Dr. Anne Finnegan:

I thank the Vice Chairman and members of the committee for inviting AIB to discuss with it the recent fodder crisis that has impacted on Irish farms and AIB’s response to any cashflow pressure that may materialise. I am head of agriculture with AIB and I am joined by Ms Margaret Brennan, head of sector strategy in AIB.

AIB has a long association with Irish agriculture and is the main lender to Irish farmers accounting for over 40% of total outstanding lending balances to the sector. Agriculture is core to AIB’s strategy. AIB's dedicated agri-advisory team of 12 agricultural science graduates, provides objective farm financial and technical analysis in individual farm lending cases and through training equips our front-line staff to support farmers throughout the cycle. They work closely with all customer-facing staff to support farmers through various income and cashflow cycles and crises.

The past 18 months have been somewhat of a dichotomy for Irish farmers. On the one hand, annual average incomes for most sectors increased in 2017, beyond expectations in some sectors and to an historic high in the dairy sector. With the exception of tillage farmers, who experienced another relatively low margin year, all sectors performed relatively strongly.

On the other hand, weather from the end of July onwards complicated operations at farm level, first in the north west and west of the country where both the quality and quantity of second cut silage was impacted. In some cases, animals required rehousing, fodder shortages started to emerge and the use of concentrate feeds increased. In the south and east of the country the delayed spring and lack of growth significantly delayed the turnout of stock. The situation, as we find it, has varied significantly both regionally and between farms depending on individual circumstances. Both dairy and beef farmers report an impact on animal performance and milk yield. The tillage sector too has faced disruption to spring plantings which again varies between geography and farm.

The result for many farmers has been significant operational challenges at what is typically the busiest time of the year. AIB appreciates that this has resulted in considerable additional pressure on farmers and their families and has added to work load and stress over the past number of months. From a financial perspective, this will undoubtedly result in higher costs.

The sector came into 2018 in a relatively strong financial position. At the end of the first quarter of 2018, AIB’s metrics show that average cash balances for the agriculture sector were up considerably year-on-year, while average overdraft utilisation for the sector was down year-on-year. To date we have seen no material increase in requests for working capital support and no material pressure on farming current accounts.

The extent to which cashflow and current accounts have been impacted to date has varied depending on the strength of cash balances coming into the year, fodder availability on the farm and whether fertiliser had been bought forward. The significant cost of increased concentrate feed has yet to be felt in current accounts. As expected, farmers purchased concentrate feed on credit with co-ops and merchants. As these bills fall due, the cost will crystallise in farm current accounts and the impact on working capital will become apparent. We expect that this to materialise into the summer months.

AIB has been mindful of the emerging challenges on farm since late 2017 and of the pressures that farm families have been experiencing. We participated in the Fodder Action Group in the north west during the winter, which was established by the Minister for Agriculture, Food and the Marine and chaired by Teagasc. All front-line staff were advised of the emerging fodder situation and on AIB’s cashflow support options. We wrote to national and regional stakeholders in early April highlighting the range of options available to farmers and advising that farmers make early contact with their bank. In addition, we issued external communications acknowledging the challenges being experienced by farmers and advising impacted farmer to make early contact with their bank. Depending on the severity of the problem, in some locations we have initiated proactive contact programmes with our customers.

We are encouraging farmers who may need support to quantify the level of working capital they require and make early contact with the bank to consider an appropriate solution to their circumstances. We will work with customers on a case-by-case basis as experience has taught us that no one solution will suit all farms.

AIB has a range of options to support our farming customers, including 48 hour decision on business loans and overdrafts up to €60,000 for AIB customers; flexible working capital finance by way of a AIB farmer credit line at a competitive interest rate; and extended contact hours for farmers via a dedicated phone line, which is available Monday to Friday from 8 a.m. to 9 p.m. and Saturdays from 9 a.m. to 6 p.m. Farmers who find themselves under severe cashflow pressure should advise the bank that their situation is urgent and we will prioritise their request accordingly.

AIB encourages affected farmers to engage with Teagasc supports on fodder budgeting and rebuilding winter fodder stocks. Our forthcoming edition of Agri Mattersadvises on how to rebuild fodder stocks for next winter and how to deal with the cashflow impact of the past winter and, indeed, our two editions of Young Farmer Bytessince the start of the year have dealt with this issues as well.

We know that cashflow support will, in the main, be short term to medium term in nature. The additional costs experienced may continue to be felt on the farm throughout the summer and into back end of the year and AIB will continue to monitor the situation closely. We maintain a positive long-term outlook for the agriculture sector, recognising that there will be periods of income and cashflow pressure when the sector will require short-term financial support. We will continue to support farmer initiatives focused on increasing efficiency and financial resilience at farm level, such as Teagasc's Grass10, which is also supported by the Department of Agriculture, Food and the Marine. These initiatives are key to ensuring resilience during periods of income and cashflow challenges.

On behalf of the bank, I again thank the Vice Chairman and the committee for inviting us today. We very much appreciate the opportunity to discuss with the committee one of our most important SME sectors and we look forward to questions.