Budapest 12 – 13 January 2006 Rural Credit Guarantee Schemes A financial instrument for...

Budapest12 – 13 January 2006

Rural Credit Guarantee Schemes

A financial instrument for Agriculture and Rural Development

Piero CrivellaroColdiretti Economic Department

IndexIndex

1. Coldiretti and its Guarantee Consortia

2. Rural Development Programmes and Financial Engineering in Italy

3. New Rural Development 2007 – 2013

4. The Basle 2 Accord and agricultural enterprises

5. What is the role of the Agri-Guarantee Consortia in the New European Rural [email protected] – Budapest 12-13 Jan ‘06

[email protected] – Budapest 12-13 Jan ‘06

1.1. Coldiretti and its Guarantee Coldiretti and its Guarantee ConsortiaConsortia

What is Coldiretti?What is Coldiretti?Coldiretti is the most representative Italian

agricultural organization.

It was created in 1944 and represents 54% of all Italian farmers.

1,4 1,4 Million Members

115115 Regional/Subregional Federations724724 Local offices 5.6685.668 Sections



“To regenerate agriculture” means to discover

once again the core function of agriculture in a

new society, where the relationship between

consumers and farmers becomes more and

more relevant, above all concerning the quality

of food and the integration of farms within the

countryside.

The borders of our project move from the agricultural sector to the all of society

MULTIFUNCTIONALITYMULTIFUNCTIONALITY

The AIMS of COLDIRETTIThe AIMS of COLDIRETTI



The Pillars of Coldiretti’s The Pillars of Coldiretti’s project project

To build a constructive dialogue between producers and consumers

To help agricultural enterprises grow and become more competitive


In Italy there are almost 70 Agri-Guarantee Consortia

Coldiretti represents 38 consortia that provide guarantee for agricultural and

agri-business enterprises

These Consortia are constituted as a Cooperative or Consortium of

agriculture enterprises and have a recent history compared to the consortia

of other sectors in Italy.



Cuneo

Torino

Novara

Valle d’AostaVeneto

Ragusa

Siracusa

BasilicataCampania

ChietiPescara

Teramo

L’Aquila

Marche

Viterbo

ArezzoPisa

Forlì - Cesena

RavennaFerrara

BolognaModena

Parma

Reggio Emilia

Piacenza

VeneziaRovigo

Vicenza

Treviso

Pordenone

Mantova

Cremona

Brescia

Sondrio

Milano - Lodi

Como

Bergamo

Sardegna

Pavia

Regional Level

Provincial Level



Some data:

Members:

25,000

Number of operations in 2004:

6,215

Volume of financing provided: €

330 mln

Volume of guarantees: € 120 mln

Average amount of a single financing: €

51,000



2.2. Rural Development Programmes Rural Development Programmes and Financial Engineering in Italyand Financial Engineering in Italy

In CHAPTER IX “Promoting the adaptation and development of rural areas” of the European Council Regulation (EC) No 1257/1999 of 17 May 1999, article 33

provides a “menu” of measures “relating to farming activities and their conversion

and to rural activities”.

Among those instruments of intervention there is the measure of “Financial

Engineering”



Referring to European regulation, the Financial Engineering measure can finance:

• Guarantee funds

• Risk funds

• Other financial instruments

Objectives of the measure:

• To promoteTo promote new financial instruments

• To help and assistTo help and assist agricultural enterprises to talk with banks

• To createTo create a new financial environment for farmers



the measure of financial engineering, in Italy, was available only in five out of twenty-one Rural Development and Operational Programs (Ob. 1) and only in the Marche Region has it

been put into action.

After the mid term program review, in 2004, the measure was inserted in two Operational

Programs (Ob. 1) and cancelled in one RDP.

Why this “lack of use” for this pivotal measure?



In Italy, the starting up of financial engineering measures met various difficulties, mainly due to both Programme Managing Authorities and credit environment at regional level.

These are the main reasons:• Lack of knowledge of the credit risk subject• Lack of knowledge of State Aid rules in

agriculture and risk capital•The credit environment for the agricultural sector

is not well developed everywhere in Italy•All the financial engineering measures inserted in

the RDPs finance only the constitution or the integration of guarantee funds


3.3. New Rural Development New Rural Development 2007 – 20132007 – 2013

In relation to the last programming period and the difficulties met for the implementation of

the financial engineering measure, the Strategic Guidelines for Rural

Development and the EU Council Regulation of EAFRD have seen the

cancellation of the measure.

Why?Why?Why?Why?


3.3. New Rural Development New Rural Development 2007 – 20132007 – 2013

The recently EU Financial Budget has seen a cut in resources but the same ambitious objectives

have been maintained.

How can those objectives be How can those objectives be achieved with less achieved with less subsidies, subsidies,

less grants and less non-less grants and less non-repayable loans?repayable loans?


The answer seems obvious.

Agricultural enterprises that would like to invest, could count not

only on regional, national and European funds but they will have to build a new relationship with

banks.

This is particularly true if we also consider the impact of Basel 2

Accord

4.4. The Basle 2 Accord and agricultural The Basle 2 Accord and agricultural enterprisesenterprises


Not Italy but allover in Europe

Agriculture enterprises are not yet ready to respond to Basle 2

requirements.

In Italy 80% of Banks are already Basle 2 compliant (Source: Italian Banks Association). This means that they

already work and rate the enterprises in respect of the Basle 2 rules with

internal rating models.



Agriculture enterprises have to develop a new partnership with

banks, to understand the methodology which banks use to evaluate and which new elements are to be considered for

rating.

At the base of the relationship, if both subjects want to have mutual

advantages, there has to be more transparency and cooperation.



For banks, new and more precise information from enterprises will allow banks to understand the

degree of risk and, above all, to supply adequate financial products

For agricultural enterprises who will be able to transfer their goal/investiments to banks, they will receive great advantages in term credit conditions

Are agricultural enterprises able to do

this?



5.5. What is the role of the Agri-What is the role of the Agri-Guarantee Consortia in the New Guarantee Consortia in the New European Rural Development?European Rural Development?

Guarantee

Consortium

Bank

Bank

BankFarmers provide

information

It translates the information provided by

farmers in a B.P.

The Guarantee Consortium has agreements with

various Banks


5.5. What is the role of the Agri-What is the role of the Agri-Guarantee Consortia in the New Guarantee Consortia in the New European Rural Development?European Rural Development?

The Mission of Agri-Guarantee Consortia for agriculture and for the new EU Rural Development will be:To increase the money supplyTo decrease the cost of borrowingTo advise enterprises about their investments

To assist enterprises in the dealing with banks

To develop with enterprises and banks new financial risk models, adequate for the analysis of the structure of agricultural enterprises

Find out more about Find out more about COLDIRETTICOLDIRETTI

www.coldiretti.it

The official web site

www.campagnaamica.it

www.esportareilterritorio.coldiretti.it

The new web site on rural development

For further information:Piero CrivellaroEconomic Dept

[email protected] +39 064682321Fax +39 064743122

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