Irish low-cost dairy loan facility Milk FlexFund2 is a hit

Loan applications under the €100 million vehicle are being secured to help dairy farmers expand sustainably after the abolition of the EU milk quota production scheme.

Irish dairy cooperatives’ MilkFlex Fund2 – a low-cost loan facility providing credit to dairy farmers – to help them expand and to produce more efficiently is showing success since it was announced last May.

Loans worth €10 million have already been secured since the scheme, worth nearly €100 million, started operating in September. The average loan size is €100,000.

It is co-financed by Rabobank, the Irish Strategic Investment Fund (ISIS) and Finance Ireland.

A key feature of it that has been critical to its success is that it is based on an unsecured loan, Brian Maughan, executive director, Financial Advisory and Solutions from Rabobank told Agri Investor. Loans are also tailor-made to the size of the farm enterprise, he added. It uses similar terms and conditions, including identical loan pricing, as in the original €100,000 award-winning MilkFlex Fund launched by the Irish dairy cooperative Glanbia, which was also co-financed by Rabobank, he stressed.

MilkFlex Fund was first introduced as a pilot for the Irish dairy industry in response to challenges faced by dairy farmers, including the lack of affordable long-term financing and fluctuating milk prices.

The Fund aims to protect farm incomes from the impact of market volatility by providing farmers with cash flow relief when most needed. It allows farmers to make either no repayments or reduced repayments on the loans when prices are below certain thresholds and accelerated repayments when prices are high, explained Maughan. The inbuilt “flex triggers” adjust the repayment term from the basic eight-year tenor to a maximum term of 10 years. Payments are also adjusted to reflect the seasonal pattern of Irish milk production cycle, with no payments required over the four winter months and differing levels over the remainder of the year, which peak during the summer months, he added.

It provides milk suppliers with financing to invest in on-farm productive assets, including livestock, milk infrastructure and land improvements to meet increasing demand.

The Glanbia Milk Flex Fund, introduced in June 2016, closed for new lending in April, with an aggregate 1,100 loan applications worth €112 million. The value of loans issued exceeded €64 million, with an average loan amount of €97,000, Maughan said.

The Fund was a cooperation between Rabobank, the Ireland Strategic Investment Fund, Finance Ireland and the Glanbia Co-operative Society.

Extension to all dairy coops

In view of its success, the low-cost loan facility was extended to include nearly all dairy cooperatives in Ireland this May. Milk Flex 2, being the nationwide roll-out of the MilkFlex product, again brings together Finance Ireland, the Ireland Strategic Investment Fund and Rabobank as co-funders. Unlike the Glanbia MilkFlex Fund in which an amount of €100 million was committed for a one-year period, the financing for Milkflex 2 is scalable in both the amount and the availability period, to suit demand from farmers, Maughan stressed. “Demand for the new MilkFlex loans has been strong since loan origination commenced in September, with in the order of €10 million of new loans issued,” he said.

An important evolution in MilkFlex 2 is that the permitted use of loan proceeds has been broadened to include not only expansionary investments but also sustainability investments and agtech products. Investments can include purchasing equipment to store waste water, for instance. Given the large expansion in Irish dairy herds since the abolition of the EU milk production quota system, the long-term sustainability of the sector has become a key focus for the industry. This change in permitted use of MikFlex loans is a small step to help farmers deal with this challenge, added Maughan.

Glanbia is also investing in new processing capacity to meet the growing supply. Investments in ag technology such as robotic milking parlors and building up stock are proving popular under the schemes.

He explained that more than 90 percent of Irish milk is processed for export with a significant part being an input for infant milk formula. While farm gate milk prices in Ireland have remained relatively stable through 2018, it has been in a difficult context for Irish dairy farmers. A harsh winter was followed by drought conditions through the summer. This has put significant pressure on margins at farm level due to significant additional feed costs and poor milk yields, Maughan said.

Other sectors and countries?

Components of the loan are also available in the Netherlands. For instance, in bridging facilities for dairy farms with liquidity problems, where repayments can be tailored.

“The FlexFund model could also be extended to other sectors and to dairy markets in other countries such as Australia or the UK. Demand is not there yet for the product in the UK, but that could change post-Brexit ,” Maughan said.

“We have also been exploring the applicability of the concept in other sectors and geographies, such as grain in Germany and France,” concluded Maughan.