Budapest 12 – 13 January 2006 Rural Credit Guarantee Schemes A financial instrument for Agriculture and Rural Development Piero Crivellaro Coldiretti Economic Department

Index 1.Coldiretti and its Guarantee Consortia 2.Rural Development Programmes and Financial Engineering in Italy 3.New Rural Development 2007 – The Basle 2 Accord and agricultural enterprises 5.What is the role of the Agri-Guarantee Consortia in the New European Rural Development? – Budapest Jan ‘06

1.Coldiretti and its Guarantee Consortia 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 Regional/Subregional Federations Local offices Sections

– Budapest Jan ‘06 1.Coldiretti and its Guarantee Consortia “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 MULTIFUNCTIONALITY The AIMS of COLDIRETTI

– Budapest Jan ‘06 1.Coldiretti and its Guarantee Consortia The Pillars of Coldiretti’s project To build a constructive dialogue between producers and consumers To help agricultural enterprises grow and become more competitive

– Budapest Jan ‘06 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. 1.Coldiretti and its Guarantee Consortia

– Budapest Jan ‘06 Regional Level Provincial Level 1.Coldiretti and its Guarantee Consortia

– Budapest Jan ‘06 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 1.Coldiretti and its Guarantee Consortia

– Budapest Jan ‘06 2.Rural Development Programmes and 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 ”

– Budapest Jan ‘06 2.Rural Development Programmes and Financial Engineering in Italy 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

– Budapest Jan ‘06 2.Rural Development Programmes and Financial Engineering in Italy 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?

– Budapest Jan ‘06 2.Rural Development Programmes and Financial Engineering in Italy 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

– Budapest Jan ‘06 3.New Rural Development 2007 – 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?

– Budapest Jan ‘06 3.New Rural Development 2007 – 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 achieved with less subsidies, less grants and less non-repayable loans?

– Budapest Jan ‘06 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.The Basle 2 Accord and agricultural enterprises

– Budapest Jan ‘06 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. 4.The Basle 2 Accord and agricultural enterprises

– Budapest Jan ‘06 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. 4.The Basle 2 Accord and agricultural enterprises

– Budapest Jan ‘06 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? 4.The Basle 2 Accord and agricultural enterprises

– Budapest Jan ‘06 5.What is the role of the Agri- Guarantee Consortia in the New European Rural Development? Guarantee Consortium Bank Farmers provide information It translates the information provided by farmers in a B.P. The Guarantee Consortium has agreements with various Banks

– Budapest Jan ‘06 5.What is the role of the Agri- Guarantee Consortia in the New European Rural Development? The Mission of Agri-Guarantee Consortia for agriculture and for the new EU Rural Development will be:  To increase the money supply  To decrease the cost of borrowing  To 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 COLDIRETTI The official web site The new web site on rural development For further information: Piero Crivellaro Economic Dept Tel Fax