Monday 27 January 2020

Low-interest-rate loans the real gem in Budget for hard-pressed farmers

Agriculture Minister Michael Creed. Photo: Steve Humphreys
Agriculture Minister Michael Creed. Photo: Steve Humphreys

The real news for farmers in the leakiest Budget ever was definitely the unveiling of the €150m loan scheme.

Minister Michael Creed, with some justification, described the concept as "ground-breaking".

It will effectively halve the best interest rates available from any bank, and will be a full 75pc cheaper than the massive 12pc rate that 80pc of winter barley growers pay through their merchants on key inputs such as seed, spray and fertiliser.

In plain terms, that could reduce a farmer's monthly interest payments from €1,000 down to just €150 per month.

It is one of the first tangible efforts by the State's Strategic Banking Corporation of Ireland (SBCI) to try to free small businesses from the legacy of the economic collapse nearly 10 years ago.

While the economy in urban areas has noticeably picked up in the last year or two, rural Irish towns and villages are still waiting for the 'ripple effects' of better times.

The boarded-up shops are the most visible evidence of this, but it is the less visible legacy that is really paralysing small business.

A recent Central Bank report highlighted the fact that Irish interest rates are among the highest in Europe - close to three times that being charged similar sized businesses in Austria, for example.

The reason given is that the Irish regulator insists on the banks here charging high rates because we have one of the highest 'historic loss profiles' in Europe.

"The regulator is just doing what it was set up to do, but it can be a bit of a pendulum in that sometimes it swings too much to the conservative side," said SBCI's CEO Nick Ashmore.

The mechanics of the new fund are relatively straightforward. The Government has added €14m to the €11m that was granted from the EU's CAP crisis fund.

By more than matching the EU's contribution, it allows the Government to sidestep any EU State aid rules that might prevent it making the fund open to all farm sectors, regardless of enterprise.

This collateral was used to unlock a further €125m from the SBCI, which is able to access money from the ECB at less than 1pc.

The Department will still be relying on the pillar banks to facilitate the rollout of the loans, but the Minister made a point of calling on all the main banks to move quickly on this to enable the first loans to flow from early January next year.

"We are significantly out of step when it comes to interest rates and I hope the pillar banks take note. This is a reflection of the fact that the cost of credit here is higher than it is across Europe," said Minister Creed.

However, the real beauty of this fund for farmers may not be the historically low rates.

Among the special conditions stitched into the offering is that no collateral is required from the farmer and the money can be secured on an interest-only basis for the first three years.

"This is the first time that this type of package has ever been offered to the SME sector in Ireland," said Mr Ashmore, confirming the novelty of the proposal.

However, farmers will not have a lot of time to avail of this. The funds are only available until September 2017, effectively squeezing the payout of the entire pot into a nine-month period.

In some ways this is a good thing, since the urgency of the rollout will coincide with a period when farm incomes in tillage, dairy and other enterprises are under huge pressure following a perfect storm of low prices, poor yields and mixed weather. Indeed, the Minister was slow to rule out the possibility that this scheme could now become the blueprint for the future.

"We have a model now and it is ground-breaking," Mr Creed said.

Irish Independent

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