Brexit poses a serious threat to Irish agriculture, says Bank of Ireland head of agriculture Eoin Lowry, but he doesn’t foresee job losses or any fall in output
“The agri-food sector has survived Covid pretty well,” says Eoin Lowry, head of agriculture at Bank of Ireland.
“Covid superseded Bexit for the past six months and rightly, the focus had been on that – it’s where the greatest challenges were, but the fact food and agriculture was deemed essential shows the importance of the sector.
“From a banking point of view we didn’t see any negative impact, as farming does not have an ‘off switch’ and everything got processed.
"From a working capital point of view, we saw no negative impact in the sector, and there was no real demand for increased working capital.
"The option of payment breaks was there across the sectors, and we saw very few farmers look for payment breaks over the past six months.”
However, the threat of a hard Brexit, Lowry says, has the potential to turn present a big “shock” to the sector. Despite the possibility of a hard Brexit slapping significant tariffs on our agri-food exports, he’s confident the sector is resilient enough to withstand the negative winds.
“The tariffs that would come into play should there be a no deal means that 85pc of food from the EU, including Ireland, going into the UK will be hit with a tariff of more than 5pc,” he says.
“Beef from Europe going into the UK is going to roughly double in price and that makes Irish beef uncompetitive in the UK.
"The UK can look at producing more themselves, although they are not self-sufficient in beef, or they can import cheaper beef to make up that shortfall. And while all imports from third countries will be subject to those tariffs, it can come from countries whose cost base is much lower than Ireland’s.
“That raises the question for the Irish beef sector of ‘what do we do?’. We can keep selling, but to where? Selling more into the EU could have a negative impact on that market if we flood it.
"So the outlook for beef is very challenging and it’s a sector that has been under pressure for the last 18 months already.”
While a hard Brexit is a worst-case scenario, according to Lowry the bank is taking a long-term view of the beef sector.
“We don’t want to become just a dairy bank. We are one of the largest banks backing the beef sector. When we look at the beef sector and lending in it, only one third of beef farmers have debt, and it’s quite low, about €30,000.
“Further, a significant portion of incomes on beef farms is not made up from the operation, but from off-farm income and EU payments.
"So when we’re looking at a case of a beef farmer we take into account all income streams, and while the beef enterprise may not be profit-making, the overall household or farm income levels may allow for payment capacity.”
In fact, the agri-food sector, he says, is still the single largest sector in Bank of Ireland.
“Since the last financial crisis, the agri-food sector has been the most resilient sector in the bank and has been a big driver of growth.”
While the country has been talking about Brexit for the past four years, the agri-food sector, Lowry says, has done a lot to prepare itself for a possible hard Brexit.
“The industry has done a lot and has been working hard, from diversifying markets and product types,” he says.
“We’ve moved from a high concentration of cheddar to mozzarella in the dairy sector, but a lot is outside the control of the industry.
"We can only control what we can control, but I do think the sector and agencies are very aware and are working hard to ensure we come through a hard Brexit, if it happens, as advantageously as we can.
“All we can hope for is that common sense will prevail, but we do need to be aware of the possible outcome.
"If there is a no-deal situation, there is no doubt that there will be a shock to the agri-food sector, and I think the biggest sector that will be impacted is beef. But I do think it is resilient due to the low levels of debt and can survive that shock.
“We don’t see any job losses within farming and we’re not predicting any fall in output from farms in the next 24 months.
"We can see the dairy expansion continuing – cows are on the ground so milk will flow, and on beef farms the cattle are there and there are other income streams in many of these farms, so they will continue to rear animals.
“The challenge will be around the price of that beef.”
Dairying, Eoin Lowry says, has been the biggest driver of growth in agri-lending with Bank of Ireland, writes Margaret Donnelly.
“We’ve seen a 50pc growth in milk production over the past 12 years and dairying remains the most profitable enterprise on farms by far. And from a succession point of view, we continue to see high levels of interest in dairy expansion.
“On average, over the past five years we’ve seen growth as the majority of farmers expanded a little, but now we’re seeing fewer farmers expanding but those who are, are doing so on a larger scale.
“We’re seeing fewer coming in to expand but larger expansion plans, putting in a second or third platform as well as younger new entrants.
“We’re seeing more requests for increased herd sizes and milking platforms – green-field sites we’re dealing with are about 150-200 cow operations and a small number of requests for lending towards 250-plus cow platforms, with the geographical spread very much in Leinster, but we’re seeing growth across all regions.”
According to Lowry, even though the average milk price over the past number of years has been around 30c/L, and the bank is lending based on this, it does stress some loans to 28c/L or lower to mitigate against the risk of increased debt.
“But, overall we are quite comfortable and confident with the dairy sector,” he says.
“It is resilient and it has proven even through Covid that milk prices have sustained.”
The level of debt outstanding on Irish farms across all banks stood at c€3bn at the end of last year — down €300m on the previous year.
“Farmers have been de-leveraging over the last number of years, so the sector is becoming less reliant on borrowings,” says Lowry.
“That borrowing too has moved away from the beef sector and into the dairy sector, making the beef sector more resilient.”
Two-thirds of dairy farms, he says, have debt in the region of €120,000 per farm, but compared to our international competitors this figure is low.
“Dairying here has good cash-flow and good profitability and we have relatively low borrowings compared to other countries. We still only have around one-tenth of the debt of others such as New Zealand or the Netherlands.”