Managing debt first step to balancing the books
QMy wife and I have been farming since we got married almost 10 years ago. We have three young children and at present we are scraping by on the small income the farm is making. We are facing the reality that it is not practical for my wife to return to work off-farm as the childcare costs would wipe out any income she would make. I keep hearing about the economy improving but we are finding the reality is very different, waiting for the Basic Payment Scheme cheque to meet our debts and bills. What can we do?
AAs the economy recovers, it is important to remember that the rising tide has not risen all boats. Average 2017 incomes on some farms are not projected to be any higher than 2016 and may even be slightly less this year. Last year was a very mixed year for Irish farming, with difficult weather conditions affecting harvests, grass growth and other crop yields. Added to this were lower product prices in the dairy and beef sectors.
The Teagasc National Farm Survey for 2016 put the average farm income at €12,900 in the case of suckler farms and €16,000 on sheep farms. With the average industrial wage sitting at €37,000 at present it is clear that it would be impossivle for many farmers to survive without an off-farm income.
MANAGING BORROWINGS AND DEBT
Like any business a farm is likely to be carrying debts and borrowings at some level. In bad years it is essential to manage these as they can end up costing a lot just in interest. Bear in mind that average interest rates for existing lending are between 4 and 4.5pc while interest rates on new borrowings sit above 5pc in many cases. If you are carrying significant borrowings you should shop around for the better interest rates and consolidate borrowings if necessary.
Also, watch for new schemeslike the agri cashflow loan which came on stream in early 2017 to strong demand and had an interest rate of 2.95pc. It could help keep down the cost of new finance and even assist with existing expensive borrowings. For many families there is also the common issue of managing credit card debt.
Again, if you find that you have built up credit cards debts with resulting very high interest rates you should look at the possibilities around debt consolidation and taking out a manageable interest rate loan to clear the cards.
Despite an overall increase in Direct Payments to the farming sector at national level in 2016, the picture at individual farm level varies significantly, depending on participation in farm schemes, and the redistribution of the Basic Payment that is ongoing.
Every farmer should be considering the financial benefits that taking part in new schemes may bring. Look at options like the Beef Data Genomics Scheme which may present extra income opportunities.
Farm Assist is a means-tested payment for low income farmers. The means test takes account of virtually every form of income but assesses it in different ways and disregards various amounts. Different rules apply to income from farming and other forms of self-employment, income from certain schemes, income from employment and income from property and capital. There are additional income disregards if you have children. Your means from all sources are added together to get a total weekly means. You will be paid the difference between your total assessed weekly means and the maximum rate of Farm Assist that you could get if you had no means. When you apply for Farm Assist, a social protection inspector will call to see you and ask to see various documents.
For example, accounts prepared for tax purposes, creamery returns, cattle registration cards, details of EU scheme payments. They will also want information on the sale of crops, cattle, milk and other produce.
The inspector will then assess the costs actually and necessarily incurred in connection with the running of the farm. These costs may include rent, annuities, the cost of inputs like feed and fertiliser and the depreciation of farm machinery.
Labour costs are taken into account, with the exception of the labour of the farmer and their spouse, civil partner or cohabitant.
You are entitled to receive a copy of this farm income calculation.
The current maximum personal weekly rate (for a person with no dependent children) is €193.
This is increased by €128.10 for dependent adults, for example, your spouse and €29.80 for
Theresa Murphy is a barrister based in Co Galway