Opinion piece by CEJA Vice President Rūdolfs Pulkstenis - with the support of CEJA Secretary General Marion Picot
As announced by the President of the European Commission Ursula von der Leyen, the mandate 2024-2029 will deliver a strategy on generational renewal in agriculture, including a focus on young farmers’ access to capital. As part of CEJA’s Week of Financial Instruments, Vice President Rūdolfs Pulkstenis explains why Europe’s young farmers have been so adamant about unlocking financial instruments to boost their investment and capacity to develop and maintain profitable and sustainable activities in farming, for them, their communities and the society at large.
In summer 2015, I started farming on my family's land on evenings and weekends besides my job in a bank, with the ambition to become the fifth generation to farm. For a few years, I built my experience in the fields, using second-hand machinery and a minimal cash flow. From 2017, I went to banks almost every year to get more investment capacity and set up full-time.
I engaged a lot of means in the process, but I had some ammunition: my knowledge of the banking system, some practical experience and savings, and a very important collateral, my land. Despite all of these, I still had to guarantee that I would receive direct payments and grants, and be able to repay my credit lines. Without the land, I would have probably faced more difficulties in kickstarting my investments.
The difficulty to access investments is one too many young farmers are facing across Europe. In 2022 alone, fi-compass reported a financing gap of €62 billion in EU agriculture, including €22 billion attributed to young farmers[1]. In CEJA, we have been advocating for many decades to address the gap and give young farmers the tools to access the finance they need. While there is no one-size-fits-all solution, we have identified 3 priorities to be integrated into the EU strategy on generational renewal when it comes to access to credits and investments:
1. Address the perception of risks in agriculture
Agriculture is a forward-looking sector which has the potential to create added value for our economy and our territories across Europe. It is also a trustworthy sector, where the rate of loan repayment is higher in comparison with other sectors. Despite this, banks have shown increasing reluctance to invest in the sector based on the lack of predictable cash flow and regulatory stability. The risks are well-known: market volatility, higher frequency and intensity of climate disasters, pests and diseases, low bargaining power in value chains, and long production cycles vs short policy cycles.
All of these are jeopardizing farmers’ capacity to get a return on their investment. And it is no surprise that young farmers find it even more complex: in a sector that is so capital-intensive, building a strong treasury able to provide cashflow, long-term planning and risk management all at once is nearly mission impossible in the first years of installation.
Addressing the perception of risk starts with going back to the basics. On the one hand, we need public authorities giving the right signals to the markets, more specifically that there is a future in agriculture, that is worth investing in. While it may go against the mainstream consideration of competitiveness in this early mandate, agriculture can be a highly competitive sector provider of added value on all sustainability fronts. On the other hand, we need market operators who put their risk-sharing narrative into practice by providing fairer prices and stable conditions to farmers.
2. Build the capacity of young farmers
Young farmers have demonstrated their willingness to invest in the sector, equipped with an innovative mindset and a unique aspiration to entrepreneurship. Accessing the toolbox remains nevertheless a challenge. Despite their potential in terms of long-term investments, few specific programmes dedicated to young farmers exist, out of the concern that they would not meet demand in all territories due to demographic reasons. That is why CEJA is so welcoming of any initiative from the European Investment Bank (EIB) and other institutions that may nudge commercial banks to loan to agriculture at preferential interest rates, with mandatory targeting of young farmers.
There has also been an insufficient or difficult targeting of young farmers’ investment needs, illustrated in the absence of clear signals sent to the banks by regulation, but also the limited set of tools available to align farm environments with regulation, specifically when setting up on a farm. The most striking example remains in the livestock sector, in which many young farmers cannot access the investments to operate their sustainable transition. Similarly, a certain degree of flexibility and trust would be required when it comes to young farmers’ loan repayment. Longer-term loans associated with additional flexibilities in repayment would allow them to face and adapt to the ups and downs in their treasuries, especially during their installation and development processes.
Finally, there is an urgency to adapt existing financial models to agriculture, which shows in the difficulty of adapting loan requests in agriculture to standardized Environmental and Social Governance (ESG). From this perspective, the idea of a dedicated prudential framework, but also the unlocking of additional advisory services for the drafting of business plans are two very important levers.
3. Give impulse to rural economies
Finally, financing agriculture cannot be thought of in silo of the territories in which we are involving ourselves. In many regions of Europe, banks are fleeing the countryside at a worrying pace, with the loss of specialised bank advisors. In my pathway, I was lucky to meet with advisors who knew farming, but it is not the majority as banks are closing their branches in rural areas.
Despite the overall confidence in future-proof investments observed by fi-compass in the last years, many trust issues remain in the financial system in our sector and our territories in general. That is true for agriculture, but also for access to housing loans. That is why we need to ensure that advisors remain in our territories, even if passing by once a week.
Our investments in agriculture go hand in hand with other cohesion investments made by the public sector. If we make it possible for young people to invest in rural areas, by providing infrastructure and services and creating the right toolbox, we will not only achieve our objectives in agriculture but also give impulse to our rural economies. Such an objective should be pursued everywhere in Europe regardless of the geographical situation. That is what is owed to my generation of young farmers, and the ones after us.