A new analysis from the European Investment Bank (EIB) looked at how the financing needs of EU farmers and agri-food businesses are supported by the European Agricultural Fund for Rural Development (EAFRD).

The EIB conducted two EU-wide surveys focusing on the access to finance of more than 7,600 farmers and 2,200 agri-food enterprises and found a financing gap within the EAFRD of between €19-46 billion for agriculture and more than €12.8 billion for the agri-food sector.

The EIB highlighted cash flow issues to cover operating costs, lease land, invest in livestock, machinery and equipment, and align to higher environmental and safety standards.

The EAFRD is the funding instrument of the second pillar of the EU's Common Agricultural Policy (CAP), with the amount of money available to farmers and agri-food businesses depending on the region. Different authorities or financial institutions distribute EAFRD financing in the shape of loans, guarantees and various financial schemes.

The EIB analysed 24 member states, but also identified general weaknesses that risk exasperating the impact of the financial gap, which were low levels of farmers' financial literacy and a lack of banks' knowledge on agriculture.

They also found that larger farms seem to have "a rather easy access to finance", while young and new farmers often lack adequate financing. They add that farms face significant difficulties in terms of accessing investments due to a lack of assets to use as guarantees and of necessary skills on how to prepare business plans.

For the wider agri-food sector, there was a better financial environment, but start-ups and innovative companies had the greatest difficulties in finding the necessary capital to launch or expand their operations

Andrew McDowell, EIB Vice-President, said financial instruments co-funded by EAFRD are an efficient way to invest in the sustainability of the sector, especially for young farmers agri-food businesses, highlighting how this could also help the EU to meet its "environmental and climate EU objectives".

The EIB recommends that the lessons learnt from their assessment and consultation exercise should be taken into consideration in how member states implement the next CAP on a national level.

Future focus

The European Commission is increasingly aware of the need for money to help farmers deal with the sustainable transition as well as the recovery from COVID-19's economic downturn. The EU executive's latest proposal for the next EU budget has a potential €391.4 billion for the next CAP, which includes €100.7 billion for the EAFRD.

It includes an extra €16.5 billion for this second Pillar from previous proposals, which is aimed at supporting rural areas prepare for the future and adapt to the 'ambitious targets' of the new Biodiversity and Farm to Fork strategies, the bloc's new plans to improve sustainability in agri-food chains.

Some green group have raised fears that the wording of this legislative proposal will see the money up being used more for a 'business-as-usual' approach rather than a sustainable food transition. Some member states have also publicly come out against the additional EAFRD financing, as well as the EU's increased budget proposal, because of ambiguity on how the money will be spent.

In response to EIB's report, European Commissioner for Agriculture Janusz Wojciechowski said: "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."

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.