No sign of post-quota dairy debt ballooning – yet
Recent farmer investment in the dairy sector has been financed from cash flow without the need to increase borrowings, according to Bank of Ireland’s Head of Agriculture Business Banking.
Sean Farrell said the bank does not split out its lending approvals by individual sector but that about 80% of its 2015 Agriculture Business Banking front book lending was dairy or beef related.
“A greater proportion of lending to the beef sector is short term stocking finance, compared to the dairy sector where more loans tend to be longer term and development rather than stocking focused.
“We believe that much of the recent investment in the dairy sector, which has delivered a 13% increase in output, has been financed from cash flow without recourse to increased borrowings.
Farrell said the bank’s stock of lending to farmers overall has grown over the last year but that this is as a result of its growing market share.
“We know from analysis of the Central Bank statistics that the stock of lending held by farmers with all banks has reduced.”
Bank of Ireland approved funding for about 500 acres of agricultural land each week in 2015, which was a significant increase on 2014 volumes. Overall credit approvals in the agricultural sector by the bank last year were up 7% on 2014 figures, at €665m.
“We anticipate that dairy farmers who have expanded as quotas were abolished may require cash flow support during 2016. Bank of Ireland takes a long-term view of the sector and we want to support customers through cash flow troughs as long as we are comfortable with their overall viability,” Farrell said.
Irish farm debt half European average
Meanwhile, Teagasc Head of Dairy Knowledge Transfer Tom O’Dwyer confirmed that he, too, is not aware of any noticeable escalation in dairy debt since the abolition of milk quotas last April.
“In the global context, Irish farmers on average are lowly borrowed and, historically speaking, the level of debt on dairy farms has been low,” O’Dwyer said.
“If you compared Irish dairy farms to a New Zealand, Dutch or Danish one, then our levels of debt per hectare, cow or farm are low or modest. But within that average there are some farmers that are highly borrowed.”
A 2015 Teagasc/Bank of Ireland report concluded that the average debt on Irish farms was half the European average.
Fiona Thorne, economist with Teagasc and one of the authors of the report, then said, “Irish farms in general have a sound financial structure with debt to asset levels quite low by international standards.
“The average debt level on Irish farms is €24,000, which is about half of the European average. Larger dairy farms managed by farmers with higher family farm income and an off-farm income earned by the spouse are the most likely to invest”.
The study also concluded that investment in the order of €1.5 billion would be required if milk output is to increase by 50% over the next 5 years, as set out in the Food Harvest 20-20 report.
It is understood the bulk of this investment will be undertaken by existing dairy farms and, the report claimed, it is imperative that such farmers engage in rigorous financial planning in order to protect themselves in times of low milk prices.