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Debt Relief Mechanisms for Polish Farmers Need Urgent Reform

FINANCEDebt Relief Mechanisms for Polish Farmers Need Urgent Reform

The support mechanisms for indebted farmers are not effective, as reported by industry representatives who are calling for urgent changes. The National Centre for Agricultural Support (KOWR) reports issues such as late application submissions and non-compliance with requirements by debtors. Additionally, fewer farmers want to repay their debt in exchange for their property being taken over by the State Treasury. Experts believe that KOWR should be more proactive in providing support and there’s a need for personnel changes within the organization. Meanwhile, the Agency for Restructuring and Modernization of Agriculture suggests that counseling could be a good supplement to the existing debt relief mechanisms for farmers. There are also opinions indicating the need for a change in our country’s agricultural policy, otherwise, the situation may turn out to be detrimental for the agricultural sector.

Available options are not fulfilling their role

Farmers have been struggling with financial problems for many years. Some of them are dealing with increasing debt. There are three potential solutions for this group as highlighted by Sławomir Izdebski, Chairman of the Farmers’ Trade Unions (OPZZ); restructuring, loans, and repayment of debt in exchange for the State Treasury taking over assets. However, these approaches are not functioning as they should. At times, the state acts slowly, other times, there’s a lack of willingness from officials. As a result, urgent changes are needed.

According to Wiktor Szmulewicz, President of the National Council of Agricultural Chambers (KRIR), none of the three options have fulfilled their role. Debt restructuring must be accompanied with a loan, but often indebted farms don’t have the ability to take on additional credit. This calls for guarantees, but these have not been provided. On the other hand, repayment of the farmer’s debt in exchange for state takeover of assets by KOWR is being heavily constrained. Restructuring in combination with a loan would be a good solution, if the loan was guaranteed by BGK, ARiMR or KOWR, as no bank would give credit without a guarantee.

In February 2019, the rules for KOWR’s debt takeover were published, including the application form and required documents. As expert Wojciech Adamczyk from KOWR highlights, some farmers apply too late, when their debt collection processes are already in an advanced stage, and their debts far exceed the value of their properties, making it difficult for creditors to recover their claims.

The ongoing multi-crisis, encompassing the pandemic, war in Ukraine, risk of stagflation, and geopolitical game, is affecting the agricultural sector and food production, causing instability in the agricultural markets and a greater risk of farm indebtedness. According to Grzegorz Brodziak, spokesperson for the Polish Farmers Federation, the best form of debt relief would be properly conducted restructuring.

Taking over debt for assets

Wojciech Adamczyk from KOWR emphasizes the center’s involvement in various mechanisms that can provide support to farmers and agricultural producers in difficult economic situations. However, there’s been a decline in the interest for the debt take-over service by the center. In 2019, 89 applications for this service were received, and from January to October 2023, only 17. From 2019 to the end of 2022, more than 1,280 hectares of land based on 29 debt takeover agreements ended up in the State Treasury’s Agricultural Property Resources. However, these data are not yet complete.

But taking over assets by the State Treasury and paying off obligations is not the best solution, as it often leads to the loss of farms that have been family-owned for generations. Restructuring remains the most viable solution, especially if it benefits creditors, says Adrian Parol, a restructuring consultant specializing in the agricultural sector.

According to Sławomir Izdebski, there’s a problem with KOWR’s debt takeover mechanism due to the requirements set for the applicants. Farmers in the most difficult situation, for example, those already in debt collection proceedings, cannot hope for support. On the other hand, those who are creditworthy, don’t need the Agency for Restructuring and Modernization of Agriculture or KOWR. All they need to do is call any bank to get a loan. Therefore, the expert suggests changes to the law, particularly removing those parts that prevent farmers from benefiting from this form of support.

Time for action and experts

According to Grzegorz Brodziak, KOWR’s role in the farmers’ debt relief process is insignificant. The center should be more proactive in these processes as it has the essential knowledge on how the agricultural sector operates. For this to be possible, the center must employ a sufficient number of experienced specialists for these tasks.

Meanwhile, the Chairman of the National Council of Agricultural Chambers calls for KOWR to be more active in creating regulations that would ease the repayment of loans for farmers. Also, Sławomir Izdebski points out the need for immediate personnel changes within KOWR, advocating for the employment of professionals who would either help or cease to work at the center.

The road to rebuilding agriculture

Between 2017-2023, the Agency for Restructuring and Modernization of Agriculture cancelled 232 financial obligations amounting to over 57 million PLN. Due to its initiative, the conditions for not pursuing debts by the agency and the rules for debt recovery and repayment were eased during the pandemic. According to Paweł Wojcieszak, Director of the Press Office of the Agency, implementing new mechanisms to assist indebted farmers requires legal changes. The role of the agency as an executive payment institution is, among others, to recover receivables, and carrying out legislative processes is not within its competency. Wojcieszak points out that effective counseling in the field of law and economics in individual cases would be a good supplement to the existing mechanism of farmers’ debt relief.

Adrian Parol, a restructuring consultant, believes that for a long time farmers have been left alone with their problems. He sees a need for the country to implement active measures to support agriculture. The western countries have managed this much better. In Poland, aid mechanisms are still far from perfect and they sometimes pose as a kind of hindrance rather than help.

The spokesperson for the Polish Farmers Federation concludes that there’s a need for a change in agricultural policy. Especially necessary is the establishment of proper conditions for the development of commercial farms capable of meeting upcoming challenges. These can effectively and rationally absorb EU funds for technological advancement, possess the potential for entering into professional cooperation with other farms and entities in the entire food production chain. According to him, this would lead to strengthening the production potential and their position in the supply chain. In this way, we would gradually eliminate the causes of farms’ indebtedness and reduce the scale of problems, rather than focusing on solving their consequences. This would require a long-term strategic approach rather than a few months’ short-term planning.

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