Giving colour back to the agri-food sector.

Giving colour back to the agri-food sector.

For more than 10 years, the agri-food sectors have been facing economic and structural upheavals that have both reduced the financing of their activities and increased their financing needs. This situation has been aggravated by the economic crisis linked to COVID-19.

However, in this period of crisis, the Ministry of the Economy is setting up a system of State Supported Equity Loans (SSEPs). These Participative Relance Loans and Relance Bonds should enable SMEs and ETIs to boost investment despite the crisis.

Will this scheme be the right solution to boost business investment in the agri-food sector?

Under-investment in the agri-food sectors over the past 10 years, aggravated by the Covid-19 crisis 

Companies of agri-food sector (producers, processors, craftsmen, etc.) primarily turn to banks for financing their activities. However, since Bâle III banking regulations (2010) reduced the lending capacity of banks and increased the collateral requirements for borrowers, banks have found themselves choosing low risk projects.

Before the Covid-19 crisis, French companies already had a deficit in equity and a higher level of debt than their European neighbours. Unfortunately, the solvency ratios of companies have deteriorated significantly during crisis. According to Rexecode, economic research institute, the gross operating surplus of French companies will be cut by more than 150 billion euros over the two years (2020-2021).

According to a recent report by the Chambers of Agriculture on the “Competitiveness of the agricultural and food sector (1970 – 2020)” [1].The agri-food sectors, in recent years, have experienced an investment deficit. This underinvestment and the increase in the debt ratio have important consequences for the companies in this sector. Their investment capacities are reduced. Both in terms of self-financing and in terms of bank debt, while they are facing numerous upheavals and need financing to modernise their activity and remain competitive.

Companies in the agri-food sectors do not only face these difficulties (linked to this under-investment).

Deeply evolving industries requiring long-term investment

Environmental and behavioural constraints

The food industry is the leading French industrial sector in terms of turnover and employment. The sector has been undergoing major changes for years and is facing significant constraints.

Indeed, the rapid evolution of European consumption habits combined with the agro-ecological transition implies a change in production and supply methods to protect the environment and respect consumers’ expectations in terms of process, quality and price.

Producers are invited to go organic, HVE, etc. Not to use certain pesticides that have enabled them to ensure a large harvest until now, all without affecting the quantities delivered to industrialists and large-scale distribution. 

Similarly, food industries and retailers are working to improve the quality of their products by using local agricultural products and reducing their food imports. Improving the carbon footprint of products has a cost.

These constraints force companies in the agri-food sector to modernise. They have to respond to changes in eating habits and comply with new rules, by improving their productivity. They must also invest in research and development projects to innovate or maintain a competitive advantage in sectors of excellence.

A sector in decline

In addition to the changing demands of customers and the State, there is a crisis of vocations, as one in three farmers (i.e. more than 150,000) will be able to retire within the next three years. Many farms are being abandoned because farmers are having difficulty finding buyers. 

Indeed, few young people are attracted to the agri-food professions (butcher, farmer, beekeeper, etc.). Despite the awareness-raising efforts financed by actors such as cooperatives or supermarkets. These professions have the reputation of being poorly paid, lacking opportunities and being physically and mentally tiring. 

As a result, many farms are abandoned due to a lack of takers. According to INSEE, the number of individual farms has fallen by 19% since 2010 and only 17.5% of farm managers were under 40 in 2016. The abandoned farms are partly taken over by cooperatives. They are limited in their scope of action by the lack of investment.

This crisis is leading to a drop in French production capacity and therefore supply difficulties for processing and marketing companies. To secure their supplies, food companies are forced to import products from other countries. This is negative in terms of their carbon footprint. Businesses face difficulties in finding local partners able to follow their growth. This is particularly true when these companies wish to structure short circuits and/or secure their production chain.

Revival Equity Loans and Revival Bonds 

The Revival Equity Loans and Revival Bonds are timely for the revival of investment in the agri-food sectors.

To give the players affected by the crisis linked to COVID-19 the capacity to invest, the Minister of the Economy, Bruno Le Maire, announced, as part of the Recovery Plan, in March 2021, his State Supported Equity Loan Plan (PPSE). 

This financing scheme by private investors (banks, insurance companies, funds, etc.) worth €20 billion, 30% of which is guaranteed by the State. This should help SMEs and SMIs that do not have the financial capacity to borrow from banks in these times of crisis.

The Relance Equity Loans and Relance Bonds are intended for all SMEs whose turnover in 2019 was equal to or greater than €2M and all ETIs. This offer, which is due to start in May 2021, is an opportunity for companies to invest in production equipment, R&D, or hire staff, for example. 

How does it work?

  • Participative Relance loans: Banks grant participative Relance loans to companies (SMEs and ETIs). They transfer 90% of these participative loans to several investment funds which then benefit from the State guarantee (30%) on their liquidation value (value of their net assets).
  • Relance Bonds: Companies (SMEs and ETIs) issue subordinated bonds (Relance Bonds). These bonds are subscribed by investment funds. As with the Relance equity loans, the funds benefit from the State guarantee (30%).

It is interesting to note that non-financial enterprises – the sector leaders – are already using equity loans (existing since 1978) to finance partner enterprises in order to structure and develop their sectors. Equity loans align the interests of the stakeholders (the financiers and the financed). 

In the case of the new participatory loan scheme, the Revival Bonds are a good alternative financing tool for companies (SMEs and SMIs) in the agri-food sectors. By associating a company – the sector leader – as a co-financier, couldn’t the Relance Bonds make it easier for SMEs and SMIs in the agri-food sectors to find private debt funds to complete their financing?

What are the benefits for companies in the agri-food sector?

The advantages for SMEs and SMIs that finance themselves through Equity Loans or Recovery Bonds.

  • Attractive rate of financing for quasi-equity: Even if the cost of the PPSE scheme is free, companies should, in principle, benefit from rates of between 4 – 5.5% for SMEs and 5 – 6% for SMEs for quasi-equity over a period of 8 years. This allows companies to strengthen their equity capital and rating weakened by the COVID-19 crisis. 
  • A leverage effect: With the strengthening of equity and ratings, the Equity Recovery Loans or Recovery Bonds should be seen as a leverage financing that can be complemented by traditional bank financing that could not have been obtained without the ESDP.
  • A solution that protects the capital of companies: Relance Bonds allow companies not to open up their capital and thus retain the power of decision over their business. This is a significant advantage for family businesses or subsidiaries of groups.


[1] Report of the Chambers of Agriculture on the “Competitiveness of the agricultural and food sector (1970 – 2020)