As we build a world-class agri-food industry, funding the growth has never been more important. The investments can be seen first-hand in agribusinesses located in rural towns and villages across Ireland in the form of stainless steel, concrete and innovation centres. To date, the sector has invested some €700m in reaching our Food Harvest 2020 targets. While farmers invest preparing for a post-quota era, building scale in SMEs, through innovation and greater competitiveness, is a critical factor in adding value to farm output.

Gross new lending to non-financial, non-property-related small to medium enterprises (SMEs), of which agriculture is part, amounted to €1.6bn over the first nine months of 2014. This was €357m (29%) higher than the first nine months of 2013.

Agriculture continues to take the largest share of gross new lending, accounting for 30% (€464m in January to September 2014). Yet, as can be seen from Figure 1, farmers continue to pay down debt at a faster rate than they are borrowing.

Lending balances

The outstanding lending balances (total amount of loans/debt) peaked in March 2009, which reflected the increased borrowings for the farm waste management scheme – not an investment that generated increased returns but necessary in terms of compliance. The latest set of figures from the Central Bank show that the outstanding lending balances on farms now stand at €3.4bn.

A recent Teagasc report shows that Irish farms are lowly geared (borrowings compared to asset value), with an asset to liability ratio of 3%, which is significantly lower than the 15% EU average.

While certainly a competitive advantage in the context of growth in output, the figure does reflect lower investment than other EU countries and also our inter-generational system of farm transfer. Even though there is a high level of equity in Irish farms from continual investment from cashflows, it is critical that investments are made in assets that are productive and will generate income. This becomes even more important in times of volatile prices.

We have seen that global markets can move from shortage to oversupply overnight. Against this backdrop, the key message for farmers becomes less about the opportunity in China and more about the opportunity inside the farm gate.

Farmers must get the basic principles right – highly efficient production at the right cost, with a focus on technical productivity.

But any chain is only as strong as its weakest link, and banks are a key part of the agri-food chain.

While the Government has made particular efforts to ensure that the range of credit facilities from private and public funds matches the growth demands of the sector, it needs to continue to enhance access to finance for SMEs.

Initiatives such as the micro enterprise loan fund which provides small (€2,000 to €25,000) unsecured loans to viable businesses that have been declined credit facilities by their bank, and the newly formed Strategic Banking Corporation of Ireland will be critical to the sector.

Taking a look at other countries and their banking models, we must ask why have they been established and what has been the net benefit to their economies because of them. ACC’s original goal was to ensure credit flows to farmers – and last year it handed back its banking licence after 88 years.

As we enter into an unknown territory after quota removal, we need strong banks that are confident in the sector and realise that patience may be needed in times of highest risk. We need economists and market analysts who can interpret and distil international data to ensure that market outlooks are as accurate and timely as possible. Teagasc economists also have a key role to play in keeping the industry informed and up to date.

Finally, in light of recent dairy market outlooks, it is comforting to hear each bank say they take a long-term view when lending to farmers.