Apr 072011
 

 A Report by the Irish Dairy Sector

 

Capital and Credit Requirements for the Development of the Irish Dairy Sector

 

And

 

Streamlining the Lending Process

 

 

7 April 2011

 

___________________________

 

The drafting of this Report was coordinated by the Irish Creamery Milk Suppliers’ Association in conjunction with a Working Group whose membership is:

 

Jackie Cahill, President ICMSA

Pat McLoughlin, President, ICOS

John O’Brien, Chairman, Carbery

Michael Harte, CFO, Dairygold

Michael Dunlea, CFO, Tipperary Co-op

 

Dr. Michael Keane, Dairy Economist

Representatives of Merrion Capital Group

Willie Ryan, Taxation Committee, ICMSA

Ciaran Dolan BL, General Secretary, ICMSA

Geoff Dooley, Policy Consultant, ICMSA

 




Executive Summary

 

 

Background

 

For many Irish dairy farmers, capital is a critically important farm input, and its availability, terms and price will strongly influence the future development of the industry.

 

In order to facilitate a closer and more structured engagement between lending banks and the Irish dairy sector, this report suggests metrics for assessing the borrowing capacity of individual dairy farmers and proposes an arrangement whereby dairy Co-ops could act as a link between milk producers and lenders. The report also proposes arrangements for the granting and taking of security in relation to loans.

 

This approach should offer significant benefits to milk producers seeking a reliable source of credit and to lenders seeking low risk lending opportunities with low administration costs.

 

 

The Irish Dairy Sector

 

The milk production sector has undergone a long period of transformation and consolidation. This process will accelerate with the phasing out of the milk quota regime by 2015. Estimates of the milk output increase between 2015 and 2020 vary between 20% and 50%. With producer numbers continuing to fall, the average volume per producer will rise to somewhere between 450,000 and 550,000 litres per year with an average herd size of somewhere between 85 and 110 cows.

 

Table 1 summarises the capital required (excluding land) to fund this structural change in the sector, analysed across different scenarios and assumptions for milk output and average milk yield per cow. It shows that in a baseline scenario of no expansion in milk output €585 million of capital will be required. Expansion of 30% to 50% would require capital of between €1.1 billion and €2.8 billion.

 

 

Milk yield (per cow) increase

to 2020

Milk Output Increase to 2020

Baseline (zero expansion)

+30%

+50%

+10%

€585 million

€1.9 billion

€2.8 billion

+20%

€1.1 billion

€1.9 billion

 

Table 1: Estimated Capital Investment Costs on Irish Dairy Farms

 

 

While future milk prices are uncertain and milk price volatility is expected to continue, the income analysis in this report finds that at current milk prices and farm costs the sector has significant debt repayment capacity. This finding is tested by examining three milk price scenarios* (20c/L, 25 c/L and 30 c/L) for 2020, which show that the sector is resilient, sustainable and well positioned to withstand future price volatility.

 

Table 2 shows 2020 farm incomes in a 30% expansion scenario.

 

 

Average Milk Price in 2020 (cents/L)

20.0

25.0

30.0

Avg. Family Farm Income per Producer (€)

33,885

58,885

83,885

Avg. Family Farm Income per Litre (cents)

6.8

11.8

16.8

Avg. Family Farm Income per Livestock Unit (€)

353

613

874

 

Table 2: 2020 Family Farm Incomes (after Interest) in a 30% expansion scenario

 

 

Table 3 shows the 2020 farm incomes in a 50% expansion scenario

 

Average Milk Price in 2020 (cents/L)

20.0

25.0

30.0

Avg. Family Farm Income per Producer (€)

30,014

58,014

85,570

Avg. Family Farm Income per Litre (cents)

5.4

10.4

15.4

Avg. Family Farm Income per Livestock Unit (€)

281

542

800

 

Table 3: 2020 Family Farm Incomes (after interest) in a 50% expansion scenario

 

 

Proposals for Streamlining the Lending Process

 

Recognising their shared interests with dairy producers, dairy Co-ops are prepared to facilitate structures and arrangements for credit application and debt repayment on behalf of farmers and lenders, subject to the Co-op not incurring any liability for farmer debt.

 

Transaction charges can be further reduced by streamlining the arrangements for credit security. This can be done by lodging standard conditions with the Irish Property Registration Authority and the registration of a charge against the folio of land in question.

 

Given the changing structure of dairy farming where significant expansion will take place on leased land, including long-term leased land, it is appropriate to consider alternative ways of providing security in these situations. The arrangement of chattel and stock mortgages could very well form a useful and practical solution in these situations.

 

Conclusion

 

The central conclusion of this report is that the level of indebtedness in the Irish milk production sector is low and that the sector has a strong repayment capacity. The report seeks to inform banks of the attractive lending opportunity offered by the milk production sector and of the opportunity for lending banks to serve the sector on a low cost basis by working collaboratively with dairy Co-ops.

 

 

* It is important to note that the report does not attempt to project or forecast future milk price. The analysis is based on a number of assumptions and scenarios, which are clearly stated.


 

CONTENTS

 

 

(1)       Introduction

 

 

(2)       The Irish Dairy Production Industry – Change & Growth

 

 

(3)       Capital Investment – Overall Requirements

 

 

(4)       Financial Overview & Credit Requirements

 

 

(5)       Key Metrics for Dairy Farm Credit

 

 

(6)       Financial Effects of Lower Milk Prices

 

 

(7)       Farm-Level Averages

 

 

(8)       Role of Dairy Co-ops in Credit Administration

 

 

(9)       Exploring Options for Credit Security

 

 

(10)  Conclusion

 

 

(11)  Appendices

 

 


(1)  Introduction

 

 

In January 2011, a meeting of representatives of dairy farmers and Co-ops was convened by ICMSA to review the availability of credit to Irish dairy farmers. A Work Group* was formed at this meeting representing Irish dairy farmers and Co-ops, and it received administrative and other support from the ICMSA. Specialist professional advice was provided to the Work Group by Merrion Capital Group and by Dr. Michael Keane, Dairy Economist.

 

The tasks undertaken by the Work Group included preparation of this document, which sets out proposals for meeting the capital and credit requirements for the dairy farming sector.

 

The purpose of this document is:

 

  • To outline the financial characteristics and credit requirements of the Irish dairy farming sector as it is now and as it is likely to evolve over the next ten years

 

  • To suggest metrics that may be used by lenders in considering the repayment capacity of individual dairy farmers

 

  • To suggest arrangements whereby Irish dairy Co-ops can intermediate between dairy farmers and lenders, facilitating credit application, lending and loan administration processes

 

  • To suggest arrangements whereby the granting and taking of security in relation to loans can be streamlined, reducing the cost to the farmer

 

  • To generally inform lenders – whether current market participants or potential new lenders – in relation to the overall creditworthiness of the Irish dairy production industry and the scale and nature of the lending opportunity therein

 

 

 

*Membership of the Work Group:

 

Michael Dunlea, CFO, Tipperary Coop

Michael Harte, CFO, Dairygold

Michael Keane, Dairy Economist

John O’Brien, Chairman, Carbery

Pat McLoughlin, President, ICOS

Representatives of Merrion Capital Group

Jackie Cahill, President, ICMSA

Willie Ryan, Taxation Committee Chairman, ICMSA

Ciaran Dolan BL, General Secretary, ICMSA

Geoff Dooley, Policy Consultant, ICMSA


(2)  The Irish Dairy Production Industry – Change & Growth

 

 

In the 30 years from 1990 to 2020:

 

  • Average dairy herd size in Ireland will have tripled

 

  • The number of dairy farmers in Ireland will have fallen by two thirds

 

  • Overall milk volume will have increased following the ending of the quota regime

 

  • Average volume produced per farmer will have increased fourfold

 

 

The Irish dairy farming sector is a highly efficient production system, owned and run by technically skilled and commercially focused dairy farmers, who will continue to optimise the scale of their businesses in order to suit Irish production conditions. Much of this transformation has already occurred.

 

The charts in this section illustrate a range of quantitative impacts of different development scenarios for the sector.

 

As shown in the chart below, it is likely that farmer numbers will level out between 12,500 and 15,000 at some time in the next 15 years.

 

 

 

 

After decades of overall milk volumes being restricted by the quota regime, volumes will increase after 2015. The level of increase will be influenced by many factors – dairy product prices, input prices, general economic circumstances, etc – but there is general agreement that there will be a very significant increase in overall volumes, with current estimates of the increase between 2015 and 2020 varying from 20% to 50%.

 

With farmer numbers still falling over the next decade, average milk volume per farmer will continue to rise, eventually levelling out somewhere between 450,000 and 550,000 litres per farm.

 

 

 

 

This production growth will come partly from larger herd size and partly from increased yields. Average herd size may level out somewhere between 85 and 110 cows but there will be a wide statistical spread around this average with the majority of farms having a herd size between 65 and 80 cows and a number of farms with up to 400 cows and higher.

 

 


(3)  Capital Investment – Overall Requirements

 

 

Milk Output Scenarios to 2020

 

Two 2020 scenarios are considered; a 30% and a 50% milk output increase. Given the ongoing changes in numbers and sizes of milk suppliers, it is suggested that by 2020 the number of dairy farmers will have fallen from about 18,000 to between 13,000 and 13,500, the average herd size will have risen from 61 to between 100 and 111 cows and yield per cow is assumed to increase by 10% (Table 4). The yield increase is a critical assumption regarding future investment in facilities and livestock (an assumed yield increase of 20% is considered later).

 

 

2000 2010 2020 (+ 30%) 2020 (+ 50%)
Farm Milk Sales (Millions of Litres)

5,000

5,000

6,500

7,500

Number of Dairy Farms

32,000

18,000

13,000

13,500

Number of Dairy Cows (‘000)

1,150

1,100

1,300

1,500

Average Dairy Herd Size (Cows)

36

61

100

111

Milk Output per Farm (‘000 litres)

156

278

500

556

 

Table 4: Possible Changes in Milk Output and Herd Structure to 2020

 

 

Farm Level Estimate of Capital Investment Requirements*

 

*This section is substantially based on M Sc (2009) J McCarthy UCC and L Shalloo, Teagasc, Moorepark (Greenfield Dairy Farm).

 

The McCarthy study took as a benchmark an ‘average’ farm based on detailed information from an active discussion group and the expansion costs were obtained from Teagasc. The study found a net capital cost of €2,880 per cow, excluding livestock. Taking Department of Agriculture livestock compensation values, the total capital investment required is found to be €4,680 for each additional cow.

 

An alternative estimate of dairy farm expansion costs derived from L Shalloo (Dairy Levy Update, no. 12, 2010) finds a total investment requirement per cow of €4,150. The analysis in this section will use the McCarthy estimate of €4,680 per additional cow. While this may be regarded as being high in 2011, given likely cost inflation to 2020 it may be a reasonable estimate of the average cost over the decade ahead.

 

 

Additional Land

 

Including land in this investment analysis would require a further set of assumptions involving the possibility of increasing stocking rate on continuing dairy farms to 2020, the possibility of replacing other enterprises such as beef cattle with dairying on continuing dairy farms, and the likely cost on average to 2020 of the leasing or purchase of additional land for dairying. It was considered that this further analysis could not be undertaken with sufficient reliability so as to be useful at this stage.

 

 

Aggregate Sectoral Level Estimates of Capital Requirements – Initial Assumptions

 

It is assumed initially that that there is no spare capacity with regard to facilities on the continuing farms and that milk yield increases by 10% by 2020. With regard to cow spaces/facilities on the retiring farms, it is assumed that the 4,500 to 5,000 retiring farms (Table 4) had an average herd size of 40 cows and that most of these facilities will be lost to the sector.

 

The remaining 13,000 herds in 2010 are assumed to have an average herd size of 69 cows. On this basis the continuing herds would need to increase on average by about 30 cows to achieve an overall increase in milk output of 30% by 2020, while herds would need to increase by about 45 cows on average for a 50% milk output increase. While some surviving herds may remain largely static in size over the decade, this would mean that others would need to achieve even larger expansion to meet the overall 2020 target.

 

The aggregate estimates below relate only to the capital investment required to facilitate the additional cow numbers in those herds that are assumed to expand. There is no estimate of any capital investment that may be required to modernise facilities for the original cow numbers. In aggregate terms this results in a total capital investment of €1.9 billion to 2020 for a 30% overall output increase and €2.8 billion for a 50% output increase (Table 5).

 

 

30% Expansion 50% Expansion
Additional cows per herd (approx)

+ 31 Cows

+ 44 Cows

Capital Investment per herd

€145,000

€206,000

Number of Herds

13,000

13,500

Aggregate Cost in € billions

€1.89

€2.78

 

Table 5:  Estimate of Aggregate Cost of Expansion to 2020

 

 

Alternative Assumptions

 

The above estimates are based on the assumptions that there is no spare capacity on existing dairy farms, that all cow spaces on retiring dairy farms are lost to the sector and that milk yields increase by just 10% by 2020. It is difficult to know the extent of dairy farm spare capacity, the degree to which facilities on retiring dairy farms would be still available and used and how milk yields will develop when free from quota constraints.

 

Just one alternative set of assumptions is provided for at this point, i.e. that milk yields would be a further 10% higher or 20% in total from 2010 and that there is 10% spare capacity in dairy farm facilities at present on continuing dairy farms (Table 6).  The assumption that the 4,500 to 5,000 retiring farms had an average herd size of 40 cows remains.

 

 

2000 2010 2020 (+ 30%) 2020 (+ 50%)
Farm Milk Sales (Millions of Litres)

5,000

5,000

6,500

7,500

Number of Dairy Farms

32,000

18,000

13,000

13,500

Number of Dairy Cows ‘000

1,150

1,100

1,192

1,375

Average Dairy Herd Size (Cows)

36

61

92

102

Additional cow spaces required per farm

15

28

 

Table 6: Changes in Milk Output and Herd Structure to 2020 – Alternative Assumptions

 

On the basis of these revised assumptions, total capital investment in dairy farming to 2020 would amount in aggregate to about €1.1 billion (30% output expansion), or €1.9 billion (50% output expansion). Additional cows are costed at €1,800 per head which is based on Department of Agriculture compensation values, and the cost of providing additional cow spaces is estimated at €2,880 per head (McCarthy, 2009).

 

 

30% Expansion 50% Expansion
Additional cows per herd (approx)

+22

+35

New cow spaces etc per herd, approx

+15

+28

Capital Investment per herd

€83,000

€144,000

Number of Herds

13,000

13,500

Aggregate Cost in € billions

€1.08

€1.94

 

Table 7:  Aggregate Cost of Expansion – Alternative Assumptions

 

Baseline Estimate – No Output Expansion to 2020

 

While the above estimates relate to overall output expansion of 30% and 50% to 2020, considerable investment would also arise if no expansion whatsoever occurred, due to herd restructuring or movement to fewer and larger herds.

 

It is useful to estimate this as a baseline against which the estimates above can be compared. For the baseline, it is assumed that milk yield will increase by 10% to 2020 and that there is no spare capacity on expanding farms. The overall herd structure assumed for the baseline to 2020 is shown in Table 8.

 

2010

2020 (Baseline Scenario – zero expansion)

Farm Milk Sales (Millions of Litres)

5,000

5,000

Number of Dairy Farms

18,000

12,500

Number of Dairy Cows ‘000

1,100

1,000

Average Dairy Herd Size (Cows)

61

80

Milk Output per Farm (‘000 litres)

275

400

 

Table 8: Possible Changes in Milk Output and Herd Structure to 2020 – Baseline Scenario

 

Based on the same assumptions outlined above with regard to the size of retiring herds (i.e. the average herd size of the 5,500 retiring herds is assumed to be 40 cows) the estimated capital costs with zero expansion to 2020 are €585 million approximately (Table 9.)

 

 

2020 (zero expansion)
Additional cows per herd (approx)

+10

New cow spaces, etc per herd, approx

+10

Capital Investment per herd

€46,800

Number of Herds

12,500

Aggregate Cost (€ millions)

€585

 

Table 9: Aggregate Cost: Baseline – Zero Expansion

 

 

Other Aspects for Consideration

 

There are a range of other aspects that could be considered, including the following:

 

  • The estimates above are based on various assumptions. In particular, the assumptions on yields are critically important.

 

  • In relation to the assumptions about cow spaces and farm facilities, it is assumed that all facilities are lost to the dairy industry when dairy farmers retire while the estimates for remaining farms are only for the expansion component with no allowance for replacing older facilities on these farms.

 

  • The additional investment does not include any allowance for further spare capacity on continuing farms in 2020.

 

  • There is no consideration of working capital.

 

  • All of the estimates above relate to additional capital investment without regard to how this might be financed, e.g. own resources, bank borrowing, etc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)  Financial Overview & Credit Requirements

 

 

The financial characteristics of Irish dairy farming will continue to depend primarily on milk price, and future milk prices will be determined by various market and policy factors, which are uncertain.

 

 

There has been increased volatility in recent years in Irish and International milk prices, which are linked directly to international dairy commodity prices, and that volatility is expected to continue.

It is important to note that the future milk prices used in this document are not forecastsand are selected merely to illustrate the potential levels of income under different market conditions. Similarly, the input prices used are not forecasts. While milk prices in 2020 may be higher than the examples of price used in this document, it is also possible that input costs will be higher. Indeed, it is possible that major shifts in milk prices and input costs will be correlated to some extent – particularly if global commodities undergo major price shifts, which would be additional to the increased volatility that is already expected in milk prices.

 

For comparison purposes, the graph below shows three distinct phases in the price evolution of grain – with each phase marked by increased volatility and a permanent stepped increase in average price across the time period. A similar scenario for milk may unfold.

 

 

Courtesy of Rabobank (2011)

 

 

Basic Financial Model of Irish Dairy Production

 

To consider the overall financial characteristics of Irish dairy production, one could use a basic model of income, assets & liabilities, and cash flows.

 

The analysis below uses projections for two 2020 scenarios (+30% and +50% milk output) with a view to showing some of the main changes that are likely to occur in the sector in that timeframe. This analysis focuses particularly on the variables that determine the repayment capacity of the sector as a whole and give an indication of the borrowing capacity of the average farmer in the sector. It is hoped that this analysis may be of use in forming a view of the debt requirements and debt capacity of the industry.

 

Table 10 provides a financial overview of Irish dairy production in 2010 and 2020. The data for 2010 is based on an average milk price of 29 c/L, and in this table 30 c/L is assumed for both 2020 scenarios.  The data for 2020 is derived from the average of the milk yield and spare capacity assumptions described in Section 3.

 

Based on these milk volumes and milk prices, Milk Sales would rise from €1.45 billion in 2010 to between €1.95 and €2.25 billion in 2020. Other Farm Sales are the non-milk farm sales of milk producers, and Subsidies are total subsidies received by milk producers. Gross Farm Output is calculated at €2.07 billion in 2010, rising to between €2.54 and €2.86 billion in 2020.

 

Year

2010

2020 (30% expansion)

2020 (50% expansion)

Milk Sales (millions of litres)

5,000

6,500

7,500

Avg. Milk Price (cents) / litre

29.0

30.0

30.0

Milk Sales (€m)

1,450

1,950

2,250

Other Farm Sales (€m)

250

288

310

Subsidies (€m)

370

300

300

Gross Farm Output (€m)

2,070

2,538

2,860

Total Costs excluding Interest (€m)

1,050

1,365

1,575

Family Farm Income before Interest (€m)

1,020

1,173

1,285

Annual Interest  5.5%(€m)

94

83

130

Family Farm Income (€m)

927

1,090

1,155

Farm Debt (€m)

1,700

1,500

2,360

Liquid Assets (€m)

2,940

3,382

3,728

Owned Land & Buildings @ €12,000/LU (€m)

13,200

14,952

17,250

Total Owned Assets (€m)

16,140

18,334

20,978

 

Table 10: The Irish dairy production industry – financial overview

 

Total Costs excluding Interest are estimated at 21 c/L. These include all Direct Costs (fertiliser, feed, fuel, seed, vet, AI, etc) and all Farm Overhead Costs (non-family labour, land rental, depreciation, etc) normally deducted in calculating Family Farm Income (with the exception of Interest). It is assumed that depreciation is approximately equal to capital re-investment required for maintenance, and no inflation has been assumed in costs.

 

Family Farm Income (FFI) after Interest is calculated at €927 million in 2010, rising to between €1.09 and €1,155 billion in 2020 (FFI is as defined by Teagasc, namely “Reward to Unpaid Family Labour, Owned Land & Management”). Annual Interest is based on 5.5% p.a. of Farm Debt, which is estimated at €1.7 billion in 2010 and between €1.5 and €2.4 billion in 2020.  The 2020 Farm Debt estimates are mid-range figures from the scenarios in Section 3.

 

Liquid Assets include stock, plant and machinery but exclude the value of milk quota, which is ignored in this analysis. Liquid Assets are estimated at €2.94 billion in 2010 and between €3.38 and €3.73 billion in 2020. Owned Land & Buildings are taken at a value of €12,000 per livestock unit. This is an arbitrary figure but it is not critical in this analysis. Total Owned Assets are the sum of Liquid Assets and Owned Land & Buildings.

 

A Sector with Significant Repayment Capacity

 

The level of indebtedness of the industry in the future will depend on many factors – milk and input prices in the intervening years, production efficiencies, volume expansion after 2015, rate of change in ownership of farms, etc. However, at current prices the sector in general has significant repayment capacity, and if current prices are sustained, it is likely that most of the debt in 2020 will be new debt drawn down between now and then.


(5)  Key Metrics for Dairy Farm Credit

 

 

Table 11 shows the key debt ratios for the Irish dairy production industry, treated as a single entity and based on the data in Table 10.

 

 

Key Debt Ratios

2010

2020 (30% expansion)

2020 (50% expansion)

FFI before Interest / Farm Interest

10.9

14.1

9.9

Milk Sales / Farm Interest

15.5

23.5

17.3

Farm Debt / FFI before Interest

1.7

1.3

1.8

Farm Debt / Milk Sales

1.2

0.8

1.1

Liquid Assets / Farm Debt

1.7

2.3

1.6

Total Assets / Farm Debt

9.5

12.2

8.9

 

Table 11: Key debt ratios for the Irish dairy production industry

 

 

Interest Cover Ratios:

 

  1. Family Farm Income before Interest, divided by Interest

 

This ratio indicates the number of times that the annual interest is covered by the cash flows available from annual Family Farm Income – it changes from 10.9 in 2010 to between 14.1 and 9.9 by 2020.

 

  1. Milk Sales divided by Interest

 

This ratio indicates the number of times that the annual interest is covered by the annual cash flows from Milk Sales – it changes from 15.5 in 2010 to between 23.5 and 17.3 by 2020.

 

 

Debt / Cash Flow Ratios:

 

  1. Farm Debt divided by annual Family Farm Income before Interest

 

This ratio indicates the number of years of Family Farm Income that it would take to clear the debt if all Family Farm Income was used to pay down debt – it is 1.7 years in 2010 and between 1.3 years and 1.8 years by 2020.

 

  1. Farm Debt divided by annual Milk Sales

 

This ratio indicates the number of years of Milk Sales that it would take to clear the debt if all Milk Sales income was used to pay down debt – it is 1.2 years in 2010 and between 0.8 and 1.1 years by 2020.

 

 

Asset Cover Ratios:

 

  1. Liquid Assets divided by Farm Debt

 

This ratio indicates the capacity for immediate repayment of the debt by sale of Liquid Assets – it changes from 1.7 in 2010 to between 2.3 and 1.6 by 2020.

 

  1. Total Assets divided by Farm Debt

 

This ratio indicates the capacity for immediate repayment of the debt by sale of all assets – it changes from 9.5 in 2010 to between 12.2 and 8.9 by 2020.

 

The Average Debt Ratios

 

These average debt ratios describe an overall sectoral situation of relatively low indebtedness relative to income and cash flows and a high degree of asset cover. In effect, at a milk price of 29 c/L, the average Irish milk producer in 2010:

 

  • Has Family Farm Income (pre-Interest) of almost €11 for every €1 of interest due on farm debt

 

  • Has over €15 in milk sales for every €1 of interest due on farm debt

 

  • Could repay all Farm Debt in 1.7 years with Family Farm Income

 

  • Could repay all Farm Debt in 1.2 years with Milk Sales income

 

  • Has Liquid Assets that are worth 1.7 times all Farm Debt

 

  • Has Total Assets that are worth 9.5 times all Farm Debt

 

If milk price in 2020 is 30 c/L, all of the ratios would continue to be favourable (under the expansion assumptions made above).

 

One key question for lenders is the relevance of these ratios in the case of individual farmers. The Working Group is keen to work with lenders to establish standard metrics that can be applied in a transparent manner across the industry to indicate the repayment capacity of individual farmers. Ideally, such metrics should be straightforward and readily understood by farmers, their advisors, their Co-ops and their lenders. They could be available as an initial screen for credit applicants and as a guide to overall debt capacity for dairy farmers.

 

Standardised data on the performance of the sector in servicing current debt is not publically available. However, discussions with banking professionals suggest that the sector’s performance is generally strong and that most instances of difficulty relate to very specific personal or operational circumstances (such as off-farm investment).


(6)  Financial Effects of Lower Milk Prices due to Price Volatility

 

 

Table 12 provides the same overview of the sector as in Section 5 above, but with milk price  of 25c/L  and 20 c/L in 2020 across both expansion scenarios (again, it must be emphasised that that the future milk prices used in this document are not forecasts and are selected merely to illustrate the potential levels of income under different market conditions).

 

 

Year

2010

2020 (30% expansion)

2020 (30% expansion)

2020 (50% expansion)

2020 (50% expansion)

Milk Sales (millions of litres)

5,000

6,500

6,500

7,500

7,500

Avg. Milk Price (cents) / litre

29.0

25.0

20.0

25.0

20.0

Milk Sales (€m)

1,450

1,625

1,300

1,875

1500

Other Farm Sales (€m)

250

288

288

310

310

Subsidies (€m)

370

300

300

300

300

Gross Farm Output (€m)

2,070

2,213

1,888

2,485

2,110

Total Costs excluding Interest (€m)

1,050

1,365

1,365

1,575

1,575

Family Farm Income before Interest (€m)

1,020

848

523

910

535

Annual Interest (€m)

94

83

83

130

130

Family Farm Income (€m)

927

765

440

780

405

Farm Debt (€m)

1,700

1,500

1,500

2,360

2,360

Liquid Assets (€m)

2,940

3,382

3,382

3,728

3,728

Owned Land & Buildings @ €12,000/LU (€m)

13,200

14,952

14,952

17,250

17,250

Total Owned Assets (€m)

16,140

18,334

18,334

20,978

20,978

 

Table 12: Financial overview – with lower milk price outlook

 

 

This scenario shows Gross Farm Output ranging from €1.89 and €2.49 billion in 2020 and Family Farm Income moving from €927 million in 2010 to between €405 and €765 million in 2020.

 

 

 

Key Debt Ratios

2010

2020 (30% expansion & 25c/L

2020 (30% expansion & 20c/L

2020 (50% expansion & 25c/L)

2020 (50% expansion & 20c/L)

FFI before Interest / Farm Interest

10.9

10.2

6.3

7.0

4.1

Milk Sales / Farm Interest

15.5

19.6

15.7

14.4

11.5

Farm Debt / FFI before Interest

1.7

1.8

2.9

2.6

4.4

Farm Debt / Milk Sales

1.2

0.9

1.2

1.3

1.6

Liquid Assets / Farm Debt

1.7

2.3

2.3

1.6

1.6

Total Assets / Farm Debt

9.5

12.2

12.2

7.3

7.3

 

Table 13: Key debt ratios – with lower milk price outlook

 

 

Some of the key debt ratios would be less favourable, as shown in Table 13. However, the Interest Cover Ratios would still be strong with:

 

  • FFI (pre-Interest) / Interest in 2020          from   10.2  to 4.1
  • Milk Sales / Interest in 2020                        from 19.6 to 11.5

 

Debt / Cash Flow multiples would also remain strong with:

 

  • Farm Debt / FFI (pre-Interest) in 2020    from 1.8 to 4.4
  • Farm Debt / Milk Sales in 2020                   from 0.9 to 1.6

 

The Asset Cover Ratios would remain largely unchanged.

 

For many Irish dairy farmers, capital is a critically important farm input, and its availability, terms and price will influence the pace of change in the industry generally and particularly the expansion of production after 2015.

 

This analysis deals with the Irish dairy production sector as a single entity and it calculates overall averages for the sector. Even at this level, the central conclusion is clear – in this sustainable and resilient industry with a highly committed ownership and workforce, the level of indebtedness is low.

 

Overall Sector Exposure

 

In considering its exposure to the sector, a lender may take the view that lending to dairy farmers, dairy processing and dairy marketing all come within a specific category of lending. All three areas require more capital as volumes increase, and all three areas enjoy the same security that comes from an efficient, resilient and sustainable industry, producing a basic food product that faces increasing demand.

 

Therefore, for information purposes, the Irish Dairy Board’s (2010) estimate of the financial implications for the supply chain beyond the farm gate of meeting the 50% expansion in milk output envisaged in Food Harvest 2020 is shown below:

 

  • Projected capital expenditure  of €400 million for additional processing capacity
  • Additional working capital requirement of €250 – €300 million for finance and storage
  • Projected investment of €200 million in route-to-market infrastructure and marketing


(7)  Farm-Level Averages

 

Table 14 provides a financial overview of the average Irish dairy farmer, under milk price scenarios of 20c/L, 25c/L and 30 c/L in 2020 and using the scenarios for milk output and farmer numbers outlined in the previous sections.

 

It shows average Milk Output per farmer rising from 278,000 litres in 2010 up to 555,556 litres in 2020 and average FFI per farmer changing from €51,000 in 2010 to a range between €30,000 and €86,000 in 2020. Average Farm Debt per farmer would rise from €94,000 in 2010 and to range between €115,000 and €175,000 in 2020. Average Liquid Assets per farmer would rise from €163,000 in 2010 to between €260,000 and €276,000 in 2020. FFI per litre of milk and per livestock unit are also calculated.

 

 

Average per Farmer

2010

(29c/L)

2020 (30% expansion & 20c/L)

2020 (50% expansion & 20 c/L)

2020 (30% expansion & 25c/L)

2020 (50% expansion & 25c/L)

2020 (30% expansion & 30c/L)

2020 (50% expansion & 30c/L)

Number of Dairy Farmers

18,000

13,000

13,500

13,000

13,500

13,000

13,500

Average Herd Size

61

96

107

96

107

96

107

Milk Output (litres)

277,778

500,000

555,556

500,000

555,556

500,000

555,556

Milk Sales (€)

80,556

100,000

111,111

125,000

138,889

150,000

166,666

Gross Farm Output (€)

115,000

145,231

156,296

170,231

184,296

195,231

211,852

Total Costs excluding Interest (€)

58,333

105,000

116,667

105,000

116,667

105,000

116,667

Family Farm Income before Interest (€)

56,667

40,231

39,629

65,231

67,629

90,231

95,185

Annual Interest (€)

5,194

6,346

9,615

6,346

9,615

6,346

9,615

Family Farm Income (€)

51,473

33,885

30,014

58,885

58,014

83,885

85,570

Farm Debt (€)

94,444

115,385

174,815

115,385

174,815

115,385

174,815

Liquid Assets (€)

163,333

260,154

276,148

260,154

276,148

260,154

276,148

Owned Land & Buildings @ €12,000/LU (€)

732,000

1,152,000

1,248,000

1,152,000

1,248,000

1,152,000

1,248,000

Total Owned Assets (€)

895,333

1,412,154

1,524,148

1,412,154

1,524,148

1,412,154

1,524,148

Family Farm Income:
per Litre (cents)

18.5

6.8

5.4

11.8

10.4

16.8

15.4

per Livestock Unit (€)

844

353

281

613

542

874

800

 

Table 14: Financial overview of the average farmer under different price scenarios

 

It should be noted that the purpose of the scenarios in Table 14 is to demonstrate the potential impact of milk price volatility at a particular point in time and the scenarios are not projections of milk price averages over the coming decade.

 

Table 14 shows that the average dairy farmer has an improved repayment capacity in 2020 under the 25c/L and 30c/L milk price scenarios than in 2010, due to the benefits of increased scale. It also shows that there is not a significant difference in farmers’ repayment capacity between the 30% and 50% expansion scenarios. This is illustrated in the chart below.

 

 


(8)  Role of Dairy Co-ops in Credit Administration

 

 

In credit as in other areas, difficulties for dairy farmers are difficulties for dairy Co-ops, and it is generally agreed in the industry that Irish dairy Co-ops will do whatever they can to facilitate arrangements between dairy farmers and lenders. In particular, Co-ops could facilitate the following processes:

 

  • general communication from lenders to farmers in relation to credit

 

  • credit applications by farmers

 

  • credit assessment by lenders (can be facilitated by Co-ops on farmers’ expressed instruction)

 

  • collection from milk payments of loan repayments & interest

 

  • general administration of the relationship between lender and borrower based on written agreement and understanding by both

 

 

In summary, the dairy Co-ops are willing to assist the lender in any manner possible subject to the critically important condition that the Co-op will not incur any liability for any farmer debt. The Co-ops are willing to consider a role in assisting banks in credit assessment, based on the farmer data available to the Co-ops and on foot of a written agreement by the farmer to the Co-op, but the lending relationship will always be between lender and farmer.

 

In this context, the term “Co-op” is being used to include all parties that stand immediately downstream of producers and it includes Co-ops that do not themselves physically process milk but stand between the producer and the actual Co-op. Table 14 (Appendix A) shows Irish Dairy Co-ops in the context of this discussion.

 

(9)  Exploring Options for Credit Security

 

Recently there have been substantial changes in the law and procedure for providing security for loans and the registering of charges.  In essence, the Land and Conveyancing Law Reform Act 2009 provides that effectively all security for farm loans is now based on a charge on the land. All previous methods of providing security have been abolished.

 

Furthermore, the law and procedures set out by the Irish Property Registration Authority provide that to be effective the charge must be registered in accordance with the prescribed form. Virtually all agricultural land is registered land and therefore will have a folio number. Probably all existing loans to farmers, taken out prior to the new Act and subsequently, are now secured by way of a registered charge on the land in question.

 

Two issues arise from the above. First, there is clear legal and formal security for the lender. In effect, lending to farmers has the same legal security now as a loan based on the traditional mortgage on a dwelling.  The other issue is the cost of registration of the charge. There is evidence that the cost being charged by solicitors is excessively high at almost €1,000 per case. This is excessive if the title of land to which the charge applies is up-to-date.

 

Indeed a significant number of lending institutions have agreed and lodged standard conditions with the Irish Property Registration Authority. In conjunction with these standard conditions and a single page form entitled “FORM 68”, the charge can be registered against the folio of the land in question.  A copy of Form 68 is attached at Appendix B showing the simplicity of the procedure.

 

Where the land already has a charge on it with regard to existing borrowing, a further charge can be registered. Where there would be a package of funding involving a number of farmers, the arrangements are now in place to streamline the security aspect and to significantly reduce the cost of providing security — i.e. registration of charge. There is however, a fee of €125 payable to the Irish Property Registration Authority for every charge registered.

 

In summary, the cost of providing security in the form of registration of a charge is not a major issue and in any event could be substantially reduced.  The key point, however, is that from a lender’s point of view, full legal and registered security can be readily obtained.

 

This, combined with repayment capacity and the very strong record of dairy farmers generally in servicing debt, clearly shows that dairy farming is a sector with particularly low credit risk, which should be reflected in both the availability and cost of credit to dairy farmers.

 

Other Security Options

 

The security options available to expanding dairy enterprises will vary. Where a famer holds equity in land, a term loan secured against the land will be the probable option. However, many dairy enterprises will use land lease arrangements (including long-term leases) as a basis for their expansion. In these circumstances, alternative security options will be necessary – such as chattel mortgages and stock mortgages. These are already common in New Zealand and Australia.


(10)  Conclusion

 

 

The purpose of the document is twofold:

 

  1. 1.       To initiate constructive dialogue between the banks the sector; both dairy farmers and Co-ops

 

  1. 2.       To inform banks of the lending opportunity

 

 

The concepts and proposals put forward in this document have very broad support from the dairy sector, including farmers, Co-ops, and other stakeholders. In this exercise, the core objective of the industry is to ensure that:

 

  • Irish dairy farmers have access to credit on terms that are in line with those available by their counterparts in other Euro Zone countries

 

  • There is sufficient credit available to finance profitable expansion of Irish dairy production

 

  • Lending arrangements, including repayment schedules, take account of milk price volatility and the long-term nature of farming investment

 

  • The cost of providing security is minimised

 

  • All suitable forms of security are considered and utilised


(11)  Appendices

 

(A)  Irish Dairy Co-operatives

 

 

 

Glanbia
Kerry
Dairygold
Arrabawn
Ballinfull
Bandon
Barryroe
Boherbue
Bunnoe
Callan
Carbery
Centenary
Connaught Gold
Corcaghan
Doapey
Donegal
Drinagh
Drombane
Fealesbridge
Kill
Lakelands
Lee Strand
Lisavaird
Maudabawn
Mullinahone
Newtownsandes
North Cork Creameries
Oldcastle
Poles
Tipperary
Town of Monaghan
Wexford

 

 

Table 14:  Irish Dairy Co-operativess


(B)  Form 68

 

                                                         
FORM 68

Charge for future advances  (rules 52, 113)

LAND REGISTRY

County                                                   Folio

 

Charge dated the                  day of                                                     20            .

A.B., the registered owner, (or the person entitled to be registered as owner) hereby charges the property set out in the schedule hereto with payment to CD of all sums owing and due from time to time and covenanted to be paid in respect of future (or, present and future) advances to the said AB and secured by this charge, subject to such terms and conditions, covenants and obligations as are set out in the General Terms and Conditions lodged in the Land Registry under reference … .

The said A.B. hereby assents to the registration of this charge as a burden on the property   The address in the state of the said C.D. for service of notices and his description are:-

Schedule

(Description of property charged)

Signed (or, Signed, sealed) and delivered

by A.B in the presence of:

 

 

Signed (or, Signed, sealed) and delivered

by C.D. in the presence of:

NOTE: Where desired, the covenants for title implied by the chargor charging “ as beneficial owner” may be incorporated by inserting these words in the deed of charge after the name of the chargor. See section 80 of the Land and Conveyancing Law Reform Act 2009.

 A Report by the Irish Dairy Sector

 

Capital and Credit Requirements for the Development of the Irish Dairy Sector

 

And

 

Streamlining the Lending Process

 

 

7 April 2011

 

___________________________

 

The drafting of this Report was coordinated by the Irish Creamery Milk Suppliers’ Association in conjunction with a Working Group whose membership is:

 

Jackie Cahill, President ICMSA

Pat McLoughlin, President, ICOS

John O’Brien, Chairman, Carbery

Michael Harte, CFO, Dairygold

Michael Dunlea, CFO, Tipperary Co-op

 Dr. Michael Keane, Dairy Economist

Representatives of Merrion Capital Group

Willie Ryan, Taxation Committee, ICMSA

Ciaran Dolan BL, General Secretary, ICMSA

Geoff Dooley, Policy Consultant, ICMSA

 




Executive Summary

 

 

Background

 

For many Irish dairy farmers, capital is a critically important farm input, and its availability, terms and price will strongly influence the future development of the industry.

 

In order to facilitate a closer and more structured engagement between lending banks and the Irish dairy sector, this report suggests metrics for assessing the borrowing capacity of individual dairy farmers and proposes an arrangement whereby dairy Co-ops could act as a link between milk producers and lenders. The report also proposes arrangements for the granting and taking of security in relation to loans.

 

This approach should offer significant benefits to milk producers seeking a reliable source of credit and to lenders seeking low risk lending opportunities with low administration costs.

 

 

The Irish Dairy Sector

 

The milk production sector has undergone a long period of transformation and consolidation. This process will accelerate with the phasing out of the milk quota regime by 2015. Estimates of the milk output increase between 2015 and 2020 vary between 20% and 50%. With producer numbers continuing to fall, the average volume per producer will rise to somewhere between 450,000 and 550,000 litres per year with an average herd size of somewhere between 85 and 110 cows.

 

Table 1 summarises the capital required (excluding land) to fund this structural change in the sector, analysed across different scenarios and assumptions for milk output and average milk yield per cow. It shows that in a baseline scenario of no expansion in milk output €585 million of capital will be required. Expansion of 30% to 50% would require capital of between €1.1 billion and €2.8 billion.

 

 

Milk yield (per cow) increase

to 2020

Milk Output Increase to 2020

Baseline (zero expansion)

+30%

+50%

+10%

€585 million

€1.9 billion

€2.8 billion

+20%

€1.1 billion

€1.9 billion

 

Table 1: Estimated Capital Investment Costs on Irish Dairy Farms

 

 

While future milk prices are uncertain and milk price volatility is expected to continue, the income analysis in this report finds that at current milk prices and farm costs the sector has significant debt repayment capacity. This finding is tested by examining three milk price scenarios* (20c/L, 25 c/L and 30 c/L) for 2020, which show that the sector is resilient, sustainable and well positioned to withstand future price volatility.

 

Table 2 shows 2020 farm incomes in a 30% expansion scenario.

 

 

Average Milk Price in 2020 (cents/L)

20.0

25.0

30.0

Avg. Family Farm Income per Producer (€)

33,885

58,885

83,885

Avg. Family Farm Income per Litre (cents)

6.8

11.8

16.8

Avg. Family Farm Income per Livestock Unit (€)

353

613

874

 

Table 2: 2020 Family Farm Incomes (after Interest) in a 30% expansion scenario

 

 

Table 3 shows the 2020 farm incomes in a 50% expansion scenario

 

Average Milk Price in 2020 (cents/L)

20.0

25.0

30.0

Avg. Family Farm Income per Producer (€)

30,014

58,014

85,570

Avg. Family Farm Income per Litre (cents)

5.4

10.4

15.4

Avg. Family Farm Income per Livestock Unit (€)

281

542

800

 

Table 3: 2020 Family Farm Incomes (after interest) in a 50% expansion scenario

 

 

Proposals for Streamlining the Lending Process

 

Recognising their shared interests with dairy producers, dairy Co-ops are prepared to facilitate structures and arrangements for credit application and debt repayment on behalf of farmers and lenders, subject to the Co-op not incurring any liability for farmer debt.

 

Transaction charges can be further reduced by streamlining the arrangements for credit security. This can be done by lodging standard conditions with the Irish Property Registration Authority and the registration of a charge against the folio of land in question.

 

Given the changing structure of dairy farming where significant expansion will take place on leased land, including long-term leased land, it is appropriate to consider alternative ways of providing security in these situations. The arrangement of chattel and stock mortgages could very well form a useful and practical solution in these situations.

 

Conclusion

 

The central conclusion of this report is that the level of indebtedness in the Irish milk production sector is low and that the sector has a strong repayment capacity. The report seeks to inform banks of the attractive lending opportunity offered by the milk production sector and of the opportunity for lending banks to serve the sector on a low cost basis by working collaboratively with dairy Co-ops.

 

 

* It is important to note that the report does not attempt to project or forecast future milk price. The analysis is based on a number of assumptions and scenarios, which are clearly stated.


 

CONTENTS

 

 

(1)       Introduction

 

 

(2)       The Irish Dairy Production Industry – Change & Growth

 

 

(3)       Capital Investment – Overall Requirements

 

 

(4)       Financial Overview & Credit Requirements

 

 

(5)       Key Metrics for Dairy Farm Credit

 

 

(6)       Financial Effects of Lower Milk Prices

 

 

(7)       Farm-Level Averages

 

 

(8)       Role of Dairy Co-ops in Credit Administration

 

 

(9)       Exploring Options for Credit Security

 

 

(10)  Conclusion

 

 

(11)  Appendices

 

 


(1)  Introduction

 

 

In January 2011, a meeting of representatives of dairy farmers and Co-ops was convened by ICMSA to review the availability of credit to Irish dairy farmers. A Work Group* was formed at this meeting representing Irish dairy farmers and Co-ops, and it received administrative and other support from the ICMSA. Specialist professional advice was provided to the Work Group by Merrion Capital Group and by Dr. Michael Keane, Dairy Economist.

 

The tasks undertaken by the Work Group included preparation of this document, which sets out proposals for meeting the capital and credit requirements for the dairy farming sector.

 

The purpose of this document is:

 

  • To outline the financial characteristics and credit requirements of the Irish dairy farming sector as it is now and as it is likely to evolve over the next ten years

 

  • To suggest metrics that may be used by lenders in considering the repayment capacity of individual dairy farmers

 

  • To suggest arrangements whereby Irish dairy Co-ops can intermediate between dairy farmers and lenders, facilitating credit application, lending and loan administration processes

 

  • To suggest arrangements whereby the granting and taking of security in relation to loans can be streamlined, reducing the cost to the farmer

 

  • To generally inform lenders – whether current market participants or potential new lenders – in relation to the overall creditworthiness of the Irish dairy production industry and the scale and nature of the lending opportunity therein

 

 

 

*Membership of the Work Group:

 

Michael Dunlea, CFO, Tipperary Coop

Michael Harte, CFO, Dairygold

Michael Keane, Dairy Economist

John O’Brien, Chairman, Carbery

Pat McLoughlin, President, ICOS

Representatives of Merrion Capital Group

Jackie Cahill, President, ICMSA

Willie Ryan, Taxation Committee Chairman, ICMSA

Ciaran Dolan BL, General Secretary, ICMSA

Geoff Dooley, Policy Consultant, ICMSA


(2)  The Irish Dairy Production Industry – Change & Growth

 

 

In the 30 years from 1990 to 2020:

 

  • Average dairy herd size in Ireland will have tripled

 

  • The number of dairy farmers in Ireland will have fallen by two thirds

 

  • Overall milk volume will have increased following the ending of the quota regime

 

  • Average volume produced per farmer will have increased fourfold

 

 

The Irish dairy farming sector is a highly efficient production system, owned and run by technically skilled and commercially focused dairy farmers, who will continue to optimise the scale of their businesses in order to suit Irish production conditions. Much of this transformation has already occurred.

 

The charts in this section illustrate a range of quantitative impacts of different development scenarios for the sector.

 

As shown in the chart below, it is likely that farmer numbers will level out between 12,500 and 15,000 at some time in the next 15 years.

 

 

 

 

After decades of overall milk volumes being restricted by the quota regime, volumes will increase after 2015. The level of increase will be influenced by many factors – dairy product prices, input prices, general economic circumstances, etc – but there is general agreement that there will be a very significant increase in overall volumes, with current estimates of the increase between 2015 and 2020 varying from 20% to 50%.

 

With farmer numbers still falling over the next decade, average milk volume per farmer will continue to rise, eventually levelling out somewhere between 450,000 and 550,000 litres per farm.

 

 

 

 

This production growth will come partly from larger herd size and partly from increased yields. Average herd size may level out somewhere between 85 and 110 cows but there will be a wide statistical spread around this average with the majority of farms having a herd size between 65 and 80 cows and a number of farms with up to 400 cows and higher.

 

 


(3)  Capital Investment – Overall Requirements

 

 

Milk Output Scenarios to 2020

 

Two 2020 scenarios are considered; a 30% and a 50% milk output increase. Given the ongoing changes in numbers and sizes of milk suppliers, it is suggested that by 2020 the number of dairy farmers will have fallen from about 18,000 to between 13,000 and 13,500, the average herd size will have risen from 61 to between 100 and 111 cows and yield per cow is assumed to increase by 10% (Table 4). The yield increase is a critical assumption regarding future investment in facilities and livestock (an assumed yield increase of 20% is considered later).

 

 

2000 2010 2020 (+ 30%) 2020 (+ 50%)
Farm Milk Sales (Millions of Litres)

5,000

5,000

6,500

7,500

Number of Dairy Farms

32,000

18,000

13,000

13,500

Number of Dairy Cows (‘000)

1,150

1,100

1,300

1,500

Average Dairy Herd Size (Cows)

36

61

100

111

Milk Output per Farm (‘000 litres)

156

278

500

556

 

Table 4: Possible Changes in Milk Output and Herd Structure to 2020

 

 

Farm Level Estimate of Capital Investment Requirements*

 

*This section is substantially based on M Sc (2009) J McCarthy UCC and L Shalloo, Teagasc, Moorepark (Greenfield Dairy Farm).

 

The McCarthy study took as a benchmark an ‘average’ farm based on detailed information from an active discussion group and the expansion costs were obtained from Teagasc. The study found a net capital cost of €2,880 per cow, excluding livestock. Taking Department of Agriculture livestock compensation values, the total capital investment required is found to be €4,680 for each additional cow.

 

An alternative estimate of dairy farm expansion costs derived from L Shalloo (Dairy Levy Update, no. 12, 2010) finds a total investment requirement per cow of €4,150. The analysis in this section will use the McCarthy estimate of €4,680 per additional cow. While this may be regarded as being high in 2011, given likely cost inflation to 2020 it may be a reasonable estimate of the average cost over the decade ahead.

 

 

Additional Land

 

Including land in this investment analysis would require a further set of assumptions involving the possibility of increasing stocking rate on continuing dairy farms to 2020, the possibility of replacing other enterprises such as beef cattle with dairying on continuing dairy farms, and the likely cost on average to 2020 of the leasing or purchase of additional land for dairying. It was considered that this further analysis could not be undertaken with sufficient reliability so as to be useful at this stage.

 

 

Aggregate Sectoral Level Estimates of Capital Requirements – Initial Assumptions

 

It is assumed initially that that there is no spare capacity with regard to facilities on the continuing farms and that milk yield increases by 10% by 2020. With regard to cow spaces/facilities on the retiring farms, it is assumed that the 4,500 to 5,000 retiring farms (Table 4) had an average herd size of 40 cows and that most of these facilities will be lost to the sector.

 

The remaining 13,000 herds in 2010 are assumed to have an average herd size of 69 cows. On this basis the continuing herds would need to increase on average by about 30 cows to achieve an overall increase in milk output of 30% by 2020, while herds would need to increase by about 45 cows on average for a 50% milk output increase. While some surviving herds may remain largely static in size over the decade, this would mean that others would need to achieve even larger expansion to meet the overall 2020 target.

 

The aggregate estimates below relate only to the capital investment required to facilitate the additional cow numbers in those herds that are assumed to expand. There is no estimate of any capital investment that may be required to modernise facilities for the original cow numbers. In aggregate terms this results in a total capital investment of €1.9 billion to 2020 for a 30% overall output increase and €2.8 billion for a 50% output increase (Table 5).

 

 

30% Expansion 50% Expansion
Additional cows per herd (approx)

+ 31 Cows

+ 44 Cows

Capital Investment per herd

€145,000

€206,000

Number of Herds

13,000

13,500

Aggregate Cost in € billions

€1.89

€2.78

 

Table 5:  Estimate of Aggregate Cost of Expansion to 2020

 

 

Alternative Assumptions

 

The above estimates are based on the assumptions that there is no spare capacity on existing dairy farms, that all cow spaces on retiring dairy farms are lost to the sector and that milk yields increase by just 10% by 2020. It is difficult to know the extent of dairy farm spare capacity, the degree to which facilities on retiring dairy farms would be still available and used and how milk yields will develop when free from quota constraints.

 

Just one alternative set of assumptions is provided for at this point, i.e. that milk yields would be a further 10% higher or 20% in total from 2010 and that there is 10% spare capacity in dairy farm facilities at present on continuing dairy farms (Table 6).  The assumption that the 4,500 to 5,000 retiring farms had an average herd size of 40 cows remains.

 

 

2000 2010 2020 (+ 30%) 2020 (+ 50%)
Farm Milk Sales (Millions of Litres)

5,000

5,000

6,500

7,500

Number of Dairy Farms

32,000

18,000

13,000

13,500

Number of Dairy Cows ‘000

1,150

1,100

1,192

1,375

Average Dairy Herd Size (Cows)

36

61

92

102

Additional cow spaces required per farm

15

28

 

Table 6: Changes in Milk Output and Herd Structure to 2020 – Alternative Assumptions

 

On the basis of these revised assumptions, total capital investment in dairy farming to 2020 would amount in aggregate to about €1.1 billion (30% output expansion), or €1.9 billion (50% output expansion). Additional cows are costed at €1,800 per head which is based on Department of Agriculture compensation values, and the cost of providing additional cow spaces is estimated at €2,880 per head (McCarthy, 2009).

 

 

30% Expansion 50% Expansion
Additional cows per herd (approx)

+22

+35

New cow spaces etc per herd, approx

+15

+28

Capital Investment per herd

€83,000

€144,000

Number of Herds

13,000

13,500

Aggregate Cost in € billions

€1.08

€1.94

 

Table 7:  Aggregate Cost of Expansion – Alternative Assumptions

 

Baseline Estimate – No Output Expansion to 2020

 

While the above estimates relate to overall output expansion of 30% and 50% to 2020, considerable investment would also arise if no expansion whatsoever occurred, due to herd restructuring or movement to fewer and larger herds.

 

It is useful to estimate this as a baseline against which the estimates above can be compared. For the baseline, it is assumed that milk yield will increase by 10% to 2020 and that there is no spare capacity on expanding farms. The overall herd structure assumed for the baseline to 2020 is shown in Table 8.

 

2010

2020 (Baseline Scenario – zero expansion)

Farm Milk Sales (Millions of Litres)

5,000

5,000

Number of Dairy Farms

18,000

12,500

Number of Dairy Cows ‘000

1,100

1,000

Average Dairy Herd Size (Cows)

61

80

Milk Output per Farm (‘000 litres)

275

400

 

Table 8: Possible Changes in Milk Output and Herd Structure to 2020 – Baseline Scenario

 

Based on the same assumptions outlined above with regard to the size of retiring herds (i.e. the average herd size of the 5,500 retiring herds is assumed to be 40 cows) the estimated capital costs with zero expansion to 2020 are €585 million approximately (Table 9.)

 

 

2020 (zero expansion)
Additional cows per herd (approx)

+10

New cow spaces, etc per herd, approx

+10

Capital Investment per herd

€46,800

Number of Herds

12,500

Aggregate Cost (€ millions)

€585

 

Table 9: Aggregate Cost: Baseline – Zero Expansion

 

 

Other Aspects for Consideration

 

There are a range of other aspects that could be considered, including the following:

 

  • The estimates above are based on various assumptions. In particular, the assumptions on yields are critically important.

 

  • In relation to the assumptions about cow spaces and farm facilities, it is assumed that all facilities are lost to the dairy industry when dairy farmers retire while the estimates for remaining farms are only for the expansion component with no allowance for replacing older facilities on these farms.

 

  • The additional investment does not include any allowance for further spare capacity on continuing farms in 2020.

 

  • There is no consideration of working capital.

 

  • All of the estimates above relate to additional capital investment without regard to how this might be financed, e.g. own resources, bank borrowing, etc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)  Financial Overview & Credit Requirements

 

 

The financial characteristics of Irish dairy farming will continue to depend primarily on milk price, and future milk prices will be determined by various market and policy factors, which are uncertain.

 

 

There has been increased volatility in recent years in Irish and International milk prices, which are linked directly to international dairy commodity prices, and that volatility is expected to continue.

It is important to note that the future milk prices used in this document are not forecastsand are selected merely to illustrate the potential levels of income under different market conditions. Similarly, the input prices used are not forecasts. While milk prices in 2020 may be higher than the examples of price used in this document, it is also possible that input costs will be higher. Indeed, it is possible that major shifts in milk prices and input costs will be correlated to some extent – particularly if global commodities undergo major price shifts, which would be additional to the increased volatility that is already expected in milk prices.

 

For comparison purposes, the graph below shows three distinct phases in the price evolution of grain – with each phase marked by increased volatility and a permanent stepped increase in average price across the time period. A similar scenario for milk may unfold.

 

 

Courtesy of Rabobank (2011)

 

 

Basic Financial Model of Irish Dairy Production

 

To consider the overall financial characteristics of Irish dairy production, one could use a basic model of income, assets & liabilities, and cash flows.

 

The analysis below uses projections for two 2020 scenarios (+30% and +50% milk output) with a view to showing some of the main changes that are likely to occur in the sector in that timeframe. This analysis focuses particularly on the variables that determine the repayment capacity of the sector as a whole and give an indication of the borrowing capacity of the average farmer in the sector. It is hoped that this analysis may be of use in forming a view of the debt requirements and debt capacity of the industry.

 

Table 10 provides a financial overview of Irish dairy production in 2010 and 2020. The data for 2010 is based on an average milk price of 29 c/L, and in this table 30 c/L is assumed for both 2020 scenarios.  The data for 2020 is derived from the average of the milk yield and spare capacity assumptions described in Section 3.

 

Based on these milk volumes and milk prices, Milk Sales would rise from €1.45 billion in 2010 to between €1.95 and €2.25 billion in 2020. Other Farm Sales are the non-milk farm sales of milk producers, and Subsidies are total subsidies received by milk producers. Gross Farm Output is calculated at €2.07 billion in 2010, rising to between €2.54 and €2.86 billion in 2020.

 

Year

2010

2020 (30% expansion)

2020 (50% expansion)

Milk Sales (millions of litres)

5,000

6,500

7,500

Avg. Milk Price (cents) / litre

29.0

30.0

30.0

Milk Sales (€m)

1,450

1,950

2,250

Other Farm Sales (€m)

250

288

310

Subsidies (€m)

370

300

300

Gross Farm Output (€m)

2,070

2,538

2,860

Total Costs excluding Interest (€m)

1,050

1,365

1,575

Family Farm Income before Interest (€m)

1,020

1,173

1,285

Annual Interest  5.5%(€m)

94

83

130

Family Farm Income (€m)

927

1,090

1,155

Farm Debt (€m)

1,700

1,500

2,360

Liquid Assets (€m)

2,940

3,382

3,728

Owned Land & Buildings @ €12,000/LU (€m)

13,200

14,952

17,250

Total Owned Assets (€m)

16,140

18,334

20,978

 

Table 10: The Irish dairy production industry – financial overview

 

Total Costs excluding Interest are estimated at 21 c/L. These include all Direct Costs (fertiliser, feed, fuel, seed, vet, AI, etc) and all Farm Overhead Costs (non-family labour, land rental, depreciation, etc) normally deducted in calculating Family Farm Income (with the exception of Interest). It is assumed that depreciation is approximately equal to capital re-investment required for maintenance, and no inflation has been assumed in costs.

 

Family Farm Income (FFI) after Interest is calculated at €927 million in 2010, rising to between €1.09 and €1,155 billion in 2020 (FFI is as defined by Teagasc, namely “Reward to Unpaid Family Labour, Owned Land & Management”). Annual Interest is based on 5.5% p.a. of Farm Debt, which is estimated at €1.7 billion in 2010 and between €1.5 and €2.4 billion in 2020.  The 2020 Farm Debt estimates are mid-range figures from the scenarios in Section 3.

 

Liquid Assets include stock, plant and machinery but exclude the value of milk quota, which is ignored in this analysis. Liquid Assets are estimated at €2.94 billion in 2010 and between €3.38 and €3.73 billion in 2020. Owned Land & Buildings are taken at a value of €12,000 per livestock unit. This is an arbitrary figure but it is not critical in this analysis. Total Owned Assets are the sum of Liquid Assets and Owned Land & Buildings.

 

A Sector with Significant Repayment Capacity

 

The level of indebtedness of the industry in the future will depend on many factors – milk and input prices in the intervening years, production efficiencies, volume expansion after 2015, rate of change in ownership of farms, etc. However, at current prices the sector in general has significant repayment capacity, and if current prices are sustained, it is likely that most of the debt in 2020 will be new debt drawn down between now and then.


(5)  Key Metrics for Dairy Farm Credit

 

 

Table 11 shows the key debt ratios for the Irish dairy production industry, treated as a single entity and based on the data in Table 10.

 

 

Key Debt Ratios

2010

2020 (30% expansion)

2020 (50% expansion)

FFI before Interest / Farm Interest

10.9

14.1

9.9

Milk Sales / Farm Interest

15.5

23.5

17.3

Farm Debt / FFI before Interest

1.7

1.3

1.8

Farm Debt / Milk Sales

1.2

0.8

1.1

Liquid Assets / Farm Debt

1.7

2.3

1.6

Total Assets / Farm Debt

9.5

12.2

8.9

 

Table 11: Key debt ratios for the Irish dairy production industry

 

 

Interest Cover Ratios:

 

  1. Family Farm Income before Interest, divided by Interest

 

This ratio indicates the number of times that the annual interest is covered by the cash flows available from annual Family Farm Income – it changes from 10.9 in 2010 to between 14.1 and 9.9 by 2020.

 

  1. Milk Sales divided by Interest

 

This ratio indicates the number of times that the annual interest is covered by the annual cash flows from Milk Sales – it changes from 15.5 in 2010 to between 23.5 and 17.3 by 2020.

 

 

Debt / Cash Flow Ratios:

 

  1. Farm Debt divided by annual Family Farm Income before Interest

 

This ratio indicates the number of years of Family Farm Income that it would take to clear the debt if all Family Farm Income was used to pay down debt – it is 1.7 years in 2010 and between 1.3 years and 1.8 years by 2020.

 

  1. Farm Debt divided by annual Milk Sales

 

This ratio indicates the number of years of Milk Sales that it would take to clear the debt if all Milk Sales income was used to pay down debt – it is 1.2 years in 2010 and between 0.8 and 1.1 years by 2020.

 

 

Asset Cover Ratios:

 

  1. Liquid Assets divided by Farm Debt

 

This ratio indicates the capacity for immediate repayment of the debt by sale of Liquid Assets – it changes from 1.7 in 2010 to between 2.3 and 1.6 by 2020.

 

  1. Total Assets divided by Farm Debt

 

This ratio indicates the capacity for immediate repayment of the debt by sale of all assets – it changes from 9.5 in 2010 to between 12.2 and 8.9 by 2020.

 

The Average Debt Ratios

 

These average debt ratios describe an overall sectoral situation of relatively low indebtedness relative to income and cash flows and a high degree of asset cover. In effect, at a milk price of 29 c/L, the average Irish milk producer in 2010:

 

  • Has Family Farm Income (pre-Interest) of almost €11 for every €1 of interest due on farm debt

 

  • Has over €15 in milk sales for every €1 of interest due on farm debt

 

  • Could repay all Farm Debt in 1.7 years with Family Farm Income

 

  • Could repay all Farm Debt in 1.2 years with Milk Sales income

 

  • Has Liquid Assets that are worth 1.7 times all Farm Debt

 

  • Has Total Assets that are worth 9.5 times all Farm Debt

 

If milk price in 2020 is 30 c/L, all of the ratios would continue to be favourable (under the expansion assumptions made above).

 

One key question for lenders is the relevance of these ratios in the case of individual farmers. The Working Group is keen to work with lenders to establish standard metrics that can be applied in a transparent manner across the industry to indicate the repayment capacity of individual farmers. Ideally, such metrics should be straightforward and readily understood by farmers, their advisors, their Co-ops and their lenders. They could be available as an initial screen for credit applicants and as a guide to overall debt capacity for dairy farmers.

 

Standardised data on the performance of the sector in servicing current debt is not publically available. However, discussions with banking professionals suggest that the sector’s performance is generally strong and that most instances of difficulty relate to very specific personal or operational circumstances (such as off-farm investment).


(6)  Financial Effects of Lower Milk Prices due to Price Volatility

 

 

Table 12 provides the same overview of the sector as in Section 5 above, but with milk price  of 25c/L  and 20 c/L in 2020 across both expansion scenarios (again, it must be emphasised that that the future milk prices used in this document are not forecasts and are selected merely to illustrate the potential levels of income under different market conditions).

 

 

Year

2010

2020 (30% expansion)

2020 (30% expansion)

2020 (50% expansion)

2020 (50% expansion)

Milk Sales (millions of litres)

5,000

6,500

6,500

7,500

7,500

Avg. Milk Price (cents) / litre

29.0

25.0

20.0

25.0

20.0

Milk Sales (€m)

1,450

1,625

1,300

1,875

1500

Other Farm Sales (€m)

250

288

288

310

310

Subsidies (€m)

370

300

300

300

300

Gross Farm Output (€m)

2,070

2,213

1,888

2,485

2,110

Total Costs excluding Interest (€m)

1,050

1,365

1,365

1,575

1,575

Family Farm Income before Interest (€m)

1,020

848

523

910

535

Annual Interest (€m)

94

83

83

130

130

Family Farm Income (€m)

927

765

440

780

405

Farm Debt (€m)

1,700

1,500

1,500

2,360

2,360

Liquid Assets (€m)

2,940

3,382

3,382

3,728

3,728

Owned Land & Buildings @ €12,000/LU (€m)

13,200

14,952

14,952

17,250

17,250

Total Owned Assets (€m)

16,140

18,334

18,334

20,978

20,978

 

Table 12: Financial overview – with lower milk price outlook

 

 

This scenario shows Gross Farm Output ranging from €1.89 and €2.49 billion in 2020 and Family Farm Income moving from €927 million in 2010 to between €405 and €765 million in 2020.

 

 

 

Key Debt Ratios

2010

2020 (30% expansion & 25c/L

2020 (30% expansion & 20c/L

2020 (50% expansion & 25c/L)

2020 (50% expansion & 20c/L)

FFI before Interest / Farm Interest

10.9

10.2

6.3

7.0

4.1

Milk Sales / Farm Interest

15.5

19.6

15.7

14.4

11.5

Farm Debt / FFI before Interest

1.7

1.8

2.9

2.6

4.4

Farm Debt / Milk Sales

1.2

0.9

1.2

1.3

1.6

Liquid Assets / Farm Debt

1.7

2.3

2.3

1.6

1.6

Total Assets / Farm Debt

9.5

12.2

12.2

7.3

7.3

 

Table 13: Key debt ratios – with lower milk price outlook

 

 

Some of the key debt ratios would be less favourable, as shown in Table 13. However, the Interest Cover Ratios would still be strong with:

 

  • FFI (pre-Interest) / Interest in 2020          from   10.2  to 4.1
  • Milk Sales / Interest in 2020                        from 19.6 to 11.5

 

Debt / Cash Flow multiples would also remain strong with:

 

  • Farm Debt / FFI (pre-Interest) in 2020    from 1.8 to 4.4
  • Farm Debt / Milk Sales in 2020                   from 0.9 to 1.6

 

The Asset Cover Ratios would remain largely unchanged.

 

For many Irish dairy farmers, capital is a critically important farm input, and its availability, terms and price will influence the pace of change in the industry generally and particularly the expansion of production after 2015.

 

This analysis deals with the Irish dairy production sector as a single entity and it calculates overall averages for the sector. Even at this level, the central conclusion is clear – in this sustainable and resilient industry with a highly committed ownership and workforce, the level of indebtedness is low.

 

Overall Sector Exposure

 

In considering its exposure to the sector, a lender may take the view that lending to dairy farmers, dairy processing and dairy marketing all come within a specific category of lending. All three areas require more capital as volumes increase, and all three areas enjoy the same security that comes from an efficient, resilient and sustainable industry, producing a basic food product that faces increasing demand.

 

Therefore, for information purposes, the Irish Dairy Board’s (2010) estimate of the financial implications for the supply chain beyond the farm gate of meeting the 50% expansion in milk output envisaged in Food Harvest 2020 is shown below:

 

  • Projected capital expenditure  of €400 million for additional processing capacity
  • Additional working capital requirement of €250 – €300 million for finance and storage
  • Projected investment of €200 million in route-to-market infrastructure and marketing


(7)  Farm-Level Averages

 

Table 14 provides a financial overview of the average Irish dairy farmer, under milk price scenarios of 20c/L, 25c/L and 30 c/L in 2020 and using the scenarios for milk output and farmer numbers outlined in the previous sections.

 

It shows average Milk Output per farmer rising from 278,000 litres in 2010 up to 555,556 litres in 2020 and average FFI per farmer changing from €51,000 in 2010 to a range between €30,000 and €86,000 in 2020. Average Farm Debt per farmer would rise from €94,000 in 2010 and to range between €115,000 and €175,000 in 2020. Average Liquid Assets per farmer would rise from €163,000 in 2010 to between €260,000 and €276,000 in 2020. FFI per litre of milk and per livestock unit are also calculated.

 

 

Average per Farmer

2010

(29c/L)

2020 (30% expansion & 20c/L)

2020 (50% expansion & 20 c/L)

2020 (30% expansion & 25c/L)

2020 (50% expansion & 25c/L)

2020 (30% expansion & 30c/L)

2020 (50% expansion & 30c/L)

Number of Dairy Farmers

18,000

13,000

13,500

13,000

13,500

13,000

13,500

Average Herd Size

61

96

107

96

107

96

107

Milk Output (litres)

277,778

500,000

555,556

500,000

555,556

500,000

555,556

Milk Sales (€)

80,556

100,000

111,111

125,000

138,889

150,000

166,666

Gross Farm Output (€)

115,000

145,231

156,296

170,231

184,296

195,231

211,852

Total Costs excluding Interest (€)

58,333

105,000

116,667

105,000

116,667

105,000

116,667

Family Farm Income before Interest (€)

56,667

40,231

39,629

65,231

67,629

90,231

95,185

Annual Interest (€)

5,194

6,346

9,615

6,346

9,615

6,346

9,615

Family Farm Income (€)

51,473

33,885

30,014

58,885

58,014

83,885

85,570

Farm Debt (€)

94,444

115,385

174,815

115,385

174,815

115,385

174,815

Liquid Assets (€)

163,333

260,154

276,148

260,154

276,148

260,154

276,148

Owned Land & Buildings @ €12,000/LU (€)

732,000

1,152,000

1,248,000

1,152,000

1,248,000

1,152,000

1,248,000

Total Owned Assets (€)

895,333

1,412,154

1,524,148

1,412,154

1,524,148

1,412,154

1,524,148

Family Farm Income:
per Litre (cents)

18.5

6.8

5.4

11.8

10.4

16.8

15.4

per Livestock Unit (€)

844

353

281

613

542

874

800

 

Table 14: Financial overview of the average farmer under different price scenarios

 

It should be noted that the purpose of the scenarios in Table 14 is to demonstrate the potential impact of milk price volatility at a particular point in time and the scenarios are not projections of milk price averages over the coming decade.

 

Table 14 shows that the average dairy farmer has an improved repayment capacity in 2020 under the 25c/L and 30c/L milk price scenarios than in 2010, due to the benefits of increased scale. It also shows that there is not a significant difference in farmers’ repayment capacity between the 30% and 50% expansion scenarios. This is illustrated in the chart below.

 

 


(8)  Role of Dairy Co-ops in Credit Administration

 

 

In credit as in other areas, difficulties for dairy farmers are difficulties for dairy Co-ops, and it is generally agreed in the industry that Irish dairy Co-ops will do whatever they can to facilitate arrangements between dairy farmers and lenders. In particular, Co-ops could facilitate the following processes:

 

  • general communication from lenders to farmers in relation to credit

 

  • credit applications by farmers

 

  • credit assessment by lenders (can be facilitated by Co-ops on farmers’ expressed instruction)

 

  • collection from milk payments of loan repayments & interest

 

  • general administration of the relationship between lender and borrower based on written agreement and understanding by both

 

 

In summary, the dairy Co-ops are willing to assist the lender in any manner possible subject to the critically important condition that the Co-op will not incur any liability for any farmer debt. The Co-ops are willing to consider a role in assisting banks in credit assessment, based on the farmer data available to the Co-ops and on foot of a written agreement by the farmer to the Co-op, but the lending relationship will always be between lender and farmer.

 

In this context, the term “Co-op” is being used to include all parties that stand immediately downstream of producers and it includes Co-ops that do not themselves physically process milk but stand between the producer and the actual Co-op. Table 14 (Appendix A) shows Irish Dairy Co-ops in the context of this discussion.

 

(9)  Exploring Options for Credit Security

 

Recently there have been substantial changes in the law and procedure for providing security for loans and the registering of charges.  In essence, the Land and Conveyancing Law Reform Act 2009 provides that effectively all security for farm loans is now based on a charge on the land. All previous methods of providing security have been abolished.

 

Furthermore, the law and procedures set out by the Irish Property Registration Authority provide that to be effective the charge must be registered in accordance with the prescribed form. Virtually all agricultural land is registered land and therefore will have a folio number. Probably all existing loans to farmers, taken out prior to the new Act and subsequently, are now secured by way of a registered charge on the land in question.

 

Two issues arise from the above. First, there is clear legal and formal security for the lender. In effect, lending to farmers has the same legal security now as a loan based on the traditional mortgage on a dwelling.  The other issue is the cost of registration of the charge. There is evidence that the cost being charged by solicitors is excessively high at almost €1,000 per case. This is excessive if the title of land to which the charge applies is up-to-date.

 

Indeed a significant number of lending institutions have agreed and lodged standard conditions with the Irish Property Registration Authority. In conjunction with these standard conditions and a single page form entitled “FORM 68”, the charge can be registered against the folio of the land in question.  A copy of Form 68 is attached at Appendix B showing the simplicity of the procedure.

 

Where the land already has a charge on it with regard to existing borrowing, a further charge can be registered. Where there would be a package of funding involving a number of farmers, the arrangements are now in place to streamline the security aspect and to significantly reduce the cost of providing security — i.e. registration of charge. There is however, a fee of €125 payable to the Irish Property Registration Authority for every charge registered.

 

In summary, the cost of providing security in the form of registration of a charge is not a major issue and in any event could be substantially reduced.  The key point, however, is that from a lender’s point of view, full legal and registered security can be readily obtained.

 

This, combined with repayment capacity and the very strong record of dairy farmers generally in servicing debt, clearly shows that dairy farming is a sector with particularly low credit risk, which should be reflected in both the availability and cost of credit to dairy farmers.

 

Other Security Options

 

The security options available to expanding dairy enterprises will vary. Where a famer holds equity in land, a term loan secured against the land will be the probable option. However, many dairy enterprises will use land lease arrangements (including long-term leases) as a basis for their expansion. In these circumstances, alternative security options will be necessary – such as chattel mortgages and stock mortgages. These are already common in New Zealand and Australia.


(10)  Conclusion

 

 

The purpose of the document is twofold:

 

  1. 1.       To initiate constructive dialogue between the banks the sector; both dairy farmers and Co-ops

 

  1. 2.       To inform banks of the lending opportunity

 

 

The concepts and proposals put forward in this document have very broad support from the dairy sector, including farmers, Co-ops, and other stakeholders. In this exercise, the core objective of the industry is to ensure that:

 

  • Irish dairy farmers have access to credit on terms that are in line with those available by their counterparts in other Euro Zone countries

 

  • There is sufficient credit available to finance profitable expansion of Irish dairy production

 

  • Lending arrangements, including repayment schedules, take account of milk price volatility and the long-term nature of farming investment

 

  • The cost of providing security is minimised

 

  • All suitable forms of security are considered and utilised


(11)  Appendices

 

(A)  Irish Dairy Co-operatives

 

 

 

Glanbia
Kerry
Dairygold
Arrabawn
Ballinfull
Bandon
Barryroe
Boherbue
Bunnoe
Callan
Carbery
Centenary
Connaught Gold
Corcaghan
Doapey
Donegal
Drinagh
Drombane
Fealesbridge
Kill
Lakelands
Lee Strand
Lisavaird
Maudabawn
Mullinahone
Newtownsandes
North Cork Creameries
Oldcastle
Poles
Tipperary
Town of Monaghan
Wexford

 

 

Table 14:  Irish Dairy Co-operativess


(B)  Form 68

 

                                                         
FORM 68

Charge for future advances  (rules 52, 113)

LAND REGISTRY

County                                                   Folio

 

Charge dated the                  day of                                                     20            .

A.B., the registered owner, (or the person entitled to be registered as owner) hereby charges the property set out in the schedule hereto with payment to CD of all sums owing and due from time to time and covenanted to be paid in respect of future (or, present and future) advances to the said AB and secured by this charge, subject to such terms and conditions, covenants and obligations as are set out in the General Terms and Conditions lodged in the Land Registry under reference … .

The said A.B. hereby assents to the registration of this charge as a burden on the property   The address in the state of the said C.D. for service of notices and his description are:-

Schedule

(Description of property charged)

Signed (or, Signed, sealed) and delivered

by A.B in the presence of:

 

 

Signed (or, Signed, sealed) and delivered

by C.D. in the presence of:

NOTE: Where desired, the covenants for title implied by the chargor charging “ as beneficial owner” may be incorporated by inserting these words in the deed of charge after the name of the chargor. See section 80 of the Land and Conveyancing Law Reform Act 2009.