03 Apr, 2023

How to protect your farm when interest rates are rising

With inflation close to 10% and higher interest rates on the horizon, now is the time to focus on what you can do to protect your farm, says Noreen Lacey, Head of Banking. Worryingly, 37% of those with borrowings have not reviewed their interest rates in the past year. 

Last year, higher input costs and rising prices drove Ireland’s inflation to levels not seen for almost 40 years. Rising inflation tends to trigger interest rate increases, and the European Central Bank may continue to raise interest rates at 50 basis points in the near term to curb inflation. 

For all businesses, higher interest rates mean higher borrowing costs. Without careful management, this can erode a farm’s capacity for innovation and development and may stagnant any future expansion plans until a degree of financial stability is in place. 63% of those surveyed with borrowings have reviewed their rates in the past 12-18 months, with 39% fixing their interest rates to protect themselves against further inflation. 

So, what can farms do to cope with higher interest rates? 

Now is the time to look for opportunities to make savings and achieve greater efficiency. Areas to focus on include: 

  • Credit facilities:  Check your existing credit facilities. When does your current overdraft facility or stocking loan expire and what are your renewal options? Can you negotiate a fixed rate loan or a flexible line of credit? If you owe money on credit cards or higher short-term loans, consider paying this off and look for more cost-effective options to manage your short-term borrowing requirements. 

  • Farm Expenses: Review all costs to identify areas where you can make cutbacks or achieve better value for money. Can you free up resources by negotiating new payment terms with your suppliers for larger purchases such as feed and fertiliser? Can you identify opportunities to collaborate with other farmers and/or make savings by bulk buying as a group? Are there energy-saving initiatives that you can implement to reduce your bills? 

  • Personnel: Do you have the right people in place on the farm? Are there performance issues that need to be addressed? If so, now is the time to tackle them, as underperformers can be a drain on the business over a long period if action is not taken early.  

  • Tax: Are you taking advantage of all relevant tax-saving opportunities? Do you need to structure/restructure any areas of your business? 

Seek advice 

Many farmers lack experience when it comes to managing rising inflation and higher interest rates but taking time to prepare reasonably accurate cashflows will be vital in the months ahead. Your accountant has the expertise and tools to support you in the current environment. For information and/or advice, contact your local ifac office. 

This article was first published in our 2023 Irish Farm Report