Access to Finance the Biggest Challenge in Converting the Intangible Into Tangible
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Access to Finance The Biggest Challenge in Converting The Intangible Into Tangible A report for: NUFFIELD IRELAND Farming Scholarships By Kevin Moran 2015 Nuffield Scholar December 2016 Sponsored by: © 2008 Nuffield Ireland. All rights reserved. This publication has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Nuffield Ireland does not guarantee or warrant the accuracy, reliability, completeness of currency of the information in this publication nor its usefulness in achieving any purpose. Readers are responsible for assessing the relevance and accuracy of the content of this publication. Nuffield Ireland will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on the information in this publication. Products may be identified by proprietary or trade names to help readers identify particular types of products but this is not, and is not intended to be, an endorsement or recommendation of any product or manufacturer referred to. Other products may perform as well or better than those specifically referred to. This publication is copyright. However, Nuffield Ireland encourages wide dissemination of its research, providing the organisation is clearly acknowledged. For any enquiries concerning reproduction or acknowledgement contact the Executive Secretary. Scholar Contact Details: Kevin Moran Killamanagh Caherlistrane Co. Galway Phone: 085 8563967 Email: [email protected] In submitting this report, the Scholar has agreed to Nuffield Ireland publishing this material in its edited form. NUFFIELD IRELAND Contact Details John Tyrrell Executive Secretary, Nuffield Ireland Phone: 00 353 87 256 3501 Email: [email protected] 2 Executive summary To be successful can mean many things. For some, it is climbing the corporate ladder within a large multinational organisation to achieve high-levels of wealth and living standards. For others, it is starting their own business from the ground up and seeing their family’s name above a door on a high street shop or business. For a young person looking to accumulate wealth within a farm business from a standing start, then success is about growing net worth in terms of land and livestock while maximising profit through operational excellence. What is the common denominator between these three examples of success? It is the successful conversion of ‘intangible assets’ into ‘tangible assets’. The conversion of ambition into wealth. The conversion of determination into a profitable business. Key Findings Affordable finance is one of the most important factors in leveraging intangible assets to achieve ownership of tangible assets. At present in Ireland, it is virtually impossible for young people who neither own land nor have a guarantor to access sufficient amounts of affordable finance to build equity. As a result, there is a substantial risk that the next generation of dairy farmers will be significantly reduced in number. In New Zealand, there is an abundance of success stories of first generation farmers (i.e. not from farming backgrounds) succeeding in dairying and progressing through sharemilking structures to build high levels of equity. Mark Townsend, one of the most successful dairy farmers in New Zealand, states: “I notice that many of the young star performers on farms in NZ today were not raised on farms, nor did not leave school and go on farms. No. They educated themselves, learnt different skills and entered farming with no preconceived ideas.”1 1. Extracted from presentation titled ’12 Commandants for Wealth Creation in Agriculture’ by Mark Townsend. 3 If the Irish dairy industry is to become a dynamic growth-orientated world leader, it cannot afford to narrow its pool of talent only to those with access to land as collateral. Recommendations Sharemilking is a model which gives young farmers the structure to demonstrate their intangibles and progress from Lower Order Sharemilking (“LOSM”) to: 50-50 sharemilking, building equity, creating wealth and also adding value for the land owner. Ireland has not embraced sharemilking to the same extent as New Zealand, which enabled New Zealand to increase its national herd by over 1 million. There must be opportunities for young people, who do not have the capacity to provide the equity for 50-50 sharemilking, to begin as a farm manager or LOSM and progress to Variable Order Sharemilker (“VOSM”) and then to 50-50 sharemilking. The engine which drives this progression for the young farmer is equity through livestock. Chattel mortgages is a vital part of this structure. This Report recommends the establishment of a committee, with representatives from the relevant bodies, who will collaborate and produce a submission to the Minister for Agriculture on the implementation of chattel mortgages. 4 Contents Foreword .................................................................................................................................... 6 Acknowledgements .................................................................................................................... 8 Abbreviations ............................................................................................................................. 9 Objectives ................................................................................................................................. 10 Methodology ............................................................................................................................ 11 Introduction .............................................................................................................................. 12 Intangible assets ....................................................................................................................... 14 Return on Investment and the Power of Compound ............................................................... 16 Obtaining finance ..................................................................................................................... 18 Banking finance ........................................................................................................................ 19 Private Investment / Alternative Finance ................................................................................ 27 Employment and Investment Incentive Scheme ..................................................................... 29 Milkflex ..................................................................................................................................... 34 Micro Finance Ireland ............................................................................................................... 37 Crowdfunding/Peer 2 Peer lending (“P2P lending”) ................................................................ 38 Conclusions ............................................................................................................................... 39 Sharemilking ............................................................................................................................. 40 Chattel mortgages .................................................................................................................... 42 Jurisdictional Comparison ........................................................................................................ 44 Economic Benefits .................................................................................................................... 48 Findings .................................................................................................................................... 51 Recommendations ................................................................................................................... 53 References ................................................................................................................................ 54 5 Foreword I grew up on a dairy farm in Claremorris, Co. Mayo where I developed a passion for dairying at a very young age. This gave me clarity on my career path. However, due to land fragmentation, a heavy soil type and scale, the family farm in Mayo was not suitable for dairying going forward. I decided that I needed to enter a collaborative arrangement outside of the family farm to grow my own dairy business, but soon realised the barriers facing young farmers in applying for finance when they do not have any land to offer as collateral. At the date of this Report, I am almost 4 years in business. The timeline is as follows: . 2012 After completing my leaving certificate, I started a two year Certificate in Agriculture degree in Mountbellew Agricultural College. 2013 I won FBD / Teagasc National Student of the Year award. Halfway through my degree, the opportunity to lease my uncle’s farm, a 35 hectare block in Caherlistrane, Co. Galway arose. This was my chance of farming independently. I set about obtaining finance to source 72 cows. Between December 2012 and March 2013, I had nine loan applications declined by banks before finally succeeding on the 10th attempt. 2014 Awarded a Nuffield Scholarship. After milking 72 cows in 2013, I began getting replacement heifers contract reared on a neighbouring farm. As a result, there was the capacity to expand cow numbers. I increased cow numbers and milked 100 cows. 2015 As part of my Nuffield Scholarship, I travelled to the United Kingdom, France, Germany, Poland,