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(EN) What should you know before investing in agricultural loans from Bulgaria?

2021-02-09

After the official launch of operations in Bulgaria, we would like to share with you some key facts about agriculture and agricultural financing in this market. We do hope that this information will help you in making better decisions when investing in loans on our platform. 

Agriculture plays a key role in the socio-economic fabric of rural Bulgaria. The agriculture sector generates 4.4% of the country’s total gross value added (GVA) and provides employment to 5.8% of the labour force, which is the second-highest rate in EU 28.

Agriculture has always been one of the leading sectors in the Bulgarian economy. The country has favorable natural resources for development of agriculture, however, better financing is needed to increase the sector's efficiency.

Many farmers grow wheat, corn, sunflower seeds, rapeseed, grapes, tomatoes, and other agricultural products. Bulgaria also offers favorable growing conditions for a wide variety of temperate fruit tree crops, provided that irrigation can be assured. Here investment and working capital loans are required. Vegetable production also requires short, midterm and long term finance.

Proper financing can unlock hidden powers

While Bulgarian farmers appear to be more active in applying for farm financing options than their peers in the EU 24, the fi-compass survey reveals that a substantial share of this finance demand is for working capital needs. The study shows that Bulgarian farmers request credit lines and overdrafts more often than many other EU countries.

The total outstanding loan volume to the sector was estimated at EUR 5.4 billion in 2019. Overall, the financial market for Bulgarian farmers does not yet fully support all the investment and working capital needs of the sector. There is significant potential for new financial instruments, with a market gap estimated between EUR 289 million and EUR 863 million. It is worth mentioning that almost three-quarters of the estimated financing gap relates to small-sized farms (below 20 hectares), which the banks regard as the least profitable segment. Small farms often contribute significantly to the social and economic vitality of regions where limited alternatives to farming exist.

The Rural Development Programme (RDP) plays an important role in access to investment support in the agriculture sector. Total public support of EUR 378 million was already contracted resulting in significant increases in the total investment amounts for various assets (machines and equipment, transport, buildings, etc.). On the financial support for the farmers' supply side, the main correlates relate to the fact that three banks control around 65% of the market, while other operators lack interest and expertise in the sector.

In order to manage risk, banks tend to restrict lending to farmers, when RDP investment support has been received by the farmer. There is also a lack of tailor-made loan products, although certain flexible repayment modalities are offered mostly to larger farms. There is the absence of banks specialized in agriculture finance, high-interest rates and high collateral requirements pose difficulties in accessing finance. Young farmers are particularly affected by these conditions and the financing gap.

Structure of the sector

Following accession to the EU in 2007, the Bulgarian agriculture sector underwent a structural transformation, characterized by steady growth in gross value added (GVA) and reached EUR 1,913 million in 2019. However, out-of-date heavy equipment and low financial capacities and the poorly performing financial sector create many struggles for small and medium-sized farms. Therefore, HeavyFinance sees a lot of potential in helping small and medium farms to grow and gain more competitive power.

According to European Commission, out of 202 720 farms in Bulgaria, more than 80% being categorized as smallholders (below 2 ha), most of the output and exports of the sector are produced by a small number of large-sized farms, from which most of them are in the less-labor intensive sub-sectors such as cereals and oilseeds. HeavyFinance provides investors an opportunity to fill this gap while investing in the farm's development from which the investors are able to earn up to 14%.

Another issue in the agriculture sector in Bulgaria is the aging workforce, with more than 35% of workers being over the retirement age. Young farmers (below the age of 40) represent 14% of the Bulgarian farmers and those are more enthusiastic about expanding their businesses and investing to increase efficiency.

The lack of a qualified workforce also limits the potential of some farms to grow, especially during seasonal peaks. Therefore, there is a big need for loans to purchase used but still more modern heavy equipment to increase farming efficiency.

You can read more about the agricultural financing in the report fi-compass, 2020, Financial needs in the agriculture and agri-food sectors in Bulgaria.


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