Slovakia gives food production a competitive favour

The Slovakian countryside enjoys rich biodiversity, its mountainous and sub-mountainous areas and lowlands providing a variety of growing conditions. Almost 48% of the country's territory is farmland, managed by around 17,000 farmers. Agribusinesses – from grain growers to cheesemakers – represent about 3% of the Slovak economy. It is a polarised industry: the top 20% manage 80% of the farming land. That means there is a multitude of very small farms, averaging about 80 hectares, and some extraordinarily large operations, some up to 8,000 hectares in sioe (the equivalent of 11,200 football pitches). VUB supports about 1,500 clients in the agribusiness sector, with almost €500m of loans in book and a market share over 25%.

EU boost

Slovakia’s entry into the European Union in 2004 saw the beginnings of a boost to the then failing agricultural sector, which has steadily strengthened through various initiatives between the EU and the Slovak government. The most recent is the Rural Development Programme (RDP), which has run since 2014 and concludes in 2022. Through the RDP, €3bn (€2,300m from the EU budget and €700m of national funding) has been used to increase the industry’s competitiveness. It also launched the subsidy of climate-friendly farming and established a target of around 20% of agricultural land managed to protect biodiversity, soil and water resources. “Without this support for agriculture and development, many parts of Slovakia would face signifcant environmental, social and economic difficulties,” says Martin Hubinsky, country segment manager, agriculture and food industry at VUB.

Covid-19 and financing

 In 2021 the potential of Slovak agribusiness became clear. As supply chains into and out of the country were slowed, interrupted or even stopped by the Covid-19 pandemic, the domestic industry was ready to deliver enough high-quality produce. “During supply chain disruption we saw the importance of agribusiness spike,” says Hubinsky. “It was comparable to the highly valued automotive sector or heavy industry at that time.” The year also brought a signifcant increase in agricultural commodity prices such as durum wheat. “This brought revenue growth and development of the market in fnancing, which has now stabilised,” says Hubinsky. VUB offers customised products including fexible fnancing for purchasing agricultural land, bridging loans to support gaps in income during harvesting periods and fnancing warehouse bonds, allowing agricultural companies to store produce temporarily. Despite the plateau in the market after the unexpected boost from Covid-19 disruption, VUB’s agribusiness segment has managed to grow. “We fnished the year and we’d grown customer loans by 10%, and subventions fnancing had grown by over 20%,” says Hubinsky. The reason? VUB provided its agribusiness clients with additional sources of funds at the beginning of the crisis, anticipating that they needed greater liquidity and a more stable cash fow. This included increasing the time given for the repayment of loans used to buy land from 10 years to 20. This kept defaults to a minimum and attracted new business. “It was a proactive move for VUB to address the challenges that we knew the industry would face,” says Hubinsky. “After this we were much more effective in acquisition than our competitors.”

Green and lean

New consumer tastes for healthier food are an opportunity for the sector – one that modernisation and a focus on sustainability will help to achieve. GPS is already helping farmers to be more precise in crop management – but Hubinsky sees the potential for investment into energy efficiency, land irrigation, automation and updated animal breeding technologies. He cites the case of a traditional meat-producing farm that employed 40 people before switching to a robotic system that now means only two people are needed to maintain the site. This was a sensible move to improve efficiency and competitiveness, but also to address the inevitable drain of the future workforce to cities. “The average age of an agricultural worker in Slovakia is 50 years, and young people don’t want to work in the sector,” says Hubinsky. As the RDP comes to an end, the EU Farm to Fork strategy, from 2023-2027, will come in to take its place and support the digitalisation of farming. The initiative aims to transition 25% of European farmland into organic production, reduce pesticide use by EU farmers by as much as 50% and reduce fertiliser use by 20% in member states. Technology is the means to this end. VUB is working in tandem with the Slovak Department of Agriculture and the European Commission to establish how fnancing can augment the Farm to Fork priorities. VUB supports investments into farms that use technology to increase fuel efficiency, as well as businesses developing agricultural wastefuelled biogas stations to generate renewable electricity. Biofuels are a strategic priority for the Slovak government: the last report from the IEA (in 2018) reported the construction of more than 100 biogas-fred power plants, a third of which supported the country’s district heating network. Finance will help power Slovak agribusiness to move into these growth areas, which are better for both the bottom line and the planet. “Slovak agriculture should specialise in unique production and what fts to the climate oone we are in,” says Hubinsky. “At VUB, we are looking for meaningful projects and innovations.