Business Farming

Saturday 23 August 2014

Only third of farmers make enough to live on

Published 18/07/2013 | 05:00

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There was yet another example of a lucky farmer buying back land that he sold during the peak of the boom hitting the headlines during the week.

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Even NAMA weren't able to get a 93pc haircut on the assets they bought, but that's exactly what that Limerick farmer achieved when he bought the €136,000/ac land back at just over €10,000/ac.

But there are other farmers hovering up land, without the assistance of winning Lotto tickets or the Celtic tiger equivalent.

I heard of two separate cases last week of farmers in both the veg and dairy sectors buying up more than 200ac each in the southeast of the country in the last few years. It proves that the best operators are able to make serious money at what they do.

It sounds counter intuitive given that survey after survey from the State agri-advisory body, Teagasc, highlights that just over a third of the country's most productive farms are actually viable.

The annual national farm survey looks at the viability of almost 80,000 farms that account for 93pc of the country's output.

The 2012 report concluded that only 36pc were able to return an agricultural wage for the family members involved and a 5pc return on the assets employed, excluding land. It's pretty dismal by any standards.

But the averages and constant lobbying by farm groups hide the fact that the premier league of farming has a lot of highly profitable operators.

There is probably no greater proof of this than the tripling in the number of farm incorporations over the last number of years.

"It makes a lot of sense for farmers looking at the difference in tax liability between a personal tax rate of 52pc compared to 12.5pc corporation tax," explains IFAC farm tax specialist, Declan McEvoy.

He estimates that the number of farming companies out there has ballooned from less than 500 a few years ago to more than 2,000 today.

"There's still absolutely massive interest in this issue, and I wouldn't be surprised if we see the number of dairy and arable farming companies registered here double over the next seven years," he says.

However, agri-businesses may not be wildly enthusiastic with the prospect of their biggest and most valuable clients incorporating.

Limited companies bring limited liabilities, which may not suit some suppliers.

Traditionally, farmers just don't go bust.

The combination of low debt to asset ratios and ongoing subsidies means that most farm businesses continue to pay their bills.

But farm supplies companies should also probably take some solace from a recent report by Irish credit risk analyst, Vision-net.

Their survey of 394 companies involved in farming found that 25pc of those surveyed were at a high risk of failure.

The equivalent figure in pubs or retail is 49pc and 36pc respectively.

The wider agri-food sector also looks fairly healthy when compared to other sectors.

Vision-net surveyed 2,190 companies in the sector, and found that 29pc were at high risk of failure, with 22pc at medium risk. A further 49pc were rated low risk.

The further down the food chain the companies are, the higher the chances are that they will go bust, according to the survey.

While 56pc of farming companies were classified as low risk, 51pc of meat, bread and cheese producers were in the same bracket, and just 43pc of food sellers and wholesalers were low risk.

Vision-net concluded that farming companies were the most protected against insolvency, with just eight cases of liquidation in the last two and a half years.

In the same period, 127 food sellers have gone to the wall, along with 22 food producers.

The report also points to good growth prospects in the sector. In 2009, 95 farming start-ups were recorded. By the end of 2012, that figure had climbed to 284.

In contrast the number of start ups of food sellers remained the same over the three year period.

Irish Independent

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