Farm Ireland
Independent.ie

Thursday 19 October 2017

Don't bury your head in sand over fodder debts

Ease the burden with swift action and a cash-flow plan

Fintan Phelan

Even though the fodder crisis is now, thankfully, behind us, its impact is still being felt on farms. Improved weather and good prices for milk and beef have helped to lift spirits, so now is a good time to address the problems caused by the extreme weather conditions of the last 12 months.

The farmers worst affected by the fodder and weather crisis are those with higher stocking rates and those on heavier soils.

There is also a big difference between the financial situation on less efficient farms and more efficient farms. However, even highly efficient farmers on heavy soils have been badly affected.

On many farms, good output prices will make it possible to work through the cash-flow issues.

However, there are a significant number of farms that are, and will continue to be, under financial pressure as a result of the last year. If you are one of these farmers, rest assured that you are not the only one and, equally, rest assured that there is help available to you to work through these difficulties.

The most important advice that I can give is to seek help at an early stage to address the problem.

All of the banks are encouraging people to come forward to discuss their situation.

You will need to sit down and make a plan to estimate the money that will come in and go out over the next few months – a cash-flow plan. Your Teagasc advisor, accountant or private consultant can help you with this.

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LENDERS

Figures from the banking sector suggest that only 50pc of farmers have bank debt and some have no relationship with banks at all, preferring to deal in cash or with local lenders such as the credit union.

If you do not currently deal with a bank, a cash-flow plan will still help. The knowledge that you can gain by going through this exercise is invaluable in itself.

It will also give you the power to choose between cutting costs, selling animals or seeking some outside finance, rather than being forced to react to cash pressure. If you need to secure finance from a bank, the process can be slow and will take longer than you think so the earlier that you start the better.

Along with a cash-flow plan, you will need your most recent set of tax accounts and any other relevant financial information such as a Teagasc eProfit Monitor when meeting the bank.

They want to establish that the underlying business is profitable so that they are in a position to give funding to cover the loss caused by the extreme weather.

Depending on the individual farm, this weather-specific debt may be funded through a term loan of one to five years.

The advantage of handling it this way is that the business is not burdened in the short term.

It will also free up vital finance to start the process of repairing the damage to fields that will give a good economic return in the medium to long term.

It may also allow a farmer to sell animals in a more planned fashion rather than being forced to sell underfinished animals or to purchase fodder stocks for next winter directly from the fields.

For a real-life example of how a farmer addressed a potential problem on his farm on time and successfully, see the case study (left).

For farmers thinking about approaching banks for finance in the coming months, it is important to remember that the banks have confirmed that, following the cash crisis on farms in 2009, the vast majority of farmers repaid this short-term funding ahead of time.

This has given the banks confidence that the same can happen again on this occasion.

TACKLE

Finally, I would encourage all farmers to seek help to work through the problem that you may be facing.

If you decide to come forward and tackle the issue it will put the power back in you hands.

The sooner you start, the sooner you will be back in control of your business.

Fintan Phelan is head of Teagasc's Farm Management and Rural Development Knowledge Transfer Department

Irish Independent