The Estonian government on Thursday approved a capital allocation of €20 million to the Rural Development Foundation (MES) to help alleviate damages sustained by farmers due to the ongoing drought.
The money will be used by the foundation to issue loan guarantees to farmers and provide them with working capital loans. The aim of underwriting loans to producers is to ensure better access to loans for producers by improving their eligibility for credit, which may be undermined by insufficient collateral, high risk level of businesses in the starting phase, and other factors, it appears from the explanatory remarks accompanying the draft resolution.
Working capital loans will help business-owners solve problems related to working capital. Companies active in the agricultural sector often have limited opportunities to raise additional capital as providing credit for this is considered too risky by banks, the government said.
According to the Ministry of Rural Affairs, the revenue of Estonia's agricultural sector may decline by as much as €100 million this year as a result of the ongoing extended period of drought.
The MES has an equity capital of €41.3 million, all of which, plus retained profit, has been employed for the performance of the foundation's core functions. The foundation has issued loans worth €29 million and underwritten loans worth €100 million, as a result of which loans totalling €163 million have been secured from commercial banks.
The government made its decision regarding the €20 million allocation to MES at its Cabinet meeting last Thursday.
This spring and summer have been especially dry and hot in Estonia. According to the Estonian Weather Service (EWS), the average precipitation level in May was nearly 60% smaller than the long-time average. Average temperatures were likewise higher than usual, and the country saw 48% more sunny days than usual.
Editor: Aili Vahtla