The Portuguese Farmers Confederation has developed a scheme which aims at granting credit to farmers for the anticipation of support payments paid by IFAP included in the Single Payment Scheme and investment measures under the RDP2020 (Rural Development Programme). This takes the form of specific agreements with banks for loans at lower rates than market rates.
Hence, in order to improve cash flow management, a protocol between the Portuguese Farmers Confederation and several Banks is signed, which aims at granting credit for the anticipation of subsidies within the Common Agricultural Policy. Main objectives of such protocol are: (i) to obtain liquidity, anticipating between 80 and 90% of the amount of aid receivable from IFAP; (ii) to have a simple financing process, allowing the possibility of use only when necessary, and (iii) to get competitive spreads and interest rate subsidies. How does this work? Farmers at the moment of application for their subsidies within CAP, and doing it through organizations belonging to the Portuguese Farmers Confederation, can request to join this service by filling out the Credit Intent draft.
Farmers throughout the years have been struggling with cash flow issues. Being able to manage own cash flow according to each farm needs can be a key factor to run and properly manage a successful business. It started in 2010 with 52 farm requests and in 2019, there were 332. Farmers at the moment of application for their subsidies within CAP, and doing it through organizations belonging to the Portuguese Farmers Confederation, can request to join this service by filling out the Credit Intent draft.The main challenge was to explain to beef cattle farmers some financial engineering to adopt this protocol. Perhaps the main bottleneck is the access to credit, that is, banks are not obliged to accept all producers who want to access, it has to do with the analysis of their financial / banking situation. Hence there is also the need of a high understanding from the farmers of financial instruments and management consequences. The key success factors were the understanding that adequate and available liquidity according to each farm reality can be a key factor for a successful business. It can allow for getting good prices for inputs, it can facilitate investment decisions as well as better management decisions. It can also imply dealing with risk.
Website: https://www.cap.pt/servicos/protocolos-bancos