Tom Clinton believes there's a time-bomb ticking out there. The personal finances of many farmers are not healthy. In short, they are over-borrowed. At the same time, the banks' own balance sheets are anything but healthy. The former IFA president is of the opinion that it will take very little to bring all of these latent issues to a head sooner rather than later.
In fairness to him, the former IFA president has a track record when it comes to dealing with farm debt. Farmers who had ambitious expansion plans in the 1980s got caught when interest rates spiralled close to 20pc, TB ravaged herds and farm-gate prices plummeted.
Many ended up turning to Clinton's legendary negotiating skills to cope with their banker's increasing demands. As a result, Mr Clinton is reputed to have been centrally involved in negotiating more than 1,000 deals with banks across the country during that period.
Now he fears that a similar situation is around the corner for many farming operations. However, there are differences this time around. "The last time, the difficulties were across the board in dairying, beef, sheep and tillage," he says. "This time I'm hearing about more specific situations. There are a good number of dairy men that invested in property here and abroad. In some cases, those investments have simply evaporated and will never pay back their debt. There are also some big tillage men who were swimming too deep in debt in recent years when harvests went against them. The last group are more diverse. These are the men who had good off-farm jobs and borrowed to invest in both their farms and their lifestyles."
Mr Clinton reckons these examples are barely hanging on by their fingertips at the moment. But he suggests that this could change very quickly. First, he expects more land to come on the market, as bankers get around to tidying up more of their balance sheets. "We've only seen the builders' bits come on the market to date," he said. "That's because the banks have only got around to tackling the builders so far. They haven't got to the ordinary punter like you and me. When that happens, I wouldn't be surprised if it forces a lot more land came on to the market and it dropped average prices to €5,000-6,000 per acre over the coming years."
The second issue that will hit those burdened with debt, according to Mr Clinton, is a hike in interest rates. "A lot of guys are on extraordinarily low rates of 2-4 per cent at the moment. But there's only so long that that will last."
As a result, Mr Clinton feels that now is the time for farmers that have unsustainable levels of debt to take corrective action. "Land is still making reasonable money, so if land has to be sold why wait until interest rates move against everybody?" he asks.
He points to what he believes should be the maximum levels of debt that dairy farmers in particular can cope with. "€2,000-3,000 per cow for a good farmer with a decent Single Farm Payment and no land rent is a good guideline," he said. "Don't underestimate the impact that land rental has on your borrowing capacity. A banker recently told me that borrowing capacity reduces by €500/cow for every €50/cow of land rent that you pay per year."
But Mr Clinton is still adamant that farming is a great place to be right now. "It's not farming that is leaving guys in a precarious situation at the moment," he says. "It was off-farm investments and maybe a little bit too fancy lifestyles for a few years when everything went crazy."
The thing he wants to see now is an acceptance on both sides; the over-borrowed farmer and the bank. "Banks are doing little niggly things like cutting farmers' overdrafts or refusing a slight increase in a term loan to try to make their end look better," he says. "But all this is doing is causing annoyance and actually ignoring the big issue of the overall amount of borrowing relative to their repayment capacity. It's time for corrective action."