Debts add to income pressures
Latest figures show that indebtedness has gone from 65 to 126% of national farm income. From 1995 to 2001, Irish farmers' debts increased from €1.7 to €3 billion, a worrying liability farms as product prices now come under pressure.
Teagasc Specialist Advisor, Tom O'Dwyer has calculated that on a farm returning a net profit of €32,000, the borrowing capacity over seven years is €43,000, to fund a limited amount of farm development.
In calculating the ability of the farm to borrow, he said income should be averaged over some years, and changing annual demands for living expenses and the likely pattern of farm income should be taken into account.
He recommended that indebtedness should not exceed 180 per acre for drystock farms, but shouldn't go over 100 on some drystock farms. Specialised dairy farms have potential for higher levels of investment, and maximum indebtedness could range from 600 to 960 per acre.
Debt increases the risk of financial distress, said Mr O'Dwyer. He favoured the use of equity for farm investment. But where farm equity is available, the nett return from deposits must be compared to the nett cost of borrowing after tax allowances, before an investment decision is made.
