Agriculture

In autumn, the European farmers will have something to envy the Lithuanian corn growers. A new procedure for granting loans to be started in September will help Lithuanian farmers receive a loan faster and easier and with the rate of interest that is lower than that of the market.

Lithuania is the first in the European Union

The new Loan Fund is being created taking into consideration a complicated financial-economic situation of the country. This year it has become more difficult for Lithuanian farmers to borrow from banks. The latter either have refused to grant loans to the farmers or set an especially high interest rate. This deterred both small and large farmers from borrowing from banks though, according to statistics, agriculture has suffered from the crisis the least in Lithuania.
Having assessed a precarious financial situation, at the beginning of the year the Ministry of Agriculture started to negotiate with the European Commission on the establishment of such a fund. First of all it was necessary to obtain the consent that the support of the European Union to Lithuanian farmers should also be forwarded to that Fund. Within a record time – almost within six months – this project was coordinated with the European Commission and launched.
By making use of the instruments of financial engineering – a total of LTL 450 million from the Fund – attempts will be made to create conditions for farmers and processing enterprises to obtain preferential credits. The means of the Loan Fund will be used to provide support in the form of loans according to two measures “Modernization of Agricultural Holdings” and “Processing of Agricultural Products and Increasing Added Value” of Axis I “Improving the Competitiveness of the Agricultural, Food and Forestry Sectors” of the Rural Development Programme for 2007-2013.
According to the Minister of Agriculture Kazys Starkevičius, Lithuania will be the first country in the European Union to apply the so-called financial engineering instruments, that is, assistance in the form of loans in the agricultural sector. None of the European Union Member States has made use of this system yet. Therefore the neighbouring EU states watch intently how Lithuania will manage to credit its farmers under favourable conditions. “If it were not for these hard times, there would be no need to establish such a Fund”, noted the Minister.

Lower interest rate

Lithuanian farmers will be able to obtain both the support and the loan. According to the forecasted indicators of the activity of the Fund, they could be granted to 1500 subjects engaged in the agricultural activity (farmers, partnerships, etc.) and 40 enterprises engaged in processing agricultural products. The funds will be allocated to implement investment projects only, rather than to increase working capital.
“I am sure that this will encourage access to loans, the economic situation of farmers will improve. Funds allocated to rural development will be used more effectively. Small family farms, as well as smaller cultivators, will be able to make use of the support. Thus far the majority of them have not been able to make use of preferential credits”, said the Minister of Agriculture.
Interest on credits will account for 4 per cent in Euros and 8 per cent in Litas, whereas commercial banks offer loans with the rate of interest of at least 14 per cent. The means of the European Agricultural Fund for Rural Development and the national budget will constitute the budget of the Fund (75 and 25 per cent, respectively).
The Minister Kazys Starkevičius noted that after the Fund started functioning, applicants whose projects had been recognized eligible for financing by the National Payment Agency would be credited first. However, agreements have not been signed with them yet because banks refused to grant loans. The amount asked by these applicants to implement the projects totals LTL 35 million. “In the years between 2002 and 2008 a total of 1145 separate farms made use of the support of the European Union, some of them received the support as many as 8 times. However, after the procedure has been simplified, since 2 March, during four months alone, almost 2 thousand farms have applied for the support, which is more than during seven year’s period. Due to the new system of loans we expect to receive even more applications for the support”, the Minister characterized the situation. By the way, the Minister himself has been a farmer in his native village of Rokai, Kaunas region for a long time, therefore he knows the problems that farmers encounter very well.

Dairymen will be encouraged to unite

The length of credits is planned to be up to seven years, and if cooperation in the dairy sector is encouraged, the term might be expanded up to 10 years. Why are more favourable conditions created for dairymen of the country? Kazys Starkevičius explained that Lithuania’s dairymen strove to cooperate, a large part of dairymen of Europe behaved in this way. Therefore better possibilities should be raised for dairymen to unite and expand their activities. Indignant at low buying-up prices the country’s farmers, together with the strategic investor, intend to build a new processing plant. Its price is about LTL 100 million. “To receive the support of the European Union, at least 51 per cent of shares of the new enterprise should belong to dairy cooperatives or farmers of our country, however, we want this share to account for about 70 per cent. The strategic investor would use its trademark and take care of sales because the plant would be export-oriented”, spoke the Chairman of the Chamber of Agriculture of the Republic of Lithuania Bronius Markauskas. “The farmers want to pose a challenge and we support this initiative of theirs”, underlined the Chairman.
According to the data of the survey carried out by the Chamber of Agriculture, it turned out that as much as 5 per cent of the respondents were already members of dairymen cooperatives, and 82 per cent intended to take part in the activities of already functioning cooperatives or those that are being established. Prices of buying up milk in Lithuania are the lowest in the whole of the European Union. By the way, the Minister Kazys Starkevičius appealed to the Chairman of the Competition Council of the Republic of Lithuania Rimantas Stanikūnas with the request to carry out a research into the possible unfair use of market powers by the participants in the dairy market. The Minister appealed to the institution concerning the reduced buying up prices.
It is for some time already that farmers have been considering the issue of building their own processing plant because they have not been able to come to agreement on the prices of milk with the largest processors of the country for many years. During June 124,8 thousand tons of natural milk was bought up, that is, 9.6 per cent less than in June last year (138,1 thousand tons). The average price of buying up milk in June, as compared with May this year, decreased inconsiderably – by 0.2 per cent, or from LTL 541,6 per ton to LTL 540,3 per ton. As compared with last June, it has decreased by as much as 32.5 per cent, that is, from LTL 799,9 per ton to LTL 540,3 per ton.

Will operate until the year 2015

The Loan Fund will select financial intermediaries – banks, taking into consideration their experience of crediting agricultural subjects and other selection criteria set. The Fund will grant a target loan to selected banks according to their desirable need for funds. By the way, during the second stage the credit unions, which are common in the province of Lithuania and whose services are made use of by a large number of farmers, will be allowed to administer the funds. Credit unions grant loans to farmers too, though a guarantor is needed for that purpose. Financial intermediaries shall lend funds to farmers under favourable conditions assuming the risk for paying back the loans to the Fund. By the way, the risk of banks is minimized because farmers will be able to obtain not only a loan and the investment support but also a 70-per cent guaranty from the Agricultural Loan Guarantee Fund. “The Loan Fund is being established for an unlimited period of time, however, it cannot be liquidated until 31 December 2015. After the year 2015 the Fund will stop concluding new agreements with financial intermediaries, its activities shall be limited to administrating the returning funds. The Fund will not complete its activity until all funds lent have been returned to it”, said the Minister Kazys Starkevičius.