Milk processor Glanbia Ingredients Ireland has announced a novel €100m (£77m) loan fund for Irish dairy farmers, with repayments that will vary according to milk price to offer protection from market volatility.
The company says the MilkFlex Fund will provide competitively priced finance for producers wishing to invest in cows, milking equipment and land improvements.
Farm leaders in Ireland have said the fund raises the bar for banks in the farm finance sector, which will need to come up with competitive, meaningful alternatives if they are to compete.
There could also be implications for the UK farm sector considering signs Ireland is pushing on with its plans to expand milk output and exports.
The fund has built-in volatility “triggers” that will lead to a temporary 50% cut in loan repayments when Glanbia’s manufacturing milk price falls below 28c/litre (22p/litre) (including VAT) for three consecutive months.
There will also be a moratorium on loan repayments for six months if the manufacturing milk price falls below 26c/litre (20p/litre) for three consecutive months or if the outbreak of a notifiable disease reduces milk output materially on the previous year.
However, repayments will increase by 25% if Glanbia’s manufacturing price goes above 34c/litre (26p/litre) for three consecutive months.
The loans, which could range from €25,000-€300,000 (£19,350-£232,400), will have a standard term of eight years, but this may be extended by a further two years if the volatility measures are triggered.
Repayments will be automatically deducted from the supplier’s milk cheque, with the amounts reflecting the seasonal milk-supply curve.
No loan repayments will be expected during the low milk production months from November to February.
Loans will be unsecured, however repayments will be made by as a priority deduction from milk payments.
The fund, which is a partnership between Glanbia Co-operative Society, the Ireland Strategic Investment Fund, Rabobank and Finance Ireland, is expected to be operational from May 2016.
EU farm commissioner support
The scheme has already won the backing of EU farm commissioner Phil Hogan, who described it as an international first.
“Using innovative financial instruments to help farm families across Europe is a key priority for me, and the Glanbia MilkFlex Fund can serve as an important pilot project in the drive to roll out such instruments,” he said.
Eugene O’Callaghan, director of the Ireland Strategic Investment Fund, pointed out that the fund would support the growth agenda set out in the Food Wise 2025 strategy.
Ireland’s food and farming industry has been on a massive expansion programme since the strategy was put in place, with the aspiration to increase the value of agri-food exports by 85% to €19bn (£14.7bn).
Jer Bergin, national chairman of the Irish Farmers Association, said the fund was a welcome innovation and marked a new departure in farm finance.
“The Glanbia Milk Flex Fund will be available to Glanbia milk suppliers with a milk supply agreement from April/May, and will be watched closely by milk suppliers to other co-ops, and by farmers in other sectors.
“Our financial institutions must respond with equally well-priced and flexible financial packages for farmers in all sectors, including for short-term and seasonal finance.”
Finance Ireland will host a series of workshops in the GII catchment area in April to provide information to suppliers interested in applying to the fund.
Glanbia Ingredients Ireland processes one-third of Ireland’s milk pool, taking supplies from 4,800 farms.