We are picking up reports of significant ‘hangover’ debt at merchants, vets and machinery contractors. Some merchants are clearly saying they have 20%-30% more debt on account, year-on-year.

By all reports this isn’t just the smaller farm operations, many significant larger farm operations have a lot of debt at co-op or merchant level.

We regularly ask the national banks what the farm debt position is, and the same answer keeps coming back – debt levels are low – only a fraction of our European competitors.

However, it is only part of the picture, and we have heard repeated concerns from farmers that they simply can’t get short-term credit fast enough from the national banks at times of short-term crisis like we have had this spring.

So what happens on-farm as a result? There is the mental fear and fatigue at farm level of not having the cash to pay for everyday items when required.

This mental anxiety can often lead to the most disastrous of consequences. Secondly, there is the poor decision making that comes from lack of access to short-term cash.

I know of farmers this spring that have taken individual cows (suckler and dairy) into marts to cash them in at completely the wrong time to optimise the value of the animal.

Thirdly, you can establish a very wrong impression of a small farm business that has run out of cash, but fundamentally is doing the right thing and making the right long-term decisions.

However, let’s be clear, you can also have farms that are over-stocked for the resources available, and the costs simply exceed the benefit of the extra stock.

Spread the blame

Now the blame can’t all go on banks. Small businesses must stand up for themselves and complete cash flows. If a spring calving dairy farmer dries up cows in September, as happened in 2023, it means there is no milk money coming in for a five or six month period from November to March or maybe even April.

I’m not saying the early dry off was the wrong thing to do, but cashflow must be factored in. The problem arises then when fodder or extra feed has to be purchased unexpectedly.

So what are the implications? Essentially the merchants carry the farm debt and long-term, this is unsustainable. The farm will ultimately pay a higher interest rate, making the debt costly.

It’s not only merchants that carry the debt – contractors and vets are now two other pivotal sources of funds that are serving the farming community.

I talked to two vets this week that said debt levels are up 10%-15% year-on-year. Again, that is not sustainable given the cost increases at input level for these businesses over the last number of years.

Two things that have fundamentally changed for farming in the last number of years – input costs have gone to a new higher level.

Secondly, the ‘real’ value of support payments has fallen through the floor – whether it is the BISS, the ACRES payment or the suckler and sheep incentives.

Inflation has eroded the payment significantly, and now if the farm has to buy plastic for round baled silage, it takes a significant chunk, if not all of the support payment, to pay for the goods.

So what’s the ask?

We need simple things like farm profitability or cost management tools to come back on the radar of farm advisers. We can talk all we like about emissions and water quality, but if the farm is not solvent, everything else pales into insignificance.

We need a national handle on merchant or service provider credit from some entity where national debt levels are tracked month-to-month, year-to-year.

The main banks at a minimum are going to have to rethink how short-term, unsecured funds are released for exceptional circumstances as we had in spring 2024 on some farms.

Meanwhile, we understand cabinet is signing off on a €120m ‘increased cost of business support’ in the form of grant aid and PRSI threshold changes for small retail businesses.

Farmers need something similar, but it must be focused around energy costs, because energy impacts heavily on so many farm inputs – fuel, plastic, feed, fertiliser, contractor charges etc.

We have been here before, it’s a cash crisis, not necessarily a profit crisis, but either way it is eroding confidence in the sector and ultimately will limit what providers are available to farmers whether that’s vets, machinery contractors, merchants or otherwise. That’s not where the industry wants to go.