Low cost farm loans on the way from EU
Brussels sources say Department's low interest finance proposal could be approved by June
Published 23/02/2016 | 02:30
A scheme to give farmers access to low cost loans is not expected before June, according to sources in the European Commission.
The initiative has taken nearly two years to bear fruit, despite concerns about farmers' exposure to the highest bank interest rates in the EU.
Documents secured through Freedom of Information requests reveal that the Department of Agriculture's top brass met with the heads of the European Investment Bank (EIB) in October 2014 to secure funds at rates as low as 0.6pc.
Data from the European Central Bank shows that the average rate charged on loans to small and medium enterprises (SMEs) is 6.56pc in Ireland.
This is almost three times more than the 2.28pc on offer to French SMEs, and double the rates in Germany, Italy and Spain.
The amount of new loans being approved for Irish farmers has increased by nearly 20pc over the last two years to €643m last year, bringing the total borrowed by Irish farmers to €3.3bn.
Most of the new borrowing is being generated by dairy farmers expanding following the scrapping of quotas.
Internal department memos seen by the Farming Independent show that Glanbia presented details in 2014 on a loan proposal for farmers that linked repayments to milk price.
However, the co-op, which had proposed to act as a collection agent for the loan repayments from milk cheques, has refused to comment on what, if any, progress has been made.
"Glanbia is constantly exploring options for tools to help farmers cope with income volatility," said a spokesman for the processor.
The company would not make any further comment "until we have something concrete to say".
The Glanbia proposal included a charge of €150 for arranging the loan. There was also a provision that if milk price fell below a certain threshold, loan repayments would be suspended completely for the six months.
The hope was that the Glanbia proposal would be a pilot scheme that, if successful, would see low interest rates and flexible term loans linked to commodity prices being offered by other agri-businesses.
High interest rates is a particular concern for the dairy sector, which is preparing for one of the worst years ever as milk prices remain seriously depressed globally.
Under the department proposals to the EIB, the Ireland Strategic Investment Fund (ISIF) has been lined up to provide 30pc of the capital required, with the balance to be provided by the EIB.
"The EIB expressed interest and enthusiasm about the possibility of funding loans in the Irish agri-food sector, particularly for the dairy sector," stated an internal Department memo after a meeting with EIB vice-president, Jonathan Taylor in late October 2014.
"EIB were told that a proposal should be forthcoming from the ISIF within a few weeks," it added.
However, in order to comply with European competition rules, the Irish proposal for the funding had to be channelled through a modified Rural Development Plan that was submitted to the EU for approval just before Christmas.
Despite indications from the EU Agriculture Commissioner, Phil Hogan, that he would fast-track the application, it now looks likely that it will be June before any changes are approved.
With the documents indicating the move to offer lower cost credit has been long running, the IFA said the Government must be more pro-active in securing EIB funding for the farming sector.
"[Funds] must be made available to farmers more flexibly through more than the main banks, at lower costs, and for a greater variety of purposes," said the IFA dairy chairman, Sean O'Leary.
Glanbia's proposal was submitted well over a year ago in the hopes of being the pilot for the wider agri-loan scheme.
At a time when milk prices were more buoyant, it had based its proposal on a typical supplier expanding from 70 to 100 cows.
It was based on an average milk price during the period of the loan of 31.4c/l when VAT and constituents were included and sales per litre of 36c.
With production costs pegged at 22c/l the co-op concluded the average farmer could afford to borrow €4,000 per additional cow, based on an average loan of €125,000 at 2.5pc interest over 12 years.
The proposal it had included "trigger points" for changes in the rate of repayments.
If the price fell below 26c/l for three consecutive months, loan repayments were suspended for six months.
However, this would cause the extension of the loan term.