Dairy debt on the rise but borrowings still far lower than global competitors

Debt levels on Danish dairy farms are estimated at around €17,000/cow, and €10,000/cow in Holland; the figure for Ireland is close to €1,000/cow

Declan O'Brien

February 23 2021 02:30 AM

Debt levels on Irish dairy farms remain among the lowest globally, despite the massive expansion the sector has seen over the last decade.

Figures compiled by the International Farm Comparisons Network (IFCN) and Teagasc show that while debt levels on Danish dairy farms are estimated at around €17,000/cow, and €10,000/cow in Holland, the figure for Ireland is close to €1,000/cow. In New Zealand, the figure is around €6,000/cow.

Debt levels per cow in different countries

Teagasc research has shown that dairy farms have the highest level of debt across all Irish farming systems and the highest rate of debt.

Close to two-thirds of Irish dairy farms have debt, compared to just 37pc on average across all systems. Just one-third of tillage and cattle rearing farms have debt, with a quarter of sheep holdings carrying borrowings.

The actual level of debt is also highest on dairy units. While average borrowings on all dairy farms comes to around €75,000, the level of debt on drystock farms is under €10,000, and below €20,000 on tillage holdings.

Tellingly, Teagasc figures show a significant differential between the average level of debt on all dairy units, and the average level of debt on dairy holdings that have borrowings.

The average debt level for dairy farms carrying borrowings is €110,000. This is €35,000 higher than the average for all dairy holdings.

Debt levels for different types of farm

Percentage of farms that have debt, across different types of farm

However, the high returns from dairying — Teagasc has forecast that average dairy incomes will hold at €69,000 for 2021 — mean that the average debt-to-income ratio on farms with borrowings is just above 1.5.

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Teagasc economist Fiona Thorne said that while the debt-to-income ratios in dairying were volatile across years, this is the same in all farming systems.

“We know from National Farm Survey data that debt levels on Irish dairy farms continues to be the highest on average across our farming systems in Ireland,” she said.

“In addition, debt levels have increased on dairy farms since quota abolition. In 2019, the average debt level on Irish dairy farms was just over €75,000, up nearly 20pc in five years.

“This might sound alarming but the debt level internationally on dairy farms tends to be much higher.

“Data from the IFCN report shows us that debt levels on Irish dairy farms is much lower than international dairy-producing countries.”

The high debt levels in Denmark are associated with inheritance law in the country, which prohibits the handing over of farms from one generation to the next. Instead, all properties must be purchased at commercial rates by the inheritor.

Debt levels in Holland relate to the very high cost of land, and the levels of housing needed to comply with stringent slurry storage requirements.