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Hungary: Financing for Agriculture

Hungary: Financing for Agriculture

Issue 10.4
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Hungary’s agricultural sector has a rich historical tradition but faces challenges due to insufficient financing. The European Union’s Common Agricultural Policy (CAP) provides funding for farm restructuring and market support, while Hungarian farmers can seek financing from banks and cooperatives. The Hungarian government has also established various programs to provide financing for agriculture, including subsidies for machinery and technology investments and funding for training. 

Agricultural Loans

Agricultural loans are a type of financing to support agricultural operations, including the purchase of land, livestock, equipment, seeds, fertilizers, and other supplies. One of the key advantages of agricultural loans in Hungary is that they are often tailored to the specific needs of the farmers. Although they typically have lower interest rates than other types of loans, they may require more collateral and a longer repayment period. Additionally, the government may subsidize some agricultural loans to support the sector. 

Pre-Financing

Pre-financing is critical for agricultural projects in Hungary, yet it can be a lengthy process to obtain it. Pre-financing can come from various sources, including the European Union’s CAP, banks, and financial institutions. Developing a comprehensive business plan that outlines the scope and objectives of the project, as well as the expected costs and revenues, is crucial for project owners as it serves as an elementary tool for demonstrating the viability and potential success of the project to potential financing institutions. However, smaller farmers may face difficulties accessing commercial bank financing due to a lack of collateral or credit history. To address this issue, the Hungarian government created various state-aid programs that offer loans for agricultural projects, including machinery, land, and livestock investments, at competitive interest rates also to small and medium-sized farmers and cooperatives.

Pre-Commitment of Crops

Pre-commitment of crops as collateral is a financial arrangement in which farmers pledge a portion of their future crop production to secure a loan or other form of financing. This arrangement is often used when access to credit is limited, and farmers may not have other forms of collateral to secure loans. While pre-commitment of crops can provide farmers with access to credit without having to put up physical assets as collateral, there are potential drawbacks, such as crop failure or changes in market conditions. Thus, it is vital to consider the risks and benefits before entering into such an agreement.

State Aid

Hungary provides state aid to its agricultural sector to promote sustainable agriculture, support the development and competitiveness of the sector, and ensure food security. Direct payments are the largest component of the budget, providing income support to farmers and helping them cope with market volatility and production risks. Investment support programs encourage farmers to modernize their farms, increase productivity, and improve the quality of their products. Rural development programs aim to create jobs and promote economic growth in the sector.

As a traditionally agricultural country, Hungary has implemented various loan programs to support its farmers. The Rural Development Program (RDP), financed by the European Union, is one of the most significant. It provides financial aid to Hungarian farmers in the form of loans and grants, with an emphasis on endorsing sustainable agricultural practices. The RDP aims to facilitate agricultural investments and operational improvements, ultimately leading to rural economic growth and job creation. Besides the RDP, another crucial agricultural loan program in Hungary is the Agricultural Credit Guarantee Fund (ACGF). As a government-funded institution, the ACGF serves as a solution for farmers who encounter obstacles in obtaining financing through commercial banks. By providing an up to 80% loan amount guarantee, the ACGF enhances farmers’ capacity to access funds efficiently and at reduced interest rates.

In summary, despite the challenges faced by Hungary’s agricultural sector, there are various financing options that help farmers enhance their quality and productivity. By utilizing these financing options and preparing a comprehensive business plan, Hungarian farmers can modernize their operations and contribute to the growth of the country’s rural economy. Overall, with appropriate planning and financing, the future appears promising for Hungary’s agricultural sector. 

By Gergely Szaloki, Partner, Schoenherr Hungary 

This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here

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