Low debt levels leave Irish farmers well placed for global marketplace

Debt levels on Irish farms remain quite low by international standards, leaving farmers well-placed to invest as the industry gears up for the abolition of milk quotas in April and a more globalised marketplace.

This was the central finding of a report conducted jointly by Bank of Ireland and Teagasc on the financial status of Irish farms and the sector's future investment requirements.

It found the average level of debt on all farms in 2013 was €24,000, with dairy farms recording the highest level of debt at an average of €62,000, and an average of €94,000 for the sub sample of dairy farms that have debt.

The majority of farms loans in recent years were used for buildings, for land purchase and working capital.

The report suggests the farming sector has remained somewhat insulated from the rampant level of borrowing in other sectors of the economy. Despite the increase in liabilities in recent years, “the historically low level of debt relative to assets and equity reaffirms the farm sector’s strong financial position”.

The report estimated a further €1.47 billion would need to be invested on dairy farms in the 2014-2020 period to achieve the Food Harvest 50 per cent expansion target.

At a milk price of 32 cent per litre, the current population of dairy farms could profitably increase milk production by 43 per cent over the Food Harvest baseline of 2007-2009, with the expansion requiring an investment of €1.24 billion

About €400 million of this is for the acquisition of cows which may be funded out of internal resources rather than bank credit, it notes.

However, a significant investment and credit will be required if the farming sector as a whole is to achieve the Food Harvest targets. The report suggests it would be prudent that all expansion plans are “adequately stress tested”.