Farm Ireland

Tuesday 24 October 2017

Debt crisis hits dangerous level

Thousands on brink as banks restrict credit and loans go unpaid

Caitriona Murphy

Caitriona Murphy

Farm debt has reached dangerous levels, pushing thousands into severe financial distress.

Access to credit has been cut, with financial institutions tightening lending criteria and closing off overdraft and loan facilities in many instances.

"The banks are getting so desperate for money, their attitude has changed over the past few weeks and farmers are very vulnerable," insisted Tralee-based agricultural consultant Eddie McQuinn.

"There is extra pressure being put on since Christmas and the attitude among creditors in general is more aggressive," he added.

Jim Power, of Friends First, warned that a significant number of family farms were in danger of going to the wall unless product prices recovered dramatically this year.

The latest figures from the Central Bank show that lending to the agriculture and forestry sector totalled €4.93bn in December.

This figure is down slightly from €5.2bn in September 2009. However, critically, it does not include personal loans, mortgages or other credit held by farming families. It also excludes merchant credit and amounts outstanding to suppliers such as contractors, vets and fuel companies.

Farmer representative say overdrafts of more than €100,000, three times the normal level of five years ago, have been run up on some units.

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It is estimated that drystock farmers owe around €1.8bn, dairy farmers close to €1.28bn, forestry and logging €250m and those involved in other agricultural activities €1.6bn.

"The serviceability of loans on Irish farms has decreased considerably since 2006/2007," explained Mr Power.

"Now those loan repayments are a huge, huge burden and farmers are facing a serious financial crisis," he warned.

Mr Power said buoyant returns during 2006-07 had created false expectations among farmers that output prices would remain strong. Farmers now find themselves in the precarious position of being hugely over-borrowed, he explained.

Anecdotal evidence suggests that farmers are trying to 'walk debt' off holdings by selling livestock to generate cash.

This trend has been seen in increased mart sales and the high incidence of under-finished cattle killed by factories this winter.

Tillage farmers are opting to drop expensive conacre and even choosing to leave land fallow in an effort to avoid further losses in the 2010 harvest.

Farmer groups point out that growers are also struggling to clear merchant bills from last year's harvest.

This has led to a serious fall-off in the area sown this spring, with overall acreage expected to fall by around 15pc.

Farm finance expert Seamus Codd, from Wexford Partnership, said the extent of the crisis was evident from application levels for social welfare payments such as Farm Assist and Carer's Allowance.

He pointed out that Farm

Debt crisis is spiralling out of control

Assist claims had rocketed over the past 12 months, with some 9,447 farmers currently receiving the allowance. More than €93m is expected to be paid out through the scheme in 2010.

"It's even worse now than in the 1970s and '80s. There was more hope and confidence then than there is now," Mr McQuinn maintained.

"Farmers are ducking and diving, dodging bullets all the time. They are weaving and dodging from vet to contractor, accountant and merchant."

Teagasc financial expert Tom Kelly warned that one or two good years might not be enough to save the small percentage of farmers who borrowed heavily to invest off-farm.

"Those farmers are in serious difficulty in the long term and they have to be hopeful that whatever they have invested in will recover at some stage," he said.

Irish Independent