Decline in Demand for Low Interest Pension Bank Loans Sparks Heated Discussions in Agricultural Sector

The fall in demand from farmers for low interest pension bank loans continues to cause heated discussions. The development bank had provided low-interest program loans worth 1.6 billion euros in the agricultural development sector. In the previous year it was 2 billion euros.

The Federal Ministry of Agriculture (BMEL) rejects criticism of agricultural policy. Rentenbank board spokesman Nikola Steinbock blamed, among other things, the unclear political framework conditions for this. DBV President Joachim Rukwied called on the federal government and the traffic light agencies to see the investment backlog as a “wake-up call” for further relief. For BDM board member Manfred Gilch from Bavaria, additional financing programs launched are well thought out and necessary, but they do not help to significantly increase the willingness of agriculture to invest.

House banks are currently a better alternative

For BMEL, the decline in demand for pension bank loans is not a sign that politics is setting an uncertain framework that slows down investments, explained a spokesperson for BMEL. Instead, the reasons, on the one hand, are of a European nature, and on the other hand, investment decisions depend on several factors specific to the company and from the outside. Therefore, looking at the Rentenbank loan alone is not very important in terms of farmers’ willingness to invest money.

According to BMEL, many companies currently prefer loans from household banks or other private or cooperative banks due to the EU legal framework for Rentenbank interest. Loan agreements could be concluded there on better terms.

Limits on interest rate cuts

According to the BMEL spokesperson, Rentenbank currently has limits when it comes to reducing interest rates. The reason is the indirect interest rate structure. This means that interest rates for short-term deposits are in many cases higher than for long-term deposits. In this situation, the EU reference interest rate, which is relevant to EU state aid law, has recently increased compared to previous years. So the Federal Minister of Agriculture Cem Özdemir introduced an initiative at the last Agricultural Council on April 27 asking the EU Commission to double the maximum amount for de minimis support to 50,000 euros. This would also make it possible to reduce interest rates to a greater extent under state aid law. The German move has been supported by most member states. EU Agriculture Commissioner Janusz Wojciechowski also supported the increase.

Better income creates more freedom

Özdemir’s ministry sees a better income situation on the farms as another reason for the weak demand for loans. Some agricultural companies were able to register a strong increase in profits in almost all types of business in the financial year 2021/22, despite the difficult general conditions. Initial indications from the assessment for the 2022/23 financial year show that this trend is continuing, said a BMEL spokesperson. This would allow companies to raise reserves or invest in the future of their farms. In the current marketing year, the income position of many companies has deteriorated significantly due to a sharp drop in grain prices.

Slow demand for animal welfare support

The BMEL itself provides evidence of investment backlog. Of these, 15 came from Bavaria and 14 from Baden-Württemberg. In Lower Saxony there were 29 pig farmers, while in North Rhine-Westphalia there were only 7. After the first two weeks of applications, according to the BMEL, there were already 7 applications in Baden-Württemberg and 5 requests in Bavaria.

The total applied for was almost €100 million, of which approximately €50.6 million was funding. However, there are still no claims in the data for continued funding for the additional costs. The starting date for application was April 1, but many product groups are still activated because they have not yet been confirmed. Pig farmers can only apply for funding if their marketing organization is certified. Of the €150 million available, a third of the money has gone missing so far. There may ultimately be insufficient funds to meet all funding requests for additional ongoing costs.

Protschka: green shop window or customer politics

With material from AgeE