Any cuts to Irish farmers’ direct payments as a result of changes in spending in the EU budget will have a major effect on farm profitability and, in turn, the ability of farmers to borrow money, Eamonn O’Reilly of AIB has warned.

The agricultural adviser with the bank issued the warning at the AIB’s agri outlook event at the Tullamore Show on Sunday.

Direct payments

“Any drystock farmer that’s coming into ourselves looking to borrow money ... the first thing we look at is the level of direct payments coming into that farm. The next thing generally we look at is how much of that direct payment is being retained as profit.

“The sad reality is that if that guy is retaining more of his payment as profit than what he is spending on the farm, as in he’s profitable without a single farm payment, then he’s doing a really good job.

Confidence

‘‘That gives us a lot of confidence to lend that guy money,” he said.

O’Reilly said if the drystock sector is going to have a smaller piece of the direct payment parcel then it will have a major impact on the country’s cattle farmers and that while the income might be low on a lot of drystock farms, it actually keeps the whole rural economy active.

Keeping the rural economy going is key from an economic and a banking perspective.

Other sectors

Meanwhile, O’Reilly said that the tillage sector is less dependent on direct payments for borrowing but for the last two years, nearly 90% of income was coming from direct payments.

The dairy sector is also less reliant on direct payments for borrowing.