Agriculture - Government-backed loans: research

Executive Summary

Purpose of the research

Scottish Government commissioned this research to provide an understanding of how government-backed loans and private finance schemes have supported young and new entrants to enter agriculture in the UK & Europe.

Findings from the European case studies

Although there have been no government-backed loan schemes specifically designed for young farmers/new entrants in the UK, many have been introduced in European countries. European schemes have been developed in association with the European Investment Bank (EIB) and financial intermediaries for a number of years.

This report compares sector agnostic government-backed loan schemes in the UK, as well as government-backed and private finance schemes in European countries tailored to young and new entrant farmers and crofters. Loan schemes in the Republic of Ireland, France, Italy, Spain, Netherlands and Lithuania included government-backed guarantees ranging from 64% - 80%. The loan schemes had diverse purposes, such as access to debt finance for investment and growth, including for productivity and sustainability, the purchase of land, business succession and response to external shocks. Factors such as marketing strategy and scheme design were found to impact scheme uptake levels in individual countries, in addition to external influences such as farm profitability.

Findings from the interviews with bankers

The banking sector in Scotland appeared positive about the prospect of government-backed loans for new entrants. Many interviewees were interested in sitting down and working together to explore how new/young entrant finance could be improved. Interviewees understood that there were challenges to agricultural finance for new/young entrants and many banking interviewees raised concerns that young farmers may not be accessing finance that they were eligible for.

Interviewees suggested considering products already provided or recently backed by the British Business Bank. Although current government-backed loans from the British Business Bank were noted as being unsuitable for most farmers, including new entrants due to term lengths, it was raised that modifying current lending schemes could potentially result in agriculture being viewed negatively as a “niche category”. It was noted that estimating demand for loan schemes specifically designed for young/new entrant farmers could be challenging and low demand would impact scheme delivery costs.

Recommendations

Understanding the demographics of young/new entrant farmers and crofters in Scotland who are unable to access current finance options is key to determining the level of demand for a government-backed loan scheme and product tailoring. Further insights that could help design a new scheme could be achieved by approaching EU countries for their data on their scheme uptake levels, which is often not publicly available.

There is scope to explore levels of awareness of existing finance options for young farmers and crofters and the use of existing frameworks, schemes, products and finance and their marketing to target young and new entrant farmers and crofters more effectively.

Improved financial education could assist with supporting new/young entrants to access finance and create business plans. A task and finish group to review the schemes operating in EU countries, such as those operating in the Republic of Ireland along with the EU model for a ‘Starter Pack’ of measures to support young/new entrant farmers in the upcoming CAP 2028-2034 could be established.