our applications are based on the derogation that we have of 220 – now admittedly we’re watching it very closely and it’s going to be kept under review”.
According to Whelton it is important to also bear in mind that over the last five years farmers have been “paying debt back a lot quicker than they are taking on new debt”.
“The balance sheet on the level of debt out there is much, much lower,” he added.
Meanwhile according to Bank of Ireland’s head of agri, Eoin Lowry, the bank also keeps its agri sector lending “under continuous review”.
Lowry said this ensures “alignment with all policy and regulatory developments” and that the bank remains “confident about the future of agriculture in Ireland”.