Having bailed out many banks across the continent since 2008, the EU and taxpayers are more than entitled to demand a better deal for borrowers.
Now it is revealed that farmers and food companies have been getting one of the worst deals of all, and the EU is looking at how it can improve the situation.
Based on the feedback in surveys of 7,600 farmers and 2,200 agri-food companies across the EU, it has been estimated that the unmet credit needs of farmers in the EU are between €19.8 and €46.6 billion, and are more than €12.8 billion for the agri-food sector.
That’s the assessment of the European Commission and European Investment Bank’s fi-compass platform for advisory services on financial instruments under the European Structural and Investment Funds.
Furthermore, their reports reveal that in most European countries, financing of agriculture is subject to higher interest rates and unfavourable conditions, when compared to other sectors of the economy.
In addition, no matter the performance of the sector, the reports found that the flexibility in lending and repayment conditions which is particularly needed in agriculture was insufficient.
That’s no surprise to farmers, who operate in a different world to the rest of the society and economy, and frequently find themselves the victims of huge gaps in understanding.
But you’d think banks could do better, especially in Ireland, where the agriculture portfolio is the best performer for all banks, according to the fi-compass reports.
The EU now has to do something about it, if their much-heralded transition towards sustainable food systems is to succeed.
Commissioner for Agriculture and Rural Development Janusz Wojciechowski welcomed the publication of the 24 fi-compass country reports, saying, “The transition towards sustainable food systems will bring new opportunities for farmers and operators across the food supply chain.
"However, to enable this, access to finance and funding will be essential.”
“The coronavirus crisis will most likely increase the financial needs for agriculture and the agri-food sector across the EU, making improvements around this even more crucial.”
He said, “For the next Common Agricultural Policy 2021-2027, financial instruments using resources from the European Agricultural Fund for Rural Development [EAFRD] could be used to finance stand-alone working capital, investments, capital rebates and provide for combinations with grants and interest rate subsidies.”
European Investment Bank Vice-President Andrew McDowell said: “Financial instruments co-funded by EAFRD are a sustainable and efficient way to invest in the growth and development of farmers, especially young farmers, businesses and resources in the agriculture and in the agri-food sectors, pursuing food security as well as environmental and climate EU objectives.”
Farmers will hope the EU Commission and European Investment Bank live up to these commitments, and that the Irish authorities will avail of whatever EU-backed financial instruments are launched.
The fi-compass reports reveal that large farms across Europe seem to have a much easier access to finance, but young farmers and new entrants are amongst the most hindered groups, and often lack adequate financing possibilities.
Small farms face significant difficulties in terms of accessing development investments, due to a lack of assets to use as guarantees (collateral) and of necessary skills on how to prepare business plans.
In other words, banks have cherry-picked the best bets, and poorly served the young farmers and new entrants who are the future of farming.
The fi-compass reports show there are some excuses for Irish banks not supplying adequate farmer finance, principally the restrictions of their compliance and regulatory requirements.
Co-operatives have stepped in, extending an increasing level of credit to farmers.
They are more responsive to their suppliers’ needs, more innovative, and work more collaboratively with funders, according to the fi-compass reports.
Co-ops must be commended for taking on the main banks, going up against Allied Irish Banks and Bank of Ireland, who each account for around 40 to 45% of all agricultural lending.
A shining example is the innovative MilkFlex financial product developed by Glanbia Ireland, Finance Ireland, the Ireland Strategic Investment Fund (ISIF), and Rabobank.
Since it was launched in July 2016, more than €100m in loans have issued to Glanbia Ireland dairy farmers.
Milkflex loans are now available through most dairy co-ops around the country.
The average loan size is €90,000 and the term generally ranges from eight to 10 years.
Some lending to farmers in Ireland is also provided through credit unions and non-bank lenders.
The big banks may lose more market share, having moved away from providing relationship management services at a local level.
Lack of relevant expertise in agriculture amongst banking employees has also led banks to refuse loan applications from farmers, according to the “Financial needs in the agriculture and agri-food sectors in Ireland” report.
With the report also showing interest rates for agriculture loans in Ireland on average 1.8% higher than the EU-24 average; lack of competition amongst banks; high interest rates and high commission loan cost; and lack of flexibility in financial products offered, things can only get better for Irish farmers.