8 minute read
The Estonian Rural Development Foundation supports entrepreneurs in rural areas
by Eurofish
off shore, though how far off shore has not been defi ned yet, says Mr Rabane. Th e distance from the coast, the depth of the sea, and the presence of other off shore installation will all have a bearing on fi sh farming operations, he points out, and there will be much to learn as we are the only company in Estonia with experience of farming in the sea and all of that is near shore.
Pandemic vaccine is the light at the end of a tunnel
Th e company’s products are sold primarily on the domestic market in the three countries (Estonia, Finland, Sweden) which form the company’s base, but the production is also exported to several countries most recently to Japan, where rainbow trout fi llets have proved popular. Th e collapse of the Horeca sector as a result of the pandemic had a marked aff ect on the company as sales to this segment accounts for 20 of the Group’s turnover. Th e company also had to contend with increased volumes of Norwegian salmon on the market as sales to Asia and the US were diverted to Europe due to border closures and the lack of transport links. Seafood is also a relatively expensive product and among the fi rst to be sacrifi ced by consumers when times are hard. Th e pandemic also provoked operational challenges as the team that carries out the harvesting at the diff erent sites could not move from country to country due to the travel restrictions. Now, however, with the prospect of a vaccine in sight Mr Rabane is hoping for a return to a more normal work routine for his employees and himself.
PRFoods
Pärnu mnt 141 Tallinn Estonia
Tel.: +372 452 1470 margus@saaremerekala.eu www.prfoods.ee
Operations director: Margus
Rabane Activities: Rainbow trout farming, processing, sales Volumes: 2,000 tonnes Farming sites: Estonia, Finland,
Sweden Processing facilities: Estonia,
Finland Range: Variety of smoked, salted, marinated, frozen, and fresh products based on rainbow trout Employees: 35 + seasonal employees at harvest periods
The Estonian Rural Development Foundation supports entrepreneurs in rural areas Combating the impacts of the coronavirus
The Estonian Rural Development Foundation is a government body established to support the development of rural areas by encouraging economic activity. This is done primarily by issuing guarantees for loans taken from banks as well as by offering loans directly.
Capital and cashflow are two of the major challenges faced by any entrepreneur, and in particular, those that are starting up. A common solution for most entrepreneurs is to approach a bank to get a loan. However, banks are usually cautious and need some kind of collateral that secures the money they are lending. A budding businessperson may not have the necessary assets to satisfy the bank, she may also lack a credit record, or may for some reason have failed to win the bank’s confidence. A lender may find it difficult to assess a potential client because of a lack of information and may therefore be reluctant to offer a loan. Administration costs for small loans tend to be high, making them less interesting for banks.
Credit guarantees have an important economic and social function
There could thus be several explanations for why an entrepreneur is not given a loan. It is in situations like this that the Rural Development Foundation (RDF) can step in to guarantee the loan. Credit guarantee schemes such as those offered by the RDF have existed in Europe since the nineteenth century and are available in countries around the globe. By standing surety for a loan, a guarantee scheme reduces the typically high collateral requirements of banks, and by assuming some or all of the risk the loan can be offered at a lower interest rate. Credit guarantee schemes thus improve the terms of a loan and facilitate access to formal credit mechanisms. In addition, by enabling an entrepreneur to borrow money the guarantee scheme also assists her to start building a credit record, which
in itself is information a bank finds useful when assessing the applicant.
At the Rural Development Foundation applying for a guarantee is relatively painless. Th e applicant informs the bank with which she is dealing which then decides the extent of the guarantee required for the loan and submits an application to the RDF. Th e entrepreneur is still obliged to provide collateral and is not released from her obligation under the loan. Th e guarantee is triggered If the loan cannot be repaid and if the collateral is insuffi cient to cover it. Th e model has gained in popularity over the years as attested by the growth in the RDF’s portfolio which has multiplied from EUR55m in 2015 to EUR130m today. And if the services for processing loan schemes (where RDF supplies just the handling, not the loan itself) the portfolio swells to EUR200m. Madis Reinup, member of the management board, recalls a time in the not-so-distant past, when EUR5m was a large amount, but now it seems absurdly small, he says.
Conditions for support relaxed in response to the pandemic
Th e RDF specialises in the agriculture and fi sheries (including aquaculture) sector, which are typically rural activities. Th e aquaculture sector has made liberal use of the facilities off ered by the foundation mainly to establish recirculation aquaculture systems (RAS). Th e problem is that these systems are not economically viable. Th ey use little water, and all the parameters can be controlled, but they are complex to operate and very expensive. Most of all, Norway is 500 km from Estonia and a farmer producing small volumes of fi sh on land cannot hope to compete with marine farmed Norwegian fi sh. As a result, the rate of defaults has been high, and the foundation has become much more conservative about supporting aquaculture projects. Although the money at the RDF’s disposal comes from the government, guarantees are issued against a fee. Depending on the applicant, the fee can be between 0.3 and 1.0 of the amount, signifi cantly cheaper than the 3 it used to be in the past. Moreover, the rules have been relaxed so that now the guarantee in certain cases can cover up to 100 of the loan amount. Th e slackening of conditions was in response to the impact of the coronavirus.
Th e pandemic has aff ected the fi sheries sector by shutting down the Horeca (hotels, restaurants, catering) sector both within Estonian and outside. For producers of the high value freshwater species that are destined specifi cally for this part of the distribution chain, this was a signifi cant setback. While this was a direct impact of covid-19 there was also an indirect aff ect in the form of the uncertainty created by the situation. With infection rates fl uctuating strongly and lockdowns being introduced and then lifted, it was diffi cult to anticipate how markets and consumers would react. As a result, says Mr Reinup, banks became very conservative about lending money. To assist the sector (and the agriculture industry) the government created a EUR100m fund to be managed by the RDF. About four fi fths of the amount was disbursed between June and December 2020 in support of 300-400 projects, so now the scheme has ended. Th e money takes the form of loans and the foundation manages the whole process—assessing the applicant, processing the paperwork, disbursing the money, and monitoring repayments, a service for which it is paid by the government. While some of the projects have involved fi sheries companies, these enterprises also have access to fi nancial instruments from EU funds which too are managed by the RDF. Certain applications can then be directed to these funds rather than the covid-19 pool.
Competing with banks is not the objective
By off ering relatively cheap loans the RDF could be accused of undermining the banks, an issue Mr Reinup has also discussed with politicians. To forestall such charges, the interest rate on loans is low at the start but then increases over the years to encourage borrowers to seek commercial loans after the initial period. For politicians, however, the issue is one of showing the industry that it is being supported. Th e real prospect of a vaccine may change the calculations though, as it should boost confi dence and reduce uncertainty creating conditions where banks start lending again. Th e RDF could contribute by continuing with its guarantee scheme but making its loans more expensive. Interest rates would have to increase signifi cantly if they are to exceed those off ered by banks since banks increased their rates as a result of the uncertainty caused by the pandemic. Rates are now higher than they were a year ago, discloses Mr Reinup.
For the 10 months or so the foundation has been fully absorbed with covid-related issues, but as the threat from the virus starts to recede as people get vaccinated and the weather gets warmer, plans can be made for the future. Over the next decade the RDF will continue mainly with its credit guarantee scheme. However, a study by the Ministry of Rural Aff airs has shown that there are still shortcomings in the market for agriculture and fi sheries and thereby a role for the RDF as a provider of long-term loans, for example, for more effi cient fi shing vessels. While the subject is taboo at the Commission and also among some Member States, Mr Reinup cannot reconcile the lack of funding for new technologies on board vessels that contribute to reducing energy consumption with European blue and green policies. Since there are no prospects for this type of support from the EU, his idea is to use national funds to make loans available for projects that increase vessels’ energy effi ciency.
Th e Rural Development Foundation could be said to thrive when disaster strikes, but the institution off ered a lifeline to companies aff ected by circumstances connected with the coronavirus and now looks forward to more regular conditions—to prepare for the next crisis.
Oru 21 71003 Viljandi Estonia
Tel.: +372 648 4064 Fax: +372 648 4065 mes@mes.ee www.mes.ee Management Board: Raul Rosenberg (chairman), Madis Reinup (member) Main activities: Providing SMEs with guarantees for credit/other debt obligations; loans Target group: Entrepreneurs involved in agriculture or fi sheries related activities Employees: 12
