Dairy farm finances ready if 2015 turns bad

For every euro that a dairy farmer has borrowed from AIB, there is €3 held in credit funds with AIB, according to the bank’s head of business banking, Ken Burke.
Dairy farm finances ready if 2015 turns bad

He told a recent Joint Committee on Agriculture, Food and the Marine debate on the dairy industry that the most recent figure from the Central Bank for the total outstanding balances to Irish agriculture is €3.4 billion, compared to €5.5bn in 2009.

He said, “The level of farm debt has reduced quite considerably post farm waste management investment.

“I have statistics on working capital, which will be particularly relevant in terms of managing milk price volatility. We are seeing credit balances in farmers’ current accounts up 27% year on year.”

Referring to the ability of dairy farmers to weather what might be coming in 2015, he said, “Over that, utilisation rates have been dropping, in particular during the past 12 months. If a farmer has an overdraft limit of €50,000, 38% was the average overdraft utilisation in the past 12 months. It has dropped back to 33%.”

Bank of Ireland Head of Agriculture Sean Farrell, told the Committee, “Our farmer overdraft utilisation levels remain very low, with 2014 having been a very strong year in this regard.”

Responding to questions from Fianna Fáil agriculture spokesman Éamon Ó Cuív, bank representatives said there are very few forced sales of farms by banks over the last few years.

“In the vast majority of situations, the farmer is willing to engage and to reach a reasonable compromise, and there are very few forced sales of farms,” said Mark Cunningham, director of Bank of Ireland business banking.

“In the case of Bank of Ireland, we have only appointed three receivers to farmland over this period.

“In most instances, we have been able to reach an accommodation whereby any outstanding debt has been resolved to everybody’s satisfaction.

Nigel Walsh, Head of Sectors and Specialist Sales for Ulster Bank, said their engagement with the farming community has generally been very good.

Ken Burke of AIB said their approach has been to maintain the viability of the enterprise and work with individual farmers.

“We do not have any material instance of forced sales or receiverships. There would be fewer than five. They arose only when there was no co-operation.”

He said some of the challenging levels of debt have typically been off-farm debt. “We want to protect the core viability of the farming enterprise and have had to offer intergenerational and long-term debt, taking into account the next generation in the family.”

Questioned on land lease costs, Tadhg Buckley, Senior Agricultural Advisor with AIB, said there has been a significant increase in land lease costs over the past couple of years.

“In Munster, for example, it is estimated that costs increased by 12% in the last year alone.”

He said the rise is driven by increased demand for ground in the dairy sector, changes to the single farm payment, and recent legislative changes which favour a movement towards land leasing over the 11-month lease or conacre option.

“I cannot see land lease costs reducing in the short term.”

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