The European fi-compass conference took place in Dublin in June 2015 and the focus was advancing with financial instruments under the European Agricultural Fund for Rural Development (EAFRD). Agriculture is seen as a key part of the economy in Europe and the general message seems to be that there is an opportunity (where appropriate) to combine grants and financial instruments as an alternative form of financing. These financing options can bring more freedom and benefits to Member States, helping to achieve development objectives, increase growth potential and as a way of attracting private investment to rural Europe.
What is the EAFRD?
The EAFRD is the funding instrument of the second Pillar of the Common Agricultural Policy (CAP) of the European Union and one of the European Structural and Investment Funds (ESIF)
The EAFRD has a total budget of over €96 billion for the period 2014-2020, with aims of fostering knowledge transfer and innovation in agriculture, forestry and rural areas.
What are Financial Instruments in ESIF programmes?
Financial Instruments are co-funded by the ESIF and these measures of financial support can be set-up by Member States through financial products such as loans, guarantees, equity and other risk-bearing mechanisms that support projects on the ground.
They are intended support economically-viable and sustainable projects that do not have sufficient funding from market sources, providing opportunities for farmers or group of farmers, including legal entities, into agricultural activities and on farm investments.
Agriculture and farming is huge in Ireland and the conference mentioned above, the Minister for Agriculture, Food and Marine, Simon Coveney TD stated that agricultural colleges are fuller than ever before. Apparently, in Ireland only once in 400 years does land get sold and the difficulties for young farmers to invest is recognised. New models of security finance are needed.
It is important to note that in order for any Financial Instruments to be put in place, an ex- ante assessment must first be carried out.
What is an ex-ante assessment?
The ex-ante evaluation is a high level gap analysis carried out in parallel with the programming to evaluate the fit of the proposed priorities and actions with the needs assessment. It is proposed that the analysis should also include consideration of financial instruments or other forms of support as delivery tools to contribute to these selected priorities and actions.
Under the rules, it has been made clear that all types of combination of funds and forms of support will be possible. The overall guiding principle for all cases is that the same expenditure cannot be declared twice to the Commission. Grants shall not be used to reimburse support received from financial instruments and financial instruments shall not be used to pre-finance grants.
What are the benefits of financial instruments?
- Leverage resources and increased impact of ESIF programmes
- Efficiency and effectiveness gains due to revolving nature of funds, which stay in the programme area for future use for similar objectives
- Better quality of projects as investment must be repaid
- Access to a wider spectrum of financial tools for policy delivery and private sector involvement and expertise
- Move away from “grant dependency” culture and
- Attract private sector support (and financing) to public policy objectives.
Case studies demonstrate that market gaps in finance for agriculture or fisheries projects can be counteracted using EAFRD through financial instruments complementing grants. However, there is a clear rule on no double funding and state aid rules still need to be respected. As a result, the cumulative effective of funding needs to be considered.
The EU has an operational objective to double the proportion of use of financial instruments and it will be interesting to see if this key objective is realised in the 2014 – 2020 framework.
Developments in Ireland
The agri-food sector is one of Ireland's most important indigenous industries and accounts for employment of around 150,000 people. With the removal of the EU milk quota regime earlier this year, dairy farmers have an opportunity to expand production for the first time in 30 years.
As reported in the financial times earlier in 2015, The Minister for Agriculture, Food and the Marine, Simon Coveney says Ireland can double its milk production as a result of the end of the quota regime and sees “Ireland as the fastest-growing dairy producer in the world in the next five to 10 years”.
For dairy farmers to take advantage of the growth opportunities presented, access to capital will be crucial. The recent government announcement introducing the Dairy Equipment Scheme is a positive step for the dairy sector in Ireland:-
On 29 June , 2015, Simon Coveney and Minister of State Tom Hayes TD, announced the opening of the new TAMS II Dairy Equipment Scheme which is the second of the new Targeted Modernisation Schemes (TAMS II) to be launched under the new Rural Development Programme 2014 - 2020. The Scheme is co-funded by the EAFRD and it was indicated that an allocation of €50m was being made available under the terms of this Scheme over the full RDP period.
The objective of the Scheme is to encourage, in particular, new entrants/young farmers in milk production by providing a level of support to meet the considerable capital costs associated with establishment of their enterprise. The support will also help ensure they have the most up-to-date technology available to compete in the modern dairy sector.
This is good news for the dairy producing sector in Ireland and definitely a development to watch.
Author: Ursula MulvaneyThis information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.