Farm Ireland

Friday 23 February 2018

Hard-up farmers need trusted mediators to tackle perilous financial woes

John Shirley

One could be forgiven for not listening to the Irish news these days. NAMA, Anglo Irish Bank, The Quinn Group, strident teachers: the negativity is relentless.

Even in the good times, businesses come and go. It's the sheer volume of bad tidings now in the news that is scary. Also it's the suddenness of the boom to bust that has hit Ireland. It's no longer millions, now debts come in billions.

At the same time, many parts of the world are already out of the recession. So this is also a time of opportunity for those with the pluck, the good ideas, the energy, and those that still have access to cash. Now there is value to be had. The time to invest is when asset values are low -- not at the peak. Even if interest rates double or treble, they will still be low on a historical basis. Last year, five-year money was costing a base price of 2.8pc. Currently, I believe it is at 2.55pc.

Unfortunately for a lot of farmers, the issue is survival rather than expansion. Livestock is being liquidated to keep the car on the road, children at school and to pay ESB bills etc.

Given the trend in farm incomes over the past couple of years, as verified by Teagasc and the CSO, it's no surprise that a whole new bracket of farmers are unable to meet their financial commitments. Many of these are young farmers experiencing their first hard jolt.

The financial hard cases are appearing on several fronts. There is a large group whose cash flow has been hit by the farming downturn and whose business and turnover was never large. This group is working with the Farm Assist, which last year paid out close to €100m to 9,000 farm families. The average payout was about €210 a week, which is on a par with the Job Seekers' Allowance.

According to banking sources, there is another group which expanded in dairying and tillage. They borrowed to expand in buildings and machinery, even to buy land. With the poor weather and bad milk or grain prices, these farmers are unable to make repayments. However, a major lift in milk and grain prices would help refloat them. While the price lift may happen in milk, the grain outlook is bleak.

Another group with financial problems is those who invested in off-farm domestic and foreign property, using inflated land prices as collateral. Some of these cases are the stuff of nightmares. Ironically, the same consultants that encouraged the initial investments are still around -- only now they are trying to negotiate deals with banks.

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During the last such episode of farm banking problems in the 1980s, individuals from the IFA, such as former president Tom Clinton, acted as dispute mediators. One widely used formula was the three-way splitting of the debt. This meant the farmer disposed of assets to the value of one third, the bank wrote off a third and the farmer was able to handle the final third. This worked because the mediators had the confidence of the farmers and the banks. Unlike a lot of other farm leaders, Tom Clinton and his colleagues were disposed to getting involved with individual farm cases.

The time has come again for the present farm leadership to find more Tom Clintons to carry out 2010-style mediation for farmers in financial trouble. For the client under financial stress, the availability of mediation offers both comfort and advice. The MABS (Money Advice Budgeting Service) centres are also dealing with rising numbers of farm clients.

I came across one case where a bank was willing to make some write off to settle an overdue account. The farmers then got new funds by mortgaging the family home with a building society. When the first bank got a hand on all the new funds, it reneged on the write off. The farmer's mistake was to place funds above the agreed deal into the original account.

In terms of financial threats, how far back do we need to go to learn the lessons from our forefathers? In the 1930's recession, farmers were advised not to sell all of their produce to one customer. Looking around today, you can assume that the co-op milk buyers are solvent from their accounts. Given the poor beef prices paid to farmers over the past nine months, it can be assumed that the beef factories have rebuilt their balance sheets.

Herd owners selling weanlings ex-farm to live shippers weigh and conduct the business through a local mart. The mart, in turn, pays the farmer. For their part, the marts are licensed as auctioneers by the Department of Justice. They are obliged to operate client accounts for holding the cash for buyers and sellers. Who is supervising and regulating these? Does the accounting auditor check the client account before signing the accounts?

These are not normal times. We have seen the result of flawed regulation on the banks. I am sure that the vast majority of marts and others buying the produce of farmers are solvent.

Farmers are not good at assessing accounts and annual reports, even when they do have access to them. We are relying on the annual account auditors to be our watchdogs.

Irish Independent