Additional working capital borrowed by dairy farmers over the past two years is now being paid down as farmers move off interest only loans.

According to agri-managers working with lending institutions in NI, the majority of farmers are now on capital and interest repayments as milk prices continue to rise.

On some farms where there is a small surplus of cash, farmers have voluntarily increased repayment rates to reduce farm debt levels.

Others have approached banks to fund herd expansion or purchase of land.

There has also been interest in modernising dairy parlours under Tier 2 of the Farm Business Improvement Scheme.

New loans are only being issued where farms are meeting current financial commitments and have repayment capacity to cope with any future downturn in milk prices.

Those questioned in the banking industry maintain that capacity to repay new loans is now based on a milk price reflective of the past five to 10-year period, which is approximately 23p/l to 25p/l.

Where farmers still have high levels of merchant credit and hire purchase commitments, agri-managers said that they will continue to support customers who remain under cashflow pressure provided the business is well structured and controlling costs of production.

Earlier this year, Danske Bank issued some customers with a letter requesting they seek banking arrangements with an alternative lending institution.

According to Robert McCullough, head of agribusiness with Danske Bank, the letters were issued to a small pool of customers who have a long-term legacy of debt and are failing to keep up with repayment commitments.

In some cases, they might not have moved to address high production costs and cannot make loan repayments even with improved milk prices. Others have taken on new hire purchase agreements, which have not been leased through Danske but are ultimately being funded by the bank.

McCullough says there is no timeframe given to farmers for moving to another bank and in the interim, Danske Bank is currently working with these customers to keep businesses operational.

Policy

McCullough added that it is Danske Bank’s policy to support customers, where possible, and advises farmers experiencing cashflow pressures to contact a member of the bank’s agri team as early as possible to address the issue.