Dairy farmers and co-ops to source loans from overseas banks

DAIRY farmers and the Irish co-ops have come up with a joint plan to agree competitive loans with Rabobank, a leading US bank and other overseas lenders.

The Irish Creamery and Milk Suppliers Association (ICMSA) and executives from Kerry Co-op, the West Cork co-ops, Glanbia, Dairygold and Arrabawn agreed upon this collective credit scheme at a meeting in Horse and Jockey, Co Tipperary.

Under the plan, the co-ops will manage the scheme, deducting bank repayments at source from the farmers’ monthly milk cheques. Rabobank runs a similar loan scheme with the Dutch co-ops.

The loans would be secured against the farmer’s capital assets, with assurances and administrative back-up from the co-ops, who have previously managed members’ restructuring loans along similar lines.

Dairy farmers currently have collective loans worth €2.1 billion, the bulk of which are with AIB. The dairy sector’s plans to expand output by 50% by 2020 could require up to €2.8bn in investment capital, at least €1bn of which will be in new loans.

The 18,000 members of the ICMSA’s specialist dairy organisation will be central to those plans.

ICMSA president, Jackie Cahill, said: “As an Irishman, I would rather be doing business with an Irish bank, but the credit just isn’t available here. We also want the best competitive rate for our members.

“We have 18,000 members, who will all need finance for expansion.

“Farmers have about €5bn in borrowings, and €2.1bn of that is in dairy borrowings. That existing loan money could also be transferred. We have a worry that the interest rates could get a surcharge placed on them from the banks here.

“That could very well result in the cost of funds being prohibitively higher in Ireland,” said Mr Cahill.

“That’s our well-founded concern and that’s why it was agreed that representatives of the sector would make contact with a number of foreign banks with a view to making available additional sources of credit that will be opened to Irish farmers at competitive rates.”

In fact, the ICMSA said at its AGM last October that it was in advanced talks with a German commercial bank because farmers were repaying loans at 1.5% to 2% higher rates than elsewhere in Europe.

The ICMSA repeated its concerns to the new Government and to the main banks. Frustrated with the status quo, the group and the co-ops expect their scheme to be up and running by late May or early June.

“This system has worked well with restructuring loans in the past,” said Mr Cahill. “The banks see that their money is safer with the security of the processors. With the co-ops involved, the banks will also be able to do this without an extensive branch network.

“Being in the eurozone should at least mean that we can get credit at the best rate. Colleagues in the European Milk Board tell us that Dutch and Danish dairy farmers can get 35-year interest-only loans at 2%-3%. They have the same in New Zealand, but a bank wouldn’t dream of doing that here.

“People are going to be expanding their facilities here. The greater the variety of loans, the better chance they’ll have of keeping the cost of credit down,” he said.

Following the meeting, the farmers and co-ops have formed a sub-committee to present the loan scheme proposal to commercial banks in Ireland and overseas, as well as to the Government.

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