The Irish Strategic Investment Fund (ISIF) is joining forces with the Glanbia Co-operative Society, Rabobank and Finance Ireland to set up a €100m fund to invest in flexible loans to Ireland’s milk suppliers.

The ISIF, which arose out of the National Pensions Reserve Fund, said the Glanbia MilkFlex Fund was designed to help protect farm incomes from dairy market volatility.

The fund will provide loans of €25,000-300,000 to milk suppliers and have built-in “flex triggers” adjusting repayment terms in line with milk prices to give farmers cash flow relief when they need it most, the investors said.

Eugene O’Callaghan, ISIF director, said: “The Glanbia MilkFlex Fund utilises our inherent flexibility and delivers an innovative funding solution that supports the ambitious growth agenda of Ireland’s agri-food sector, as set out in the Food Wise 2025 strategy.”

The Food Wise 2025 strategy is a 10-year Irish government plan for the development of the country’s agricultural food industry.

O’Callaghan said the new fund provided a model for the ISIF to get involved in other such funds in the dairy industry and across the “agri-food” sector.

While Rabobank, the ISIF, Glanbia Co-operative Society and Finance Ireland all plan to invest in the fund, Finance Ireland will also originate the loans and manage all aspects of the fund.

The interest rate on the loans will, subject to underwriting criteria, be charged at a variable rate of 3.75% above the monthly Euribor cost of funds, with a Euribor floor of zero.

Loans will be for a standard eight-year term but can be extended by up to two years when volatility triggers are activated.

Under the terms of the MilkFlex loans, payments are reduced temporarily when the milk price, measured by Glanbia Ingredients Ireland’s (GII) manufacturing milk price, falls below 28 cents per litre, including VAT, for three consecutive months.

Also, the terms allow for a moratorium to be granted on loan payments for a period when the price falls below 26 cents for three months in a row or when the outbreak of a notifiable disease cuts milk output materially from the previous year.

However, when the milk price rises above 34 cents a litre for three consecutive months, loan repayments increase.

Loans are expected to be made available to farmers from May 2016, subject to completion of the legal documentation.