Analysis: Banks should remember that very few farmers went wild during the boom

Irish farmers have an interesting relationship with bank debt.

The average debt level of approximately €28,000 per farm is one of the lowest debt levels amongst developed agricultural nations, yet the €150m SBCI loan fund, known among farmers as ‘the cheap money’ was fully subscribed within three weeks of launch in early February this year.

What does this say about Irish farmers?

Bank lending to Irish farmers as calculated by the Central Bank peaked at €5.2bn in 2009.

By September 2016 this had dropped to €3.314bn which shows a tremendous capacity to repay bank debt quickly.

It is estimated that over 45pc of farmers have no debt at all, yet the average family farm income is only €26,000 per annum according to the Teagasc national farm survey.

All these signals seem to contradict one another when trying to explain the capacity of an Irish farmer to borrow and repay debt.

In this country we have been reared to believe bank debt is bad. Shakespeare’s line from Hamlet about “neither a borrower nor a lender be” has pierced eardrums in most households.

Most successful businesses are built by using bank debt yet many farmers express a desire for being debt free.

The banks and the Government recognise the potential to generate additional profit and taxation revenue from the agricultural industry.

It is said that former Taoiseach Charles Haughey used to enquire in meetings with the Irish Farmers’ Association if the farmers were “pouring concrete” as a measure of health and mutually beneficial activity in the agricultural industry.

There is no doubt when farmers are doing well, confidence is up, they borrow money and spend, and all of Ireland benefits.

The question is can farmers borrow more money for the good of themselves and the nation?

The answer to this question is that there are many factors affecting the capacity of a farmer to borrow and repay debt from the farm business. The following are the factors to consider:

Enterprise type

Dairying is by far the most profitable of the traditional enterprises, therefore it comes as no surprise that the average debt of dairy farmers is €62,000 per farm in a recent Teagasc/BoI study.

In fact, the average for the dairy farms who actually have debt is €92,000 per farm.

Increased profitability means more repayment capacity resulting in more borrowing capacity.


The larger the farm business, the greater the potential for higher profits, and by deduction higher borrowing capacity.

Whether you have 100acres or 500acres, personal drawings will not differ much, therefore the additional acres produce profit which can be used for debt servicing.

Size is important when it comes to borrowing money.

Off-Farm Income

This is a huge factor on Irish farms. We often get caught up on the costs of production on farms when the level of personal drawings and off-farm income have a much greater effect on the borrowing capacity or the amount of surplus cash for spending on an Irish farm.

Risk appetite

Some farmers are scared of bank debt, while with others, the bank repayments drive them out of bed each day to work a 70-hour week.

Attitude to risk is a personal attribute. If you are not able to handle times when things go wrong and prices are poor, then bank debt is not for you.


Surprisingly, farmer studies have shown that having a designated successor for a farm business motivates farmers to borrow money and continue the development of their farm.

I often wonder, have the child successors the same vision? Successors are important in borrowing capacity.

Bank competition

AIB, BOI and Ulster are the only active banks lending to Irish farmers today.

We have reverted to 1990s-style banking whereby the banks are ultra conservative and overcautious in lending to Irish farmers.

This is understandable in light of the irrational lending practices of the boom years but common sense must prevail with a loosening of the purse strings.

Farmers did not go wild in the boom. A teenager with no assets can get finance to buy a car online without even talking to a human being from a bank just because he or she is clever enough to know the boxes to tick on the online application form.

Yet a beef farmer with a farm worth €1m will go through the hoops for a simple stocking loan.

The mood of banks is a vital cog in the borrowing potential of Irish farms.

It is accepted that the three Cs of banking apply to all loan applications in Irish agriculture today.

Capacity: The repayment capacity of the farm business

Collateral: The security offered for the loan

Character: The person themselves, their track record in banking and in life in general.

The three Cs are important, but they should all be given proportionate credence in each agri-loan application.

Let’s face it, farmers are a safe bet when it comes to lending. Bankers should recognise this fact.

In summary there are two types of debt on Irish farms today: Good Debt (easy to repay) and Bad Debt (difficult to repay).

Whether your farm business has bank debts in the millions of euro, or the average €28,000 per farm, it really does not matter, once you have the profits to meet your monthly repayments.