To be refused a loan application nine times says a lot about what the banks thought of this proposed business venture. To apply for a 10th time, and to be successful, probably says more about the person than anything else.

Kevin Moran is the youngest boy in a family of 11. He has five older brothers. He grew up on a mixed dairy and beef farm in Claremorris, Co Mayo. The 50ha Mayo farm is typical of the region – heavy and fragmented.

“Despite knowing I’d never take over the home farm, I went through secondary school with complete clarity on what I wanted to do in life. Some of my friends still don’t know what they want to do but I always knew I wanted to be a dairy farmer.”

Kevin went to Mountbellew Agricultural College after finishing school and ended up winning the national Student of the Year award for 2013.

That year he began to lease a farm off his uncle Joe in Caherlistrane, Co Galway, 40km away from home in Claremorris. Joe had been a dairy farmer but retired a few years previously and his 32ha farm was let out on conacre.

The land in Caherlistrane is good – typical east Galway farmland with dry stone walls enclosing small herds of cattle and sheep. The farm was all in grass and roadways were in place but had become overgrown. Paddock fences, an old six-unit milking parlour and cubicles for 50 cows plus a mediocre water supply meant the farm was just about suitable for milking cows.

Working capital

So Kevin had his farm. What he didn’t have was capital. He needed money to buy cows and fix up Joe’s farm to make it ready for milking. He also needed working capital. Working capital is money to buy meal, silage and fertiliser, small things like fixing gates and buying things such as buckets and brushes. All these things add up, and need to be paid for before money starts to come in.

As a 19- year-old, fresh out of agricultural college, Kevin’s savings were small. He had no trading track record, only his word and a strong work ethic along with a solid, hardworking family background. Years ago, a bank manager would have funded him based on this alone, but following the financial crash the lending requirements are much more stringent.

“So far I’ve done about 25 business plans. It seems incredible as I’m only 22 but they were all done in order to get finance at various times. I would do a plan and it would be rejected for whatever reason so I would do another plan which addressed those issues but then this would be rejected also and so forth.”

Security

Security was the big issue. Kevin didn’t own any land that he could borrow against. This is one of the biggest issues facing young people entering the industry. Kevin needed someone to back him. His uncle Joe stood up, offering the banks some of his land as collateral. This was the break that Kevin needed with the banks.

Only for my uncle’s support in providing the security for the first loan I wouldn’t be where I am today

Joe deserves great credit for this. Yes, he was backing his nephew, but it was still a risk. As a retired bachelor farmer, his main asset was his land. By offering this as collateral for a loan he was putting the asset at risk. A lot could go wrong, what if Kevin’s cows got wiped out with TB? What if milk prices collapsed for a long period? What if Kevin, as a green 19-year-old couldn’t hack it? Who would repay the loan then?

Achievements

Joe needn’t have worried. Kevin’s achievement of winning Student of the Year was surpassed by being offered a Nuffield Scholarship in 2014 and he also became a monitor farmer in the Teagasc/Aurivo programme. In 2015, he milked 105 cows, producing over 45,000kg of milk solids (1,125kg MS/ha) and will grow over 15t of grass per hectare. The farm and cows look fantastic.

When I visited Kevin, he was after securing a new long-term lease from another family member. His uncle Michael owns 40ha and 28 are across the road from Kevin’s existing platform. I asked Kevin if it was always part of the plan to lease Michael’s farm.

“Definitely not. Michael is an excellent drystock and sheep farmer and he started contract-rearing my heifers two years ago. I was only hoping he’d keep contract-rearing them as he was doing a great job so I didn’t expect him to retire at all, but I was delighted when the conversation came about.”

Challenges

Michael and his family have agreed a 15-year lease with Kevin. This allows Kevin to increase cow numbers, but once again this presents him with challenges.

In 2014, he increased the size of the milking parlour from six to 12 units, doubled the number of cubicles and purchased a new bulk tank. Between these items, and the money invested at the start to purchase the cows and get the farm set up, current debt level stands at about €2,500 per cow.

With the addition of Michael’s land, he now has a milking platform of 64ha which is capable of carrying 200 cows, with youngstock and some of the silage outsourced. With 105 cows due to calve down in 2016, he will be well behind maximising the potential of the block at current stock numbers.

Purchasing cows is an option. It will be the fastest way for Kevin to get numbers up. Remember, he needs output to increase as he has a lot more rent to pay back now, after taking on the extra 40 acres. But cows cost money.

Then when he has 200 cows milking, the 12-unit parlour will be under pressure with 17 rows and Kevin will be spending twice as long milking. In addition, the new land is across the road from his yard so cows will have to cross a busy road morning and evening when grazing that half of the farm. Is extra labour needed for this or is an underpass justified?

More road

He will also need about 500m of farm roadways to link up the two farms. There are roadways on the new land, but they don’t go as far as the public road between the two farms so a link roadway is required to connect the two blocks. More money is needed for water. There is only half-inch piping on the current farm but the troughs are big at 200 gallons each. On the new land there is also half-inch piping, but the troughs here are smaller, at 80 gallons each. Ideally, Kevin would like to upgrade the water on both sides of the farm – put in a larger bore pipe and have large troughs everywhere.

So if we factor in purchasing 100 cows at €1,400 each, spending €9,000 on roadways and €5,000 on improving the water infrastructure, Kevin will be spending €154,000 before any money is spent on an underpass or extending the parlour. There are sheds on the new land that are suitable for housing cows and between the two yards there is sufficient housing for over 200 cows so extra cubicles are not needed.

My thinking is, if I could buy some land and pay it off as quickly as possible, then that land could be used as collateral for the next venture

Looking in from the outside, it seems that Kevin has his hands full – running an expanding dairy farm, paying down debt, completing a Nuffield and enjoying life as a 22-year-old living on the outskirts of Galway city.

Yet Kevin isn’t resting on his laurels and has ambitions to grow the business further. Land ownership is on the horizon. For him to buy land today could be looked at in two ways; one, adding more debt and risk to the business or two, adding more opportunity for the business. I know Kevin thinks it will do the latter.

“Only for my uncle’s support in providing the security for the first loan I wouldn’t be where I am today. Whether we like it or not, property is the only real asset that banks will take as security when taking out a loan. My feeling is, in six or seven years’ time, if I want to take on a second block, or expand the home farm further, I will be back in the same position that I was in a few years ago; not having enough security for a new loan. My thinking is, if I could buy some land and pay it off as quickly as possible, then that land could be used as collateral for the next venture.”

Funnily enough, Kevin will find it a lot easier to get finance to buy land than he will to buy more cows, despite the fact that land will add more debt and will provide a lower return than buying cows or renting more land. From the bank’s perspective, the risk is a lot less when lending money for land because, in the worst-case scenario, the land can be repossessed and sold on again – not so straightforward when livestock are involved.

Lessons learned to date

Clarity on his future direction is one thing Kevin has in abundance. He is equally clear on the mistakes he has made to date and is adamant to learn from them.

“I bought the wrong cows on day one. I was only 19 and I was a bit too focused on buying healthy cows and not focused enough on buying cows with high fat and protein and this is really catching me now, because there is an extra couple of cent per litre that I am not getting because my solids aren’t high enough.”

Kevin bought mostly calved Holstein Friesian cows back in 2013 for an average price of €1,180. Last year, the herd produced 393kg of milk solids from about 400kg of meal. Average fat was 3.80% while average protein was 3.40%. Calving interval was 375 days, six-week calving rate was 72%. Overall, there was 10% of the herd not in-calf after 16 weeks of breeding.

“These are all below where they need to be and well off what the top farmers are achieving, so I’ve more work to do in this area. As the herd expands, progress will be made faster because I can buy in better animals and the percentage of younger cows in the herd will be higher.”

For the last two years, Kevin has been selling his Holstein Friesian in-calf heifers and buying in higher EBI, Jersey crossbred heifers. He uses high-EBI Friesian and Jersey dairy AI for 16 weeks in an effort to generate as much youngstock as possible.

Comment

Kevin is a unique individual. He has skills which would make him successful in any career. Clear thinking, ambition, humility and excellent communication skills plus an ability to take a step back and analyse a situation are just some of his attributes. Described by some as having wisdom beyond his years, he is an exceptionally good listener who has received and acted upon good advice.

Capital investments have not only been minimised but they have also been postponed. Doing things like milking in the old parlour and scraping the sheds by hand for the first few years helped keep capital spend down, and instead, investments were made in things with a greater return such as reseeding and roadways.

Looking at the wider industry, how replicable is Kevin’s success and can other young people, without access to land follow in his footsteps? In all likelihood, the alternative approach for Kevin to have ownership in a dairy farm was to work on a farm, build up experience to farm manager level and when he has sufficient capital, work with a land owner to become an equity partner or share milker.

Kevin’s route has been more direct and it probably means his net worth will grow faster. Yes, he was fortunate in that he was able to secure the lease and the security from his uncle, but it still takes huge courage and conviction in your own ability to go ahead with it. The fact that he did this at 19 speaks volumes.

Let’s be realistic; not everybody is a Kevin Moran. He is a risk taker and that risk is still being played out. However, the key messages I take from Kevin’s story is that opportunity exists for all, irrespective of circumstance and that good farming practices – following best advice in herd genetics and grassland management are key to progressing in dairy farming.

This article first appeared in last autumn's issue of the Irish Dairy Farmer. Work has already begun on this year's issue, which will be out on the shelves later this year.