He made the announcement after it was reported that it may be April 2017 before money could be drawn down by farmers under the new low cost loan scheme. It is understood that some of the main banks, while committed to rolling out the scheme, had difficulties with some of the fine print in developing new products.

The scheme, created by leveraging the €11m made available under the EU’s exceptional adjustment aid for milk and other livestock farmers along with €14m in national funding, will provide low-cost unsecured loans at 2.95% interest for up to 6 years for a maximum of €150,000 to farmers.

Wider EU push

EU Farm Commissioner Phil Hogan has been a keen advocate of financial instruments in the agri-food sector. This is part of a wider push by the European Investment Bank (EIB) to get banks less keen to offer credit since the financial crisis.

Speaking at a conference this week, Commissioner Hogan said that some €260m of EU rural development funds are set to be channelled into farm credit instruments in the form of loans and guarantees in the next months. He is pointing to schemes in Estonia, Germany, France, Romania, Italy and Spain that are either already established or in preparation.

The plan encourages Member States to include specific financial instruments, such as loan guarantees giving lenders assurance for their capital, in their rural development plans.

Comment

It has to be questioned why aid packages allocated to farmers in times of low incomes need to be used by governments to encourage banks to lend to the sector. The fact that average levels of interest are at least 2 percentage points higher in Ireland than in other countries across Europe points to a banking sector that is simply not functioning.

This intervention reduces the risk for the banks. It provides security to banks, encouraging them to lend with more favourable conditions such as lower interest rates, longer repayment periods and fewer requirements for collateral.