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At farm level
At farm level, the main funding requirements are
working capital and capital expenditure (land, plant and
machinery, farm expansion etc.) with an expectation
that the funding will be split 50/50 between these two
broad categories.
Banks continue to provide the main funding for primary
producers, and AIB, Bank of Ireland and Ulster Bank, are
lending to primary producers.
funding is directed towards the most productive assets.
For example farmers should beware of paying more than
an economic price for land and perhaps focus on renting
land and instead investing in required plant and stock.
At processor level
At processor level, processing and value-added food
and beverage companies’ funding requirements not only
include capital expenditure and working capital, but
seasonal businesses in the industry is very important.
The government continues to play an important role in
supporting the agri-food industry particularly through
Enterprise Ireland with support for expansion, cost
competiveness (Lean Offer scheme), R&D, marketing,
management development and export development.
The government also offers tax credits to agri-food
companies with eligible R&D expenditure.
The state-led Credit Guarantee Scheme provides support
where viable SMEs are refused credit by their banks due
to perceived high risk or insufficient collateral. For a fee,
the state guarantees 70% of the credit facility advanced
to SMEs by participating banks (primary agriculture is
excluded but downstream processing is eligible).
The graph above illustrates total lending to the
agriculture sector by BOI and AIB (based on annual
reports) over the last few years.
This suggests that total lending decreased from 2010 to
2012, which anecdotally may be due to old loans being
repaid quicker than new loans were issued. Both banks
increased lending in 2013 which is in line with their aim
to increase exposure to the industry. Our interviews
suggest that bank funding is making its way into the
industry at farmer level to support expansion, especially
dairy farming given the current positive dynamics in
that sector.
Typical offerings include working capital products, farm
development loans and asset finance. Banks are offering
tailored debt products, with an example being volatility
-adjusted term loans for primary producers, where a
higher proportion is repaid when milk prices are high,
and vice versa. Banks reiterate the importance of a
robust business case, strong repayment history and a
carefully-planned funding structure with equity factored
in. Our research indicates primary producers are - by and
large - able to obtain debt-related funding from banks.
The FH2020 “milestone review” in 2013 suggests that
primary producers have also used state-led initiatives
such as Microfinance Ireland. Microfinance Ireland
provides small (€2,000-€25,000) unsecured loans to
viable businesses declined credit facilities by their bank,
through the Micro-Enterprise Loan Fund.
As farmers take on debt, it is important that they do not
over-extend, and that their financial position is robust
throug