Farm contractor debt soars on Irish farms

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Contractors are continuing to fund huge levels of farmer debt, as the silage harvest begins putting further pressure on the viability of many land-based contractor businesses in the Republic of Ireland for another year.

Association of Farm & Forestry Contractors in Ireland (FCI) estimates that the level of farmer debt to land-based contractors is rising, despite the uptake of the low interest SBCI Agriculture Cashflow Support Loan Scheme. FCI believes that contractors are now owed in excess of €12 million for work done prior to the start of the annual silage harvest.

The issue of contractor debt was raised at the recent annual general meeting of the Association of Farm & Forestry Contractors in Ireland (FCI). Those attending the meeting were asked to anonymously submit the level of farmer debt owed to their contracting business.

The result of the FCI survey showed that contractors are owed an average of €35,000 from their farmer customers. Scaling this up across the country would indicate that if half of the country’s contractors are owed this amount, then in excess of €12 million is still outstanding to contractors. This makes land-based contractors a significant source of farmer debt in Ireland.

“Contractor debt is not measured in the same way as bank or other supplier debt. For this reason it is not considered visible within official circles, but it is hugely visible to us as contractors,” says FCI national chair Richard White. “For many contractors there is no interest applied to this debt, some of which is now more than 12 months old.

“We are concerned at the increase in the level of contractor debt on farms, especially as 2017 milk output has been at its highest level ever and milk prices have stabilized,” says Richard White. “Our members are funding fuel and labour costs from modest cash flows, but the rising debt is putting additional pressure in contractor operations.

“We are urging contractors to set up monthly direct debit systems to suit an agreed timeframe with their farmer customers. We are seeking support from banks to enable these payment systems to be put in place to ensure the viability of the land-based contractors who can longer act as interest-free banks. We are contractors, not bankers,” he added.

FCI estimates that a debt of €35,000 is costing the contractor in the region of €2,000 annually to fund based on a 6% interest rate. The cost will be almost double that if the debt is funded through more expensive contractor overdraft.

The annual cost nationally to contractors for the €12 million outstanding debt is in excess of €730,000 and it could rise to as high of €1.2 million, depending on the source of funding, according to FCI research.