Management vital to avoid poor prices creating long-term pain
Published 18/05/2016 | 02:30
Farm debt can take many forms such as bank loans, hire purchase, co-op or merchant credit, personal loans and general creditors. Many younger farmers may also have a house mortgage. Generally in my experience farmers are top of the class at meeting their debt commitments and it is only in rare circumstances that I have seen a farmer to default.
However, I am old enough to have been around in the Eighties when farmers in large numbers ran into financial difficulties due to a combination of low beef prices and high interest rates.
Nearly every farmer survived that awful period but only after the problem was taken in hand by the government by making available cheaper foreign currency loans, the farm advisory services and the IFA which brokered many a good deal on behalf of troubled farmers with the banks. If we learned anything from that period it is that the involvement of all the stakeholders proved to be the solution. Thankfully we do not have an interest rate crisis today but we do have a serious grain and milk price problem that has the capacity to inflict serious long term damage if not properly managed.
Dealing with a short to medium term problem
How the total farm debt is managed can have a major bearing on farm cash flow and overall farm profitability - not to mention the mental wellbeing of the farmer and his family. In the current period of depressed commodity prices coupled with a difficult spring, farmers will have to apply a greater diligence to managing their finances in order to preserve cash flow and keep their heads above water.
Good debt management not only can save money but can also bring peace of mind. Avoiding costly and short term credit, if at all possible, is the first step in good debt management.
Many farmers are currently coming under increasing financial pressures and addressing the issue in a realistic structured way is vital - as short term remedies, or worse, burying the head - can be disastrous.
In my experience it takes two years to recover from one bad year and unfortunately dairy farmers are heading into a second year of depressed milk prices with little or no light on the horizon. Addressing and assessing your position now is vital. Get a three year financial appraisal done and then talk to your bank. If ever your advisor, consultant or accountant was to earn his or her keep, it is now. If they cannot deliver the goods seek out one that can. Be assured that this difficult time will pass but your actions now can determine what shape you will be in when you come out the other end.