Farm Finance: Four inflation-busting tips for your farm

As farmers, we are ultra-aware of inflation, especially so in relation to feed, fertiliser and fuel, writes Kieran Coughlan

Many mobile phone operators have 'yellow pack' variations of their offerings which are typically aimed at students but are equally applicable to any other customer.

Inflation is the buzzword presently. As farmers, we are also ultra-aware of it, especially so in relation to feed, fertiliser and fuel. 

Price increases are also seeping their way into the typically less noticeable costs, such as the price of coffee, bread, confectionery, etc. 

Inflation erodes your disposable income, reduces your capacity to invest and gives one an overall uncomfortable feeling of not having a handle on personal finances or business profits.

One advantage of inflation is that higher prices feed higher wages, and debt to income level falls. There is many a story of people buying houses in the 1970s and 1980s, who were able to clear their mortgage in the 1990s ahead of time as their income accelerated whilst their debt stayed still.

Inflation breeds inflation though, and typically central banks try to stamp it out by increasing interest rates. 

The theory goes, that as interest rates increase, borrowers are more careful with their spending, reducing demand, thereby taking the heat out of the economy. 

A lot has moved on since our country lost its capacity to change its own domestic interest rates, having abdicated that function to the European Central Bank.

A huge part of our inflation is imported into Ireland — for example, the increase in fuel prices is entirely imported and stalling the Irish economy by increasing interest rates will have absolutely no impact on the cost of importing fuel into this country.

As farmers, the macro environment response to inflation is outside of our control, and the best we can do is try to manage our own costs. The following are just a couple of strategies that can deliver significant savings:

Interest rates 

The savings from switching lenders and refinancing debt can be significant. One of the biggest loans that consumers, including farmers, will ever have is their mortgage.

Fixed-rate mortgages are available at super-low rates of as little at 2.25% presently, whereas variable-rate mortgages can have rates north of over 4.5%. 

For a mortgage of €200,000, the interest saving from switching could be as much as €4,500 in year one, with monthly savings of over €200 per month over the term of the loan.

For some, it may be possible to switch product choice from their own lender without needing to reapply for a new mortgage.

Switching within your own lender will also save on legal fees you may be exposed to, saving on the costs of removing your old lender's mortgage charge and applying your new lender's charge from the legal title of your property, along with other costs such as engineer's or valuer's fees.

Paying off a fixed term mortgage early does result in a penalty and you should obtain financial advice as to whether switching mortgages is the best fit for you.

Switching electricity suppliers or demanding discounts

Farmers are heavy users of electricity, and significant savings in excess of 20% can be garnered from some electricity suppliers without even needing to switch. 

Contact your electricity supplier, ask for your current unit rate, and ask can they offer a discount on that rate given your loyalty. Before committing, phone around other suppliers and enquire as to their offerings. 

For a typical dairy farm of 100 cows, the savings can amount to €1,500 a year.

Be conscious of the rate increases coming down the tracks to ensure you are comparing like for like between suppliers.

Switch mobile phone provider

Many mobile phone operators have 'yellow pack' variations of their offerings which are typically aimed at students but are equally applicable to any other customer should they go looking for the same. 

These no-frills plans don’t typically offer phone upgrades, and you may not be able to change operator if you are locked into an existing contract.

For instance, a monthly plan ‘yellow pack’ offering from one such mobile phone provider gives unlimited calls, texts and data for €12.99 per month inclusive of VAT. 

Many of us, after accepting incremental add-ons and upgrades, found ourselves on plans costing €50 and €60 per month. The savings can be significant over the year but remember there are no upgrades or replacements.

Consider a fuel card 

As business operators, farmers and their spouses can sign up for a fuel card that can be used at a multitude of fuel stations. 

The advantage is that fuel purchased through the fuel card is typically cheaper than pump prices and is typically paid for by direct debit the following month.

A further advantage is that you will be less likely to spend extra at the till when you no longer need to pull out your credit or debit card. It's also handy to leave the fuel card in the car rather than hunting for your wallet or handbag.

If the fuel price at the petrol station is lower than the fuel card, no problem, just buy as normal, using your debit or credit card. Check out the various fuel card options and the admin fees for same.