Providing loan flexibility for dairy farmers through MilkFlex

The latest chapter in MilkFlex – MilkFlex 2 – has received over 900 applications so far and is a follow on from MilkFlex 1 which ended in April 2018.

MilkFlex was established in 2016 to provide dairy farmers in the Republic of Ireland with an innovative loan arrangement which insulates the borrowings from price volatility, seasonality and disease in the herd.

With MilkFlex 2 now up and running it has been confirmed to AgriLand that over 2,000 applications have been received under the scheme since its inception three years ago.

Over €100 million has been lent to dairy farmers during that time and there is currently a large volume of applications being processed. The necessary finance is being provided by the Irish Strategic Investment Fund (ISIF), Rabobank and Finance Ireland.

Conor Boyle, general manager of Finance Ireland Agri, said MilkFlex 2 would continue accepting applications because of the open-ended nature of the funding.

He also pointed to the fact that farmers can borrow for a term of eight to 10 years at a variable interest rate of 3.75%. The borrower, he continued, also pays a set-up fee at an interest rate of 1.25% meaning the total APR is 4.18%.

“You must be a dairy farmer of a participating co-op – money can be borrowed for all purposes related to dairy farming with the exception of land purchase.”

Boyle continued: “The minimum amount that can be borrowed is €25,000 while the maximum is €300,000 and MilkFlex is regulated under the SME Regulations and the Consumer Protection Code.

“The farmer must be supplying milk to a participating co-op and at the moment there are 17 co-ops participating in the scheme.”

‘Working Together’

A number of the main co-ops involved in the scheme include Glanbia, Lakeland Dairies and Aurivo as well as 14 others.

Boyle said that once the application passes the initial screening the farm is subject to a visit by Finance Ireland.

“Every applicant who passes the initial screening will be subject to a farm visit and we have carried out nearly 1,800 farm visits across the country at this stage,” he added.

“We also carry out a Credit Bureau/Central Credit Register check – many people are not aware that there is a record of their credit history.”

Meanwhile, a portion of the scheme’s funding has also been set aside for new entrants to dairy farming. A new entrant must be supplying the co-op for at least 12 months and have a five-year business plan in place.

‘A Three-Way Agreement’

The MilkFlex loan scheme is unique in that it doesn’t require asset-based security.

“Leading up to €300,000 with no asset security ‘is quite a leap’,” adds Boyle, before pointing out that the participating co-op will collect the loan repayment on the lender’s behalf.

Against that and with the consent of the farmer, co-op and ourselves – a three-way agreement – the co-op deducts from the farmers monthly milk cheque the MilkFlex loan repayment.

He added: “That is called the priority deduction from the milk cheque. In addition, a MilkFlex Milk Supply Agreement (MSA) must be signed by the participating co-op and farmer. This MSA will run for the duration of the loan and when the loan is repaid the farmer will subsequently revert back to his original MSA arrangement with the co-op.”

MilkFlex’s Emergence

Boyle says the scheme emerged because of Glanbia’s effort – over the years – to look at different ways of managing the cashflows and volatility of milk price in dairy farming.

Finance Ireland is 30% owned by the Ireland Strategic Investment Fund and MilkFlex 2 loans are on the balance sheet of Finance Ireland.

When we launched MilkFlex in 2016 the milk price was at 21c/L – that was a period of serious volatility and so the need for a loan scheme like this came to the fore.

Boyle continued: “There was a need I suppose to address the issues that can be in milk prices. MilkFlex 1 was just exclusively for Glanbia farmers and we received over 1,100 applications to the closure date of MilkFlex 1.

“There was such a demand then for a roll-out of MilkFlex across the country that MilkFlex 2 was born towards the fourth quarter of last year – over that period of time more co-ops signed up.”

‘Volatility Buffers’

MilkFlex is designed around volatility and the Milk Price and Seasonality loan repayment triggers are automatically applied to every borrower.

Finance Ireland published the MilkFlex reference price on its website and Boyle says there are three key Milkflex reference prices – 28c/L, 26c/L and 34c/L.

When milk price goes to each of those three key prices and stays at that level for three months all MilkFlex recipients will see their loan repayments impacted for the following six months.

He continued: “If the price falls to 26c/L and stays at that level for three consecutive months the repayments for all borrowers are suspended for six months. If milk price goes to 28cpl repayments are halved and stays at that level for the next six months, and at 34c/L repayments are accelerated.

“In December, January, February and March there are no repayments on loans and farmers are guaranteed that during those four winter months.”