Market Gaps on Access to Finance - Bank of Valletta

6.2.2 Agri-food processing firms
Despite the agricultural sector’s minimal direct contribution to local economic growth, the role of
agriculture in Malta goes far beyond that captured in figures, especially given the high population
density of the small islands. Agriculture remains a major contributor in maintaining the quality of
the landscape and an integral component of the cultural heritage 110 .
In Malta, the agro-food processing industry accounts for c. 3% of the value added generated by the
total economy. Of the total workforce employed in this sector, over 80% are in full-time employment.
Around 80% of turnover is derived from domestic sales and only c. 20% from exports. According to
the RDP, investment levels are very sporadic 111 . In many cases, the contained size of the local
market can support only a limited number of agro-processors operating in a particular product line.
It is therefore a common occurrence that only few firms produce a given product and can therefore
absorb the local farmers’ production.
With EU membership, higher import penetration, enhanced competition and more compliance costs,
operators in the agri-food processing sector have had to adapt to survive – they had to invest in
upgrading their processing equipment, improve quality standards, and gradually switch towards high
quality, premium products. In this respect, in a highly competitive setting, the local small firms tend
to find market niches through low-volume premium products.
The European Agricultural Fund for Rural Development (EAFRD) is the fund that provides assistance
to this sector. It is financed under Pillar II of the Common Agricultural Policy (CAP). In Malta, it is
managed by the Ministry for Resources and Rural Affairs (MRRA) and aims at ensuring sustainable
development initiatives in rural areas by helping to create new sources of income and employment
while protecting rural heritage. It also seeks to develop competitiveness for farming and forestry, to
protect the environment and the countryside, to improve the quality of life and diversification of the
rural economy and to support locally based approaches to rural development. These measures are
incorporated in the RDP, which has an overall objective of promoting multifunctional agriculture
within a wider framework of integrated rural development so as to achieve sustainable development
of rural Malta. The main focus is to explore the potential of the agriculture sector through the
provision of grant assistance.
For the 2014-2020 MFF, in order to better target EU support for SMEs, the focus will be increasingly
on enhancing the competitiveness and growth performance of SMEs in line with the SBA. Again, EC
proposes that Member States should make a decisive shift to financial instruments such as the
provision of start-up capital, guarantees, loans, mezzanine and seed capital in supporting SMEs 112 .
The EC’s intention is, however, not to replace grant funding with financial instruments as grants will
still be necessary, but to complement grant funding with other forms of intervention 113 .
The following table provides an assessment of the financing needs and local scope for further
financing within this sector.
110
Ministry for Resources and Rural Affairs (2012), Rural Development Plan 2007-2013; Adi Associates Environmental
Consultants Ltd. (2009), Ex-post evaluation report on Malta’s Rural Development Programme 2004-2006. Agriculture in
Malta accounts for less than 2% of the gross value added generated by the Maltese economy and it employs the same
proportion of the total gainfully employed. Agriculture is the major contributor to the primary sector (which also covers the
fisheries sector)
111
Ministry for Resources and Rural Affairs (2012), The Rural Development Plan 2007-2013, pgs. 29-30
112
European Commission (2012), Elements for a Common Strategic Framework 2014 to 2020
113
European Commission (2011), A framework for the next generation of innovative financial instruments – the EU equity
and debt platforms
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