Last week, AIB hosted a seminar reviewing the year that was and prospects for the year ahead.
The year past was marred by weather events which impacted significantly on profits in the dairy and beef enterprises.
Yet, despite the difficult trading conditions, credit facilities in the main spiked, neither consecutively with the weather or later, when farmers cleared bills towards the end of the calendar year.
Of course, the difficulties experienced by farmers varied, and some individual farmers did experience financial difficulties, translating into demands for extra credit.
Farmers meanwhile continue to pay down debt, and the level of debt on the average dairy farm with debt amounted to €116,000.
Although credit facilities have increased on dairy farms, the additional credit is small relative to the increase in output and growth of business operations across farms.
Output per farm is up, the average herd size has grown to about 90 cows, and investments in infrastructure and stock have been funded from cash flow over recent years.
Donal Whelton, Agri Advisor, AIB, spoke about the challenges facing farmers over the coming decade.
Brexit remains the single most urgent risk to Irish farmers, followed next by the sustainability agenda.
The sustainability agenda encompasses climate change and the restrictions that might be imposed on farmers as a result of greenhouse gas emission reduction targets set either as part of our national plan or as a result of the next round of CAP reform. It was clear from Mr Whelton’s presentation that the drive to tackle climate change will result in additional investments by farmers, including for instance additional slurry storage, if the closed period is extended, or in low emission, slurry spreading equipment.
However, the overall debt burden of Irish farmers is reducing consistently, from over €5bn in 2009 to a significantly lower amount now of approximately €3.2bn, with debts being cleared at an impressive rate over the intervening years.
Irish farmers compare well against international peers when it comes to the average farm debt.
For instance, the average farm debt of New Zealand dairy farmers stands at upwards of €1.5m (compared to €116,000 for Irish farmers ).
The lower debt profile means Irish farmers are more resilient when it comes to volatility.
Volatility risks affecting Irish farmers include a Mercosur deal which would see beef prices subdued.
There’s also a risk in trends such as “Veganuary”, and negative publicity around beef and dairy vis-a-vis climate change, which may result in changes to consumer behaviour.
On the flip side, an ever increasing world population will result in additional demand for food.
Meanwhile, pig meat producers may expect a jump in profit margins, as African Swine Fever takes a significant toll on Chinese pig production, leading to increased Chinese demand for pig meat from Europe, plus a rise in demand for other protein products such as chicken, and potentially for beef.
Along the way, of the financial products available to farmers, their most common sources of funds include overdrafts, term loans, stocking loans and credit line facilities, as well as hire purchase and leasing facilities.
Many farmers will have a mix of facilities to suit their own cash flow patterns and their individual preferences.
In terms of assessing credit applications, Mr Whelton outlined how the bank will look at the track record of the business, how the business will improve as a result of the investment, and at stress tested of applications in a variety of ways.
Typical stress tests seek to assess whether an applicant will be strong enough to continue making repayments, should events occur such as Brexit, or other business risks (such a disease outbreak or illness of the applicant), or rising interest rates.
Extending the term of the proposed credit can make the annual repayments more manageable, with terms of up to 20 years available for instance for land purchases.
Persons should obtain professional advice relevant to their individual circumstances.