Mark Glennon, AIB Agri Advisor for Kildare, Laois and Offaly offers practical advice for farmers who may be affected by the fallout from the coronavirus pandemic
Covid-19 presents unique challenges for the Irish Agriculture sector, impacting traditional trade and operations along the supply chain; dampening global economic growth and demand, which combined is putting downward pressure on farm output prices.
Key questions for many is how long will the current challenges persist; how low will prices drop; and how quickly will prices rebound once recovery starts to take effect.
Although not materially evident to date, a sustained period of downward price pressure may result in increased cash flow pressure on many farms. Naturally, some sectors, and indeed individual farm operations, may be better able to cope than others.
The following are five simple steps farmers can take to better prepare their farm for the potential financial impact of the Covid-19 crisis:
· Step 1: Know how much cash your farm generated last year, and roughly what cash surplus was left over after living expenses, tax and financial repayments were accounted for. How much is in the current account now?
· Step 2: Quantify future cash inflow and outflows – sales; feed/fertiliser/seed; contractor etc until the end of the year.
· Step 3: Estimate the likely financial impact of any delay in selling produce and/or fall in output prices. Is there a cash reserve that can be used to fund lower than expected income receipts and/or increased working capital requirements from holding stock for longer on farm?
· Step 4: Assess the financial options available to you - your financial profile will have a big influence in this regard. For example, loan repayment breaks will help farm cashflow for those farmers with sizeable loan repayments. It will however be of limited benefit for those with a low level of borrowings or those who have decided to retain livestock. In these cases, additional working capital (preferably in the form of short-term stocking loan) might be another option, particularly if farmers are planning to sell livestock later in the year. For farmers with existing stocking loans that do not have the funds to clear them, converting them into a term loan may be something that needs to be considered.
· Step 5: Talk to your bank sooner rather than later - doing a small bit of analysis prior to engaging is well worthwhile as it helps your bank in putting something in place that will work for you and also gives your bank confidence that you are on top of your finances.
It is worth bearing in mind that, while the impact of Covid-19 is acute, its worst effects should be short-term. Taking some steps now to prepare yourself financially at an early stage can help ensure you can cope with these short-term difficulties as effectively as possible. Above all though, the top priority for you and your family is to stay safe during this time.