Farm Ireland

Tuesday 12 December 2017

Let's hope farming can survive this mess as nation's economy comes crashing round our ears

Cattle in the snow near Timahoe, Co Laois, as taken by local photographer Alf Harvey, who is launching a book of his work called Life Through The Lens' at The Castle Arms Hotel, Durrow, Co Laois, this Thursday at 8pm
Cattle in the snow near Timahoe, Co Laois, as taken by local photographer Alf Harvey, who is launching a book of his work called Life Through The Lens' at The Castle Arms Hotel, Durrow, Co Laois, this Thursday at 8pm

John Shirley

Neither a borrower nor a lender be. For loan oft loses both itself and friend. And borrowing dulls the edge of husbandry. This was Shakespeare's take on borrowing -- and the principles remain the same today.

But the great sage and observer of life also wrote:

"There is a tide in the affairs of men,

"Which taken at the flood leads on to fortune;

"Omitted, all the voyage of their life is bound in shallows and miseries."

In farming there is a time and place for borrowing but there is also a time for sitting tight. The trick is to get both the project and the timing right. And always remember that monies borrowed have to be paid back with interest.

With the benefit of hindsight we can each see in our own lives where borrowing and investment worked well. Maybe we regret not having had the courage to risk a bigger loan, for example when those fields next door came up for sale. Of course, there are also the cases where we regret ever going near an investment, especially on borrowed money.

From my viewpoint I see that some people who are good money managers and very cautious about going into debt but others are immediately out with the credit card, buy now and worry later.

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Our problem in Ireland now is that even the more careful and prudent citizen is caught up in the national debt.

The crew in charge of Ireland for the past decade can be likened to an inexperienced driver being put into a brand-new, fast car. He did not appreciate how to handle this vehicle and duly crashed it.

Where did it all go wrong? Again, with the benefit of hindsight I believe that decisions made in 2002, when Charlie McCreevy was Minister for Finance, triggered the eventual economic collapse. The crisis was aided and abetted by an absence of bank regulation.

First in 2002 was the Benchmarking Agreement for the public and civil service which, like the closure of the Irish sugar industry, was based on false information and was a wrong move. The second measure implemented by Mr McCreevy in 2002 was to reverse a budgetary restriction on capital allowances for development projects.

A tightening of the allowances in the 2002 budget, based on the advice of Dr Peter Bacon, was cooling the property market. Developers screamed foul.

The minister reacted by implementing even more generous allowances which triggered the property madness of the next five years. The binge was only halted by the Lehman Brothers bank collapse in the US. Lehman Brothers actually did us a favour in that in the absence of any Irish State regulation of banks, the market intervened and stopped us from descending into an even deeper pit.

To be fair, we all (well nearly all) bought into the Celtic Tiger while it was around.

The hope now is that farming can survive the banking upheaval that threatens our country.

For a start agriculture has escaped fairly okay in the Government four-year austerity plan. Overall borrowing for farm business peaked at €5.4bn in late 2008. Bad product prices probably led to farm retrenchment and borrowing fell to €4.5bn in spring 2010.

It looks as if activity and investment on Irish farms has resumed since the spring as borrowing is back up to €4.8bn by June of this year. Of this growth €100,000 was attributed to buying dearer cattle.

While there is an overall credit squeeze, farming is escaping lighter than others. Demand from other sectors is muted thus leaving more of the limited cash supply for agriculture. Also banks, having been so badly burned by property developers, are now prioritising farmers and small businesses for lending.

A feature of the current scenario is the huge range in interest rates being charged out to farmers. At the lower level, there is the European Investment Bank money being handled by Bank of Ireland, AIB and Ulster Bank. This is available at cost of finance plus 2pc annual interest charge (or maybe even less). This means that some farmers have their money at a rate of 3pc interest.

In contrast, overdraft rates for farmers can be as high as 10pc interest. Banks are losing money and are under enormous pressure to squeeze every last cent out of their business.

A worrying trend on farm bank accounts is the overcharging of interest. With varying balances it is very difficult for the lay person to compute the exact figure for interest. Irish banks are chronically short of equity and deposits. As a result some are now offering to pay as high as 3.5pc deposit interest return.

Worryingly, in spite of the relatively good interest offer, there is a flight of cash from Irish banks which is putting huge pressure on our overall debt.

Listening to all of the economists and looking at the reaction of international lenders to the Government's four-year plan, I fear that a default on our national debt, or if you like to call it, a restructuring, is inevitable and the best solution to our woes.

Irish Independent