Farm Ireland

Thursday 22 February 2018

Case Study

Vital for farmers to deal with credit problems promptly

Fintan Phelan

Tom is a dairy farmers who milks 80 cows on heavy soils in the south of the country.

Following the wet summer of 2012, Tom realised he would have a potential problem in the spring of 2013, so in November 2012 he went to the bank to seek extra credit.

His finance (stocking loan) of €15,000 was approved by the bank and drawn down in February.

This additional credit was seen as an interim measure that would be paid off during 2013.

However, as a consequence of the poor spring, he incurred even more costs and now needs to readdress the problem.

Although this is not ideal, this is the reality on wet farms and highlights the need to review any plan on an ongoing basis.

Following completion of a cash-flow assessment with a Teagasc advisor, it was established that Tom would have a cash-flow deficit of €18,000 at the end of the year if he cleared all of his merchant debt, repaid the €15,000 loan taken out in February and purchased fodder that would be required.

He would also need a further €12,000 to carry him over until milk cheques started coming in the following spring.

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Following discussions with his advisor, he decided to repair damaged fields that would cost another €9,000. This brought Tom's total shortfall to €39,000.

However, it is not realistic to clear every piece of short-term credit on the farm, as it is normal practice in winter to have some of this.


Tom has applied for a loan for €30,000 on a three-year term to bring the situation back into order and is confident that he will get this loan. However, he plans to repay the loan much sooner than this.

For Tom, the consequences of not addressing his problem on time would be that his fields would not be repaired, leading to poorer grass production next year.

He would not be in a position to purchase standing crops of silage and would be forced into buying it next winter or restricting cows when they would be producing very valuable milk in the autumn.

Irish Independent