According to the most recent Teagasc National Farm Survey results, 64% of dairy farms in Ireland had an average debt of just over €110,000 in 2019. This means that over one-third of dairy farmers in Ireland have no debt at all.

So what of the ones who do? Is €110,000 a high level of borrowings? In financial speak, there are two ways of looking at this – the first is to look at leveraging and the second is looking at the debt to asset ratio.

The average income on farms with debt in 2019 was €74,000. Depreciation is included in these costs, but own labour, tax and capital repayments on loans are not. Based on National Farm Survey (NFS) data for all dairy farms and putting a value on own labour of €45,000, we can estimate that the EBITA (earnings before interest, tax and amortisation) is just over €50,000 on average. So, the average dairy farm with debt is leveraged by 2.2 times their EBITA.

Debt by itself doesn’t make you highly geared – on-farm performance has a big role to play too

Financial analysts and investors would generally view businesses with debt levels of less than five times their EBITA as being relatively safe, as they have enough cover to repay loans and pay dividends.

Farms that have high debts and low profits will be highly leveraged, while farms with low debts and high profits will be lowly leveraged. Therefore, debt by itself doesn’t make you highly geared – on-farm performance has a big role to play too.

This is reflected in the NFS results, where the different sectors are compared.

On farms with debt, average dairy farm debt is 1.61 times family farm income, while average debt on cattle-rearing farms is 2.53 times the family farm income, despite dairy farms typically having about four times the debt of beef farms.

Debt to asset

In terms of debt to asset ratio, the average dairy farm is in a pretty safe position.

Looking again at the NFS data for 2019, total assets on the average dairy farm were €1.27m, while the average debt on all farms was €75,000.

This gives a debt to equity ratio of just under 6% on average, which is very small in comparison to other businesses and is largely a reflection of the value of farmland. However, unlike other business assets, farmland is not a very liquid asset.

International perspective

The NFS data suggests that average debt level across all dairy farms in Ireland is around €940/cow. This figure is remarkably stable despite the massive investment dairy farmers have made over the last decade in extra stock, more efficient milking systems and environmental compliance with cow housing and slurry storage. For example, the average debt level was €1,011/cow in 2010.

This figure is also very low by international standards, indicating that Irish farmers have a healthy dislike of debt.

The high level of debt in these countries causes significant cashflow problems for many farmers

For example, in New Zealand the average debt level is €4,000/cow, €20,000/cow in Denmark and it is over €10,000/cow in Holland. However, it’s important to note that in Denmark, a high proportion of the debt is ‘intergenerational’ and will be passed on to the next generation. Farms in New Zealand are generally sold when a farmer retires, either publically or to a family member.

It is also important to note that the high level of debt in these countries causes significant cashflow problems for many farmers. This is particularly true in New Zealand, where a generation of light-touch financial regulation has resulted in 25% of farms having more than 70% of debt to asset value and many are struggling to repay interest and capital.


There are many reasons why farmers borrow money, but they generally revolve around land purchase, farm development, machinery and debt restructure. Ability to repay and security are the most important things lenders look at when assessing the farmer for a loan.

Borrowing money is a cost for the farmer and generates profit for the lender. Hence lenders are happy to loan more money to good farmers because they will make more profit from it at low risk. Farmers are right to be prudent about borrowing money, particularly if debt causes stress and sleepless nights, which it does for many people. No investment, whatever the return, is worth this.

Debt is a tool that can be used to improve the farm business and increase wealth in the long term

The way I see it, debt is a tool that can be used to improve the farm business and increase wealth in the long term. It is a cost, like feed and fertiliser, in that the interest needs to be paid to service the debt and the principal needs to be repaid also. When considering borrowing to fund an investment, the key thing to look at is the return. This is the extra profit generated from the investment, divided by the cost of the investment.

Savvy investors will look at the expected return in relation to the interest rate. If the return is less than the interest rate, it is a poor investment. The margin of safety is the difference between the expected return and interest rate. The greater the margin of safety, the better the investment.

Some investments, such as extra slurry storage, may have a low return on investment, but should be viewed in the context of the overall farm business, as without it, there may not be a viable business.


Asset-backed bank finance has been the traditional way Irish farmers have borrowed money. Typical interest rates vary from 3% to 5% and the money is secured against an asset, typically land. This means that in the event of failure to repay the loan, the bank has recourse to the land that the loan is secured against.

Unsecured bank finance is also available. This is generally limited to a maximum loan size of €70,000 to €80,000 and the interest rates are usually higher than for secured loans, at between 5% to 7%. This type of finance is often used by young farmers starting out, who may not have the security needed, or where farmers don’t want to tie up land as security and are happy to pay higher interest rates where the amount being borrowed is relatively low.

One of the big changes in farm finance over the last number of years has been the increased borrowing options from non-traditional banks such as Credit Unions.

Credit Union farm loans are unsecured against land and can be used for a variety of purposes. The maximum amount that can be borrowed under a Credit Union loan is €50,000. The maximum term is seven years and typical interest rate is 6.75%.


Another option for dairy farmers is a MilkFlex loan. These are operated through Finance Ireland and most of the milk processors, with the exception of Dairygold and a few others. MilkFlex loans are secured against the farmer’s milk supply agreement and loan repayments are deducted directly from the milk cheque during the peak supply months. They are for a maximum of eight years, but repayments are reduced in periods of low milk prices, which pushes out the term to a maximum of 10 years. Loan amounts of between €25,000 and €300,000 are available. The interest rate on MilkFlex loans is 3.75%. In recent years, the Irish Government has gotten involved in lending, through State-backed loans such as the Strategic Banking Corporation of Ireland (SBCI) loan and COVID-19 support loans. They are administered through the pillar banks, but are usually over-subscribed. These loans are State-backed, so the farmer doesn’t need to provide security for loans up to €500,000.

There is at least one example of a farm business in Ireland availing of finance through the Employment Investment Incentive (EII) scheme

The interest rate in the SBCI fund is 4.5% for drawdowns less than €250,000 and 3.5% for drawdowns greater than this. SBCI loans cannot be used to finance livestock, land purchase or land drainage, but can be used for machinery and infrastructure.

There is at least one example of a farm business in Ireland availing of finance through the Employment Investment Incentive (EII) scheme. This gives tax relief to employees who invest in businesses at a rate of 40% on the sum invested.

So, if a person pays €50,000 in tax annually and invests €50,000 in an eligible business, they will get €20,000 off their tax bill. The business is then obliged to repay the investment in four years’ time.

However, if the business fails, the investment could be lost. By all accounts, this is a cumbersome way of securing finance, as the process is very costly and legalistic.


Leasing or hire purchase is another way of securing finance. This is a common method of financing farm machinery and milking parlours.Leasing is also growing in popularity among those looking to grow a dairy herd, whereby farmers with surplus stock lease their cows to farmers looking for cows. Generally, the agreed annual lease value is around 10% of the value of the cow, eg €150/year for a cow worth €1,500. There are many variations of lease agreements available.

In brief

  • Debt levels on Irish dairy farms have been stable over the last decade and are very low by international standards.
  • Servicing debt is a cost and debt can cause farmers stress and anxiety.
  • Debt should be looked upon as a tool to aid sensible investment, which will drive the business forward and increase wealth.