Market Gaps on Access to Finance - Bank of Valletta

Table 9: Mapping of financial instruments with local agri-food processing firms
Economic sectors Current financing needs Current financing options Scope for financial instruments
Agri-food
processing firms
Local agri-food processing firms have a limited
ability to exploit economies of scale compared to
larger firms in other countries. They also find it
difficult to fully utilise technology because of their
small production runs. As a result, Maltese
agriculture cannot compete on the basis of the
quantity of the produce that it produces, but needs
to establish specialty niche markets for a
number of products to ensure sustainability.
This shift in focus requires a sectoral adaption –
this requires investment in new/ upgraded
equipment, process improvement to raise quality
standards, and marketing of high quality, premium
products that promote the distinctive Maltese
nature of the produce being sold.
External threats represented by import
substitution and regulation
Need to invest in capital
Government policy to sustain the industry
Industry focus shifting towards niche products
which do not require mass production
There are significant limitations in accessing funds
compared to larger counterpart firms. This is
reflected in the low capital investment, limited
R&D expenditures and the use of internal sources
of finance (personal savings and retained
earnings).
The sector is again highly dependent on lines of
credit, trade credit as well as grants through
national and EU schemes. These include EARDF
schemes such as Measure 124: Cooperation for
development of new products, processes and
technologies in the agriculture and food sector,
and Measure 121: Modernisation of agricultural
holdings.
Lower access to bank financing
Various national/ EU earmarked schemes,
generally based on grants
Significant grant dependence
Adequate take-up for national grants
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The dependence on grant assistance is likely to
remain given the various obstacles inherent in this
sector and its importance to the local environment
(beyond the contribution captured by GDP
figures). In addition, public sector support can
have an important role to play in fostering an
outlook for innovation and in stimulating R&D
cooperation, especially in relation to the
exploitation of niche markets.
EU funded schemes which would consider a hybrid
approach between grants and loan guarantees are
likely to be a further option to be considered in
view of the current dependence on grant
financing, the lower dependence on bank funding
and the unlikely possibility of equity financing.
The private sector, due to limited resources,
shows little interest in investing its funds in
projects and research which in most cases is
hindered by a severe limitation in the size and
number of projects.
A recent addition to the local market is a financial
institution which will lend to agricultural and rural
businesses seeking financing for machinery and
equipment. Though it will initially be targeting UK
businesses, the concept might be extendable
locally.
Reliance on grant assistance to remain –
limited scope for innovative financial
instruments
R&D financing options would require a
collaborative effort between government
and the private sector
Specialised financial institutions, such as a
specialised lenders