It’s now five years since the IFA pay scandal erupted and its impact on the association’s finances can be clearly seen when you examine its accounts for the last number of years. Back in 2015, when the IFA was at the peak of its powers financially, the organisation took in over €20m in income and made an annual surplus in excess of €1m in most years (see Table 1).

Fast forward to 2020 and the IFA’s latest set of accounts paints a different picture. In the last five years, the IFA’s income has shrunk by a quarter to just over €15m last year, while the association has made operating losses for the past four consecutive years as annual expenditure now outstrips its reduced income.

For 2020, the IFA made an operating loss of just under €2m. Included in this figure is a once-off restructuring charge of just over €1.1m, meaning it made an underlying loss of about €840,000.

The continued losses reported by the IFA this year mean the association has racked up accumulated losses of almost €5.2m over the course of the last four years, which has forced it to repeatedly dip into its special reserve fund – a multi-million war chest set aside for exceptional circumstances.

While the last number of years have clearly presented exceptional challenges for the IFA, these are not the exceptional circumstances envisioned when the special reserve was first set up in 1985.

In 2015, the value of the IFA’s special reserve fund stood at an impressive €14m. At the end of the IFA’s 2020 financial year in March 2020, the special reserve fund was valued at €7.7m – down 45% in the last five years.

Although the value of the fund has been depleted through selling shares to generate cash, it is important to note that financial markets and share prices were on the floor in March this year when the fund was last valued. As such, the recovery in financial markets over recent months means the fund’s underlying value is probably closer to €10m.

Income

The IFA generates income from three principal sources – membership fees, IFA Telecom and farmer levies. Over the last five years, income generated from membership fees has been quite resilient, standing at just under €5.7m last year.

It’s understood the IFA has made some changes to how it charges membership, which will see its membership fees increase by €12 on average from this year on. This increase in membership fees is set to bring in additional €650,000 in income from next year.

The turnover generated by IFA Telecom has dropped by almost a quarter (-23%) over recent years and stood at just over €5.7m last year.

However, the company has reduced its costs in line with falling sales and IFA Telecom still generates a healthy profit margin of 5% to 10% every year. In saying that, the amount of profit from the business stood at €320,000 last year – less than half what it was in 2016.

The standout figure in the IFA’s finances is the sharp drop in income from farmer levies. In 2015, farmer levies stood at just under €4.7m, with 85% of this coming from sales of milk to co-ops, beef to factories and cattle through marts.

In the intervening years, the IFA’s income from levies has fallen over 40% to just under €2.8m last year. That’s a loss of income of close to €2m, which in the context of a national milk pool that has expanded by almost 50% since the end of quotas to 8bn litres last year underlines just how many farmers have ceased paying levies.

If all was equal, the IFA’s income from levies on milk sales alone should by €3m. Yet the growth in Irish milk production has not meant a corresponding increase in levy income.

Additionally, it’s understood there has been an even bigger drop in levies collected from beef factories and marts. A dispute with Larry Goodman’s ABP in 2016 means the IFA currently collects no levies at all on beef cattle processed by ABP, which is roughly 25% of all the cattle processed every year in Ireland.

Expenditure

On the expenditure side, the IFA’s main draw on funds are staff costs, which amounted to €5.6m last year. The IFA employs almost 60 staff in total and staff costs have remained relatively steady over the last five years above €5m.

However, it’s understood the early retirement programme introduced by the IFA last year will reduce staff costs from next year on and help eliminate the association’s operating deficit. A total saving of around €0.6m is expected from the early retirement scheme.

Outside of staff, the IFA’s next largest operational cost are expenses and costs paid to volunteers for travel, subsistence and time when working on IFA business. Expenses paid to volunteers stood at €1.1m last year.

Outlook

When you stand back and look at the IFA’s finances over the last five years, it’s quite clear the 2015 pay scandal has had a detrimental effect which is most pronounced in the IFA’s income from farmer levies and the reduced value of its reserve fund.

With reduced income, the association clearly needs to cut its cloth to fit in order to remain viable. However, the IFA does look like it is turning a corner. It’s understood the IFA’s council was told this week that the association is on track to return a small operating surplus for its 2021 financial year and end the run of losses since 2017. On top of this, the recent early retirement scheme along with the increase in membership income will also help bridge the gap between income and spending. Fundamentally, however, the IFA needs to stop the bleeding from farmer levies.

Much of the IFA’s financial firepower was built on the levy system. The association either needs to rebuild this important income stream by engaging with members on its importance or else it needs to find an alternative income stream to replace it. Neither is an easy task.