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This year is shaping up to be a strong one for on-farm investment amid high market returns and more forgiving weather conditions.
Banks are reporting significant farmer interest in progressing investment projects put on hold over the past two years, while more farmers are looking to pay off existing debt.
AIB is witnessing higher demand for farmer lending after a lacklustre two years, according to the bank’s head of agri Donal Whelton.
“Demand was impacted by poor weather in 2023 and into [the first half of] 2024, coupled with reductions in some output prices and input costs not reducing in line,” he told the Irish Farmers Journal.
“However, the improvement in weather in Q3/Q4 2024, which has by and large continued into 2025, and coupled with improved output prices across nearly all the main farming sectors has led to increased confidence among farmers to invest in their farm in 2025.”
A poll commissioned by AIB quizzed 1,000 farmers on investment sentiment which pointed towards higher confidence to put funds back into farming enterprises this year, Whelton commented.
However, he added that the farming sector’s income volatility of recent years underscores the benefits of building up a savings buffer to draw on when margins are stretched.
Volatility
“Income volatility has been a feature of Irish agriculture and we expect this to continue across all agri sectors.
“Indeed over the last number of years this level of volatility has become more pronounced with higher peak to trough ratios given the impact of Brexit, the Ukraine/Russian conflict, uncertainty during COVID-19 and prolonged difficult weather.
“Currently, despite the relatively high output prices, uncertainty remains, with the potential impact of import tariffs to the US market impacting our dairy exports and also the potential impact of the Mercosur trade deal, impacting the beef, sheep and poultry sectors.
“Accordingly, we would always advise that it is good practice for a farmer in times of relatively strong output prices to create a buffer fund to cushion against periods of lower output prices and reduced profitability.”
The funding of on-farm investment through income during periods of strong market returns is a “common trend” the bank sees, but the lender recommends that farmers consider borrowing options for larger investments where needed to give room to develop this “funding buffer”.
“Again, we would advise that surplus cashflow is used to create that buffer fund and if considering a capital investment, to fund this on an appropriate term and again have the option to clear these term loans ahead of schedule if cashflow allows in subsequent years,” Whelton said.
He also stated that an option farmers looking to manage income levels that may be higher-than-expected, particularly drystock farmers who availed of high prices and sold stock, could consider is paying off a chunk of existing debt.
“This is certainly an option for some and indeed has been a trend over the past number of years highlighted by the continued reduction in overall on-farm debt levels, with the current level of debt at its lowest level in 20 years.
“Given yearly on farm investment has remained relatively consistent in the same timeframe, the flowback and repayment of existing debt is higher than the new levels of debt being drawn down in the sector.”
Those looking to go down the route of paying off a chunk debt ahead of schedule are advised by AIB to discuss this with their bank manager and check if any costs apply.
These signals of farmer confidence to invest picked up in AIB’s survey were echoed by Bank of Ireland’s head of agri Eoin Lowry, who has witnessed an increase in borrowings for items like farm buildings and tractors.
Bank of Ireland saw a degree of investment slowdown on farms last year and into 2023 that has it put down to weather and tighter margins.
“We did see investment stop last year, but we are now seeing that it was just more of a pause, rather than a stop,” Lowry told the Irish Farmers Journal.
“This was due to the weather challenges and higher feed bills but with the stronger returns farmers are seeing now, they are taking a ‘If I have it, I will spend it’ approach and investing.
“We are seeing some of the additional funds reinvested on farms, with loans taken out and probably a TAMS grant being drawn down.
“Last year’s loans would have been just taken out to cover working capital and feed bills where there was no spare cash around.”
Tax adviser Declan McEvoy urged farmers seeing high value cheques coming in the door after selling livestock not to panic on tax planning.
“My main message would be not to panic. Most farmers still have to go back and buy again to replace stock that have been sold,” he said.
“It is still early and while farmers have to stay conscious of managing tax, August or September would be the time to start making decisions on what can be done to manage tax.
“I think Irish people, not farmers but people in general, tend to leave it until January or February before thinking about tax bills which leaves it very late. But if you start planning four months before the year ends, there are plenty of options to consider.
“A lot of farmers are actually not income averaging and this could be something to consider if you do find yourself with a higher income this year than you had in previous years.”
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