The Government of Aragon is going to allocate thirteen million euros of public expenditure to accompany the subsidies for the establishment of young people in the agricultural sector and allow the modernization and improvement of farms. And it will do so through a novel tool, the Financial Instrument for Centralized Portfolio Guarantee Management (IFGC-G), which seeks to respond to one of the main needs of the sector, which is the difficulty of access to credit for the financing of agricultural investments.
«It is a way to promote easier access to credit for farmers and ranchers under better financing conditions than those of the market, with special emphasis on young people,» explain sources from the Department of Agriculture, Livestock and Food. «It is an administratively simpler and more agile process than applying for a subsidy,» they add.»
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The Centralized Management Financial Instrument comes under the CAP Strategic Plan (PEPAC) 2023-2027. It is conceived as a support mechanism that acts as a source of guarantees for the final recipients in rural areas and is 57% financed by the Government of Aragon, while the remaining 43% comes from European Funds.
The Centralized Management Financial Instrument is part of the Strategic Plan (PEPAC 2023-2027).
The Department points out that the IFGC-G will be «a form of support to the sector through the offer of standard loans for investments that allow the modernization and improvement of farms or working capital expenses to support the establishment of young people, with preferential conditions in terms of interest rate and guarantees».
The IFGC-G will be «a form of support to the sector through the offer of standard loans for investments that allow the modernization and improvement of farms or working capital expenses to support the establishment of young people, with preferential conditions in terms of interest rate and guarantees.
The IFGC-G allows the financing of a wide range of investments, such as the construction and improvement of agricultural or livestock facilities, the purchase of agricultural machinery, the implementation of irrigation investments within the plot or the purchase of land in the case of young people. So that loans may be made for amounts between 60,000 euros and 600,000 euros per farm.
In the case of working capital financing, Aragon has specifically focused it on young farmers who establish themselves in the agricultural environment through an establishment dossier within the PEPAC. So they will be able to apply for such guaranteed loans to finance expenses such as the purchase of seeds, fertilizers, phytosanitary products, or payroll management among others, for a minimum value of 15,000 euros and a maximum of 60,000 euros per farm.
These loans, once the suitability of the recipients has been analyzed, have a guarantee from the IFGC-G through SAECA corresponding to 80% of the amount, with a limit of 20% of the portfolio. Besides, as a particular feature of the IFGC of Aragón, in the case of the loans for the investments for the modernization and improvement of the agricultural exploitations, they will also have a bonus on the interest costs of two percentage points during the first five years of the term of the loan contract.
Another feature of the IFGC is its multiplier effect, i.e., for every euro of public expenditure contributed by the administration, this translates into a capacity to guarantee more than six euros. This in the case of Aragon means a potential for guaranteed loans for an amount of 81 million euros.
One advantage of the IFGC-G is the less demanding requirements to be met by the beneficiaries. So that for applications for guaranteed loans that finance working capital, the IFGC will go to all those individuals who have been approved by the Government of Aragon a file of establishment under the PEPAC 2023-2027 in Aragon, which is in a phase prior to final certification.
In the case of guaranteed loans aimed at investments for modernization and improvement of agricultural holdings, when applied for by a young person, he/she must meet the aforementioned requirements. For the rest of the applicants, it will be required that they are owners of an agricultural exploitation in Aragon registered in the corresponding official registers. In addition, in the case of individuals, they must be affiliated to the agricultural Social Security system corresponding to their activity, at least one year prior to the application. While, in the case of legal persons and unincorporated entities, it must be justified that its main purpose is the agricultural activity.
Finally, regarding the advantages of this system compared to that of subsidies, it is that the aid is received before the investment is made.
There has already been a previous experience in Spain with this financing model in the previous Multiannual Financial Framework 2014-2022 through its adhesion by the autonomous communities of Castilla León, Galicia and Extremadura through their Rural Development Programs. Which has meant the realization of more than 1,200 loans for an overall amount of €194 million. In the case of Castilla y León, a very satisfactory result has been obtained since, with a public amount of 26 million euros, it has allowed the formalization of guaranteed loans for an amount of 182 million euros in that community.
Aragon is a pioneer in the implementation of this financial instrument within the PEPAC and it has done so in such a way that those interested may apply for IFGC-G aid from the entry into force of the order, until December 2027. In this way, access to the guaranteed credit is facilitated at any time. So far, ten autonomous communities have expressed their willingness to replicate it in their territory.
Application process
The IFGC-G is based on a public-private partnership, in which each of the intervening parties has a defined role. The farmer, through the financial entities adhered to the IFGC, makes the application for aid. The General Directorate for Rural Development, in turn, issues the resolution on the right to access to the loan, which includes the result of SAECA’s credit viability report, which is communicated to the Ministry of Agriculture in the form of an Individual Investment Decision. The latter sends an instruction to SAECA authorizing it to guarantee the loan on behalf of the IFGC, and then the interested party can go to the collaborating financial institution for the loan formalization, which will be carried out only if the financial institution considers that the operation is feasible, according to the result of its mandatory risk reports.
The maximum term to formalize the loan in Aragón is six months from the notification of the resolution.
«We want to encourage those who decide to undertake their activity in the countryside to propose projects whose viability is assured,»
«We want to encourage those who decide to undertake their activity in the countryside to propose projects whose viability is assured,» the Department states.
