The level of borrowings within farm businesses in NI has reduced from the peak seen last year.

Most recent figures published by the British Bankers’ Association (BBA) show that total borrowings from the NI agriculture, hunting and forestry sector fell by 5.5% in the final quarter of 2016 to £956m.

In the first half of 2016, sector borrowings in NI pushed over the £1bn mark to reach £1,018m at the end of June.

Debt was relatively unchanged in the third quarter of the year at £1,012m but this reduced by £56m in the final three months of the year. Debt is now at its lowest level since the first quarter of 2015.

The figures from BBA include bank loans and overdrafts, but not credit from suppliers or asset finance.

Speaking to the Irish Farmers Journal, Danske Bank’s head of agribusiness Robert McCullough said that support given to the dairy industry was a key contributor to increased borrowings in the earlier part of last year.

That came mainly through overdraft extensions, short-term loans and capital holidays on existing loans.

However, the issuing of direct payments in the final quarter of 2016, as well as improved milk prices, have led to the recent reduction in total farm borrowings.

“I would expect that trend to continue as most dairy farmers are making inroads into dealing with legacy debt,” McCullough said.

He also pointed out that nearly half of NI farmers do not borrow and are in a position to bank EU direct payments for use later in the year. These payments received a £39m boost in NI last year due to a more favourable exchange rate.

Second tranche

If the current trends continue, McCullough thinks that more dairy farmers might be in a better position to avail of the second tranche of the Capital Grant Scheme, which is expected to open in the autumn of 2017.

“The important question is will the business be robust enough to deal with a future dairy downturn after a large capital expenditure programme.

“In many cases the answer is yes, but those who have struggled most through this recent downturn cannot take such a decision lightly,” he added.