Improved output prices especially in the dairy

Improved output prices especially in the dairy, beef and pig sectors coupled with the availability of grant aid under the TAMS II farm investment scheme have all contributed to a large increase in demand for farm investment finance in the first half of 2017, says AIB Agri Advisor Donal Whelton.

According to CSO data planning permissions for agricultural buildings nationally, increased by 70% to 1,740 in 2016 compared to 2015. Furthermore the changes introduced in 2017 for completion of works under the TAMS II scheme from 3 years to 12 months is another contributory factor in the increased demand for investment finance seen over the last 6 months.

A recent Ipsos MRBI Agri Financial Services Survey commissioned by AIB and completed in April and May this year identified that 51% of farmers plan to invest on their farm in the next 3 years, with 41% of investment planned for farm infrastructure works. Of those planning to invest on their farm almost half (49%) planned to fund these investments via bank finance.

If you are considering undertaking an on-farm investment project, I have outlined below some of the key considerations if applying for Bank Finance?

  1. Come and talk to your bank at an early stage. In most instances an Agri lending application form will have to be completed. Your AIB relationship manager can offer guidance on what supporting information will be required for your application, the appropriate structure for your request, and give indicative repayments on the proposed term of the loan.
  2. It’s important to assess the average profitability of the business over a number of years (the previous 3-5 years) rather than looking at the profitability in any one year. This gives a truer reflection of business performance and helps to avoid making investment decisions on the profitability of your farm in a particularly good year.
  3. It’s also important to understand the difference between farm profit and available cashflow to meet new loan repayments. The available farm profit generated in any one year may have to be allocated to other areas before the free cashflow available to fund new repayments is evident. For example, a farmers living expenses, tax payable and existing farm repayments may all have to be deducted from farm profit before the free cashflow to meet new repayments is evident.