How to manage and finance an agri company

How to manage (and finance) an agri company

Food producers work the land and take care of animals with the aim of producing quality food, but they are also entrepreneurs. Accessing financing, in particular in the start-up phase of the projects, is often a hurdle they have to overcome.

Farms are companies, but with some specificities that are transferred to financial operations. First, the income they earn can be very different for years, due to weather conditions, production variations or other market issues.

Another difference is the time for collections and payments. In general terms, agricultural producers receive their income when they sell their products, at the end of the harvest, while payments are concentrated at the beginning of the harvest.

“That means there is a greater need for financing,” Miguel Ángel Riesgo, president of the Spanish Agricultural Guarantee Fund (FEGA), told Efe Agro. Banks have adapted to these needs, as they are aware of the sector’s potential, in particular in the case of banks with an extensive presence in the territory.

 

The CAP, a guarantee from Europe

Funds from the Common Agricultural Policy (CAP) are one of the main guarantees and stabilisers of the producers’ incomes: In Spain alone, they represent an amount of 5 billion euros in direct aid.

“The fact that farmers will collect the CAP means that financial institutions grant their loans in an easier way,” Riesgo says. And for this, the entire system of payment agencies works so that the payments “arrive on time to farmers who deserve them, and without any kind of problems or fraud”.

EU regulations have also developed other financing measures, such as the Financial Instrument for Centralised Management (IFGC), a novel tool that seeks to favour the management of some European funds in the current programming period.

Its objective is to alleviate the difficulties of access to private financing with economic activity linked to the rural environment, in such a way that non-refundable aid is complemented with support for financially viable investments, but which can not be financed through the market.

In Spain, it is found in the current National Rural Development Framework, because of its potential for supporting the different programs of the autonomous communities that may join it and is managed through the State-owned Agricultural Insurance Corporation (SAECA)

Also thanks to the CAP, funds can be obtained in the second pillar, that of rural development, for investments in physical assets which allow farmers to improve exploitation, commercialisation and production – investments for forestry measures and investments or aid for installation of young farmers.

Young farmers

It is the first “fundamental” financing that has made it possible to give basic payment rights to 13,000 farmers in Spain in recent years, Riesgo stressed. However, producers say “it is not enough,” as the Castellón-based farmer Lorenzo Rubio explains.

“Banks and Administration are helping”, but when you have to start from scratch, to face the purchase of land or machinery, aids are not very big and you have to “ask for a loan from a bank or a savings bank.”

To help them manage all these obstacles, agricultural organisations and the agri-food cooperatives provide advisory services.

Financial advisor Sergio Hurtado, in Cooperativa Agro-Alimentarias in Castilla-La Mancha, notes that “councils and the different public administrations are betting on young people to have their way of life within agriculture” through a series of subsidies that these offices help to manage, in order to get these projects started and make them viable over time.

The European Union has an important challenge, that of the generational change in the primary sector and, therefore, plans to maintain and even increase aid to favour its installation and thus guarantee the future for the production of quality food.

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Measure co-financed by the European Union
How the CAP contributes to agricultural and rural regeneration

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