Dairy expansion comes with clear financial health warnings
Dairy farmers borrowing for expansion need to be aware of the potential pitfalls of higher interest rates and volatile milk prices
Published 24/06/2015 | 02:30
Conditions were ripe for investment on dairy farms in 2014. The milk price was good, interest rates were low and the milk quota was about to be removed.
Accordingly, net new investment increased by 17pc on dairy farms in 2014 with dairy farmers accounting for almost two-thirds of all the new investment undertaken in the sector.
The benefits to this investment and dairy expansion in general have been well aired at this stage, in terms of employment, export and foreign earnings growth. But is it all a good news story?
A recent study produced by Teagasc showed that farmers would need to invest between €1.5 and €2bn in order to produce 50pc more milk. The question is whether the risk is worth taking for the individual farmer and what tools farmers can use to protect their income and investment?
While dairy farm incomes have been on an upward path in recent years, so too have debt levels.
In 2014 the closing loans value on the average dairy farm was €65,346, an almost doubling of the debt level recorded 10 years earlier in 2004. Running parallel with this, milk price volatility is causing serious fluctuations in income. Average dairy farm income was just over €23,500 in 2009 and had increased to €68,500 just two years later in 2011.
Milk prices are currently running at rates 25pc lower than they were this time last year. Such volatility makes it very difficult for farmers to plan, borrow and invest.