Politicians query banks’ optimism about dairy expansion

Oireachtas committee members fear lending to farmers will resemble building boom loans

Politicians have questioned bank assurances that dairy farmers are well-positioned to deal with volatile prices when the milk quota ends on March 1st.

Representatives from AIB, Bank of Ireland and Ulster Bank told an Oireachtas committee they took a cautious approach to lending and the dairy sector did not borrow money it would not be able to repay if there was a downturn.

Labour TD Willie Penrose said he had heard "a lot of sweet-sounding words" from bank officials who addressed the Oireachtas Committee on Agriculture but he feared farmers could get carried away and borrow money they could not repay.

“If I was a farmer listening to you today I wouldn’t have any worries but I know the reality of life is quite different on the ground,” he said. “I’m scared of everybody heading for the hills and expanding like nobody’s business. You could have a confluence of factors coming that would actually eat up farmers’ incomes and leave them with virtually nothing.”

Committee chairman Andrew Doyle drew comparisons with the building boom and said too many people got loans from lenders who did not understand the complexities of the market. "I think you could say the same about agriculture."

Fianna Fáil Senator Paschal Mooney said he was concerned that some farmers “might be biting off more than they can chew” by expanding and he hoped “we won’t be seeing, in another two or three years’ time, farmers who have over-extended themselves and . . . are in very serious financial difficulties”.

AIB's head of business banking Ken Burke said analysis of its customers indicated that the dairy sector had strong cash balances, available overdraft limits and overall strong credit performance compared with other types of small and medium enterprises.

Bank of Ireland's head of business banking Mark Cunningham said the bank estimated that almost €2 million had already been invested by dairy farmers "with the vast majority of that having come from their own resources and their own cashflow rather than utilising debt to expand", he said. "That may provide short-term cashflow problems but we feel there's plenty of headroom."