Financial Innovation in Building Agricultural Sector Resilience: New Horizons and Challenges for Blended Finance in Poland

Abstract

The main objective of this article is to assess the potential of financial innovations as a tool for strengthening the resilience of the agricultural sector in Poland, with particular emphasis on the role of mixed financing, and to identify factors influencing farmers’ propensity to implement these innovations. Our attention is focused on mixed instruments represented by a combination of grants with loans or credit. This research is based on a critical literature study method, a logistic regression model, and a direct survey method using a structured questionnaire survey. The results show that the implementation of an innovative financial instrument combining a grant with a loan or credit has the potential for development. It is perceived by farmers as a reliable and attractive way of financing. The propensity to utilise this instrument has been demonstrated to increase significantly among farmers for whom agriculture is the main source of livelihood and who have previous experience with credit. The influence of farmers’ perceptions of insurance as a risk management tool, as well as the age of farmers, is also a critical factor in this analysis. Less interest in this financing option is characteristic of farmers with traditional, extensive agricultural production. Our research identifies market trends, contributes new data, and provides an understanding of the impact of different factors on the propensity to use an instrument combining subsidies with a loan or credit, providing new insights into complex decision-making mechanisms in agriculture. The results of the research can be useful for policymakers and financial institutions to better tailor innovative financial product offerings to farmers’ needs.

1. Introduction

The agricultural sector in Poland plays a key role in the national economy, is an important element of the rural development strategy, and ensures food security. According to the Central Statistical Office, there are approximately 1.5 million farms in Poland, most of which are small and medium-sized enterprises producing mainly for their own needs and local markets. The value of agricultural production in 2021 was almost PLN 70 billion, which is a significant increase compared to previous years. In terms of income, the average annual income of farms varies considerably depending on the type of production and region, ranging from several thousand to tens of thousands of PLN. In addition, the sector is facing many challenges, such as climate change, the need for sustainable development, and increasing competition on the international market, which are forcing producers to adapt and innovate in order to increase the efficiency and profitability of agricultural activities.

A holistic approach to agricultural improvement and the development of rural economies requires a strong focus on agricultural financing [1]. Increasing the level of agricultural production, implementing new farming methods, adopting more resilient and environmentally friendly practices, increasing production competitiveness, and improving the distribution of agricultural income requires the availability of sufficient financing [2,3]. Financial instruments, including credit, loans, savings, grants, and insurance, as well as hybrid instruments, play an important role in building the resilience of agri-food businesses, farms, and rural communities. In the current fast-changing environment, it is becoming necessary to adapt existing financial arrangements, introduce new ones, and improve access to existing financial services, which can significantly improve the resilience of agricultural sector actors.

Financial innovations in agricultural financial services have the potential to be a game-changer in building resilience with in the agricultural sector and strengthening the overall welfare of agricultural producers. They are an important factor in improving the productivity, growth, and competitiveness of the agricultural sector, improving product quality, as well as the income situation of farmers [4]. They are essential for implementing technological innovations in the agricultural sector [5], stimulating investment demand, achieving ambitious policy goals, and attracting private finance [6]. They also play an important role in transforming sustainable agri-food systems and closing the funding gap in the agricultural sector. Financial innovations are essential as they provide new opportunities to access financial services and manage risk [7]. They have recently become the primary means used by nations around the world to address insufficient access to finance [8], providing a range of benefits to their potential users.

Given the availability of various financial instruments in agriculture and their key role in enhancing agricultural productivity and farm efficiency, as well as their resilience to various types of shocks, previous research has focused on developing a conceptual understanding of the impact of traditional financial services (e.g., bank credit, subsidy, insurance) on the activities of agricultural sector actors and identifying the factors influencing their use. Most of the available research is derived from the literature on agricultural finance and risk management. However, there is a lack of studies that focus on innovative financial instruments, including hybrid instruments, and the factors influencing farmers’ decisions in this regard. Hybrid instruments, as part of blended finance, could become one of the more important products providing a more comprehensive response to existing market failures, often leading to a lack of access to financial services for excluded actors [9]. This article focuses on assessing the potential of financial innovations as a tool for strengthening the resilience of the agricultural sector in Poland, with a particular focus on the role of blended finance and the identification of factors influencing farmers’ propensity to implement these innovations. In order to achieve the main objective thus formulated, four specific objectives were identified (Figure 1).

Objective 1 focuses on conducting a critical review of the scientific literature on financial innovation in agriculture, which will identify the potential benefits and limitations of hybrid instruments, such as a combination of grants and credit/loans. This will contribute to a better understanding of the potential of these instruments in the context of building resilience in the agricultural sector. Objective 2 will explore whether farmers are willing to use an instrument combining grant and loan/loan, and identify the factors that influence their decisions. This is key to identifying the determinants of farmers’ willingness to use this instrument. Objective 3 focuses on using a logistic regression model to identify the determinants of farmers’ willingness to use an innovative financial instrument. This approach will allow for a better understanding of the complex decision-making mechanisms in agriculture and their impact on the implementation of the facility, which is key to assessing its potential. By analysing market trends in financial innovation in agriculture (Objective 4), we intend to formulate recommendations for policymakers and financial institutions. These provide a starting point to better tailor the offer of innovative financial products to the needs of farmers, thus contributing to the resilience of the agricultural sector.

There are a number of financial instruments and combinations of instruments that can be used to ’connect’. These include grant funding, as well as concessional versions of existing financial instruments, including concessional debt (i.e., debt provided on softer terms such as longer grace periods and lower interest rates), risk-absorbing equity, and subsidised guarantees and insurance mechanisms [10].

An interesting example of financing is mixed financing, which combines public and private funds, and can be an effective tool for mobilising capital for investments in agriculture aligned with agricultural policy objectives. Examples of global blended financing in agriculture include:

• African Agriculture and Trade Investment Fund (AATIF)—aims to increase productivity, improve cotton quality, and promote sustainable practices in West Africa.
• World Bank and UN initiatives—focus on promoting sustainable agriculture and adaptation to climate change in developing countries.
• European Fund for Strategic Investments (EFSI)—supports investments in the agricultural sector by providing guarantees and equity instruments to reduce risk for private investors.

We focus our attention on hybrid instruments, represented by a combination of a grant and a loan or credit. Like R.J. Shiller [11], we proceed from the assumption that an instrument combining a grant with a loan or credit can be implemented in all areas of the financial management of agricultural sector entities, increasing their competitiveness and value creation capacity (by increasing revenues, reducing financial costs, optimising the capital structure, and minimising the WACC—weighted average cost of capital).

The implementation of innovative financing instruments is of particular importance for the agricultural sector in Poland due to the existence of a significant funding gap, estimated at between EUR 3.0 and 6.2 billion [12]. However, research by IERiGŻ-PIB researchers suggests that this gap may be overestimated [13]. Nevertheless, the prudent design of financial innovations in agriculture, assuming a smaller scale of financial interventionism, remains justified from both economic and financial perspectives.

The combination of grants and loans under shared management can play an important role in achieving EU policy objectives and addressing market failures related to project design, feasibility, and access to finance issues [6]. In addition, where public budgets are limited, this form of financing can help to mobilise more resources from the private sector. In the agricultural context, this may mean using public financing to enable private investors to make investments that they might otherwise perceive as too risky [10].

The introduction of financial innovations, including blended finance, in the agricultural sector requires identifying the prospects for their implementation, identifying the barriers that limit their use, and understanding the factors that influence users’ decisions to adopt and continue using them. This article seeks to expand existing knowledge on this topic, which has not been widely explored in the literature to date. To fill this gap, this article attempts to answer the following research questions:

Q 1: What are the prospects for implementing financial innovation, including an instrument combining a grant with a loan or credit, in the agricultural sector?

Q 2: How do farmers perceive financial innovation, including an instrument combining a grant with a loan or credit?

Q 3: What factors determine farmers’ willingness to use financial innovation, including an instrument combining a grant with a loan or credit?

This study makes an important contribution to the existing academic literature and practical applications in the area of agricultural finance. Firstly, it contributes to deepening the public debate on financial innovation by adding the perspective of agricultural sector actors as end-users of financial innovations. While most empirical studies to date have focused on financial institutions or general aspects of innovation, this paper investigates the determinants of farmers’ propensity to use innovative products, including a financial instrument combining a grant with a loan or credit, identify relevant predictors, and assess the impact of different factors and their interactions on farmers’ decisions, providing a comprehensive approach to understanding these factors and filling a gap in the existing literature. Second, our study offers insights into potential interventions (at the institutional and individual levels) to support the implementation of financial innovations in agricultural finance, which can be used as an approach to conceptualise and shape future policies. Thirdly, the proposed research contributes to the development of research on the determinants of the implementation of financial innovation in the agricultural sector, with a particular focus on the financial instrument combining a grant with a loan or credit, and also provides a framework for further research in this area. Fourth, our article extends the discussion on how public interventions—through policies and finance—can help channel private finance towards greater investment for building the resilience of agricultural sector actors.

2. Theoretical Background

The research methodology utilises a critical literature review method, which is key to understanding and assessing the potential of financial innovations in the agricultural sector. A critical literature review makes it possible to identify the potential benefits and limitations of financial instruments, including hybrid instruments such as a combination of grants and credits or loans. This will allow for a better understanding of the potential of these instruments in the context of building resilience in the agricultural sector. In addition, the literature review allows for the identification of gaps in existing knowledge and the identification of areas that require further research. This analysis is crucial for formulating recommendations for decision-makers and financial institutions, aimed at better matching the offer of innovative financial products to the needs of farmers. This method supports the decision-making process, helping to develop effective agricultural financing strategies.

2.1. Financial Innovation in the Agricultural Sector

The word “innovation” is derived from the Latin term innovatio, which means novelty—a newly introduced thing, a process of introducing something new, or a feature of novelty [14]. In the field of economic theory, the term “innovation” was introduced by J.A. Schumpeter, who identified it with the introduction of new or improved products into production, the implementation of new or improved production methods, the opening of a new market, the application of a new way of selling or buying, and the use of new raw materials in the production process [15]. The Organisation for Economic Co-operation and Development defines innovation as “the implementation of a new or significantly improved product (product or service) or process, a new marketing method or a new organisational method in business practice, workplace organisation or relations with the environment” [16]. The term “innovation” therefore refers to the creation of something new through the permutation and combination of existing concepts [17].

Financial innovation is the result of a rapid and continuous process that involves the creation of new financial products, services, and processes to meet changing market demands and improve existing ones. The concept of financial innovation can occur in two senses—a narrow one, which refers only to financial instruments, and a broad one, which refers to the financial system [18]. The financial system is made up of financial institutions, financial instruments, financial markets, the infrastructure of the financial system, e.g., regulators, supervisors, the payment system, and the norms and rules for their operation [19,20]. A broad view of financial innovation includes any new developments in any elements of the financial system. A narrow view includes any new developments in financial instruments (entirely new instruments, a combination of traditional instruments, a modification of instruments, and a new application of existing instruments) [21]. M. Larsson [22] argues that financial innovation, including sectoral innovation, should be considered as an outgrowth of changes in the financing processes of the economy, including microfinance, cryptocurrencies, and crowdfunding. The development of circular economy sectors (circular economics) requires the application of financial innovations, also on an economy-wide level.

The agricultural sector is increasingly adopting financial innovations to address unique challenges and improve productivity. These innovations are helping to improve the financial resilience of the agricultural sector and enhance food security. With advances in technology, even more financial innovations can be expected to emerge in the coming years. The main characteristics of financial innovations are as follows [23]:

• Completely new developments or simply traditional instruments in which new design elements have been introduced, improving their fluidity and increasing the number of potential applications as they are better adapted to the circumstances of the time;
• Substitutes for traditional financial instruments that improve the financial situation of the economic operators using them;
• They cannot easily be attributed to one particular segment of the financial market;
• Can be used to hedge against intense volatility in market parameters;
• Can be used in the form of composite instruments, comprising several simple, traditional financial instruments;
• They can be applied in the form of new processes, financial techniques, or new strategies using these new products in the first place.

Access to finance remains a major challenge for the agricultural sector in most countries around the world. It is worth mentioning Giné and Yang [24], who analysed how hybrid financial instruments can stimulate investment in new technologies and improve the financial stability of farmers, or Ogochukwu et al. [25], who studied the impact of access to credit for farmers in agricultural cooperatives on their financial performance, emphasising the role of financial education. Still, others—Li and Li [26] assessed the impact of financial innovations in agriculture on reducing income disparities between urban and rural areas in China, while Antle and Diagan [27] emphasised the importance of incentivising sustainable agricultural practices in developing countries, including through soil carbon sequestration.

Solving the problem of financing in the agricultural sector requires the development of new financing alternatives. It is important to create new types of financing through financial innovation. In this process, it is important to consider aspects such as customer expectations, the willingness to use financial innovations in the future, or the determinants of their use. Identifying these aspects is necessary to effectively design financial innovations in the agricultural sector. As noted by W. Li et al. [28], financial innovations should meet customer needs, and customer expectations should be effectively identified. According to M.L. Katz [29], the adoption of an innovative financial product by market participants is the only factor that determines whether an innovation will be successful. In the literature on agricultural economics and finance, there is no typology of financial innovations aimed at the agricultural sector. From the point of view of the essence of the solutions adopted in the innovations, they can be divided into:

1.

Innovations using digital payments and mobile banking.

• Mobile money: farmers can use their mobile phones to make payments, receive remittances, and access financial services.
• Digital wallets: these platforms allow farmers to store and manage their money electronically, reducing the need for cash.

2.

Innovations for risk management.

• Index insurance: This type of insurance is paid out based on an index, based, for example, on a meteorological variable, such as rainfall totals or average temperatures, rather than individual crop losses.
• Futures and options: farmers can use these financial instruments to hedge against fluctuations in agricultural commodity prices.
• Weather derivatives: these instruments can help farmers manage climate and weather risks.

3.

Instruments related to collective action.

• Crowdfunding: Farmers can raise funds for their projects by soliciting small contributions from a large number of people.

4.

Innovations relating to blockchain and smart contracts.

• Blockchain technology can be used to track agricultural products from the farm to the consumer, providing transparency and security.
• Smart contracts: are able to automate processes significantly.

5.

Innovations leading to reduced financial inclusion.

• Loans and financial services provided to farmers who may not have access to traditional banking. Community financial institutions play an important role in microfinance.
• Innovations in the financing of fixed assets used in agricultural technology production. A particularly important role is played by leasing and, above all, the leasing loan, whose popularity is growing in the financing of fixed asset purchases in EU countries.
• Poor access to capital for farmers can hinder the implementation of sustainable agricultural technologies and practices in underprivileged regions [27,30]. Financial measures, such as microcredit, are effective in reducing poverty by increasing per capita household consumption for borrowers [31,32].

Therefore, finance is an important driver of sustainable agricultural development in underdeveloped regions.

The CoSAI study [33] indicates that financing can be a key factor in enabling farmers to access modern technologies and production methods. The case study shows that appropriate financing can support agriculture in a sustainable way, increasing productivity and reducing negative environmental impacts. To mobilise private and public capital for cotton producers in West Africa, blended finance uses the African Agriculture and Trade Investment Fund [34]. The fund includes a first-loss guarantee provided by the Federal Ministry for Economic Cooperation and Development of Germany, thereby supporting the achievement of development goals, such as increased productivity, improved cotton quality, and the encouragement of more sustainable practices that protect areas rich in water sources. Other practical examples can be found in the literature that demonstrate the use of hybrid instruments in agriculture. One of these is the work by X. Giné and D. Yang [24]. The authors analysed how hybrid financial instruments can stimulate investment in new technologies and improve the financial stability of farmers. They presented the results of a field study to determine whether combining insurance with a loan (to finance the implementation of a new crop technology) increased the demand for the loan. The purpose of the loan financing was to implement high-yielding hybrid maize and groundnut varieties among smallholder farmers in Malawi. Their findings showed that farmers with insurance along with a loan offer were more likely to invest in modern technological solutions. The loan offer with insurance was positively correlated with the farmer’s education, income, and assets, in contrast to farmers who were offered an uninsured loan, where these characteristics were not correlated with use. A study by G.O. Ogochukwu et al. [25] focuses on the impact of access to credit for farmers in agricultural cooperatives on their financial performance. The researchers also examined the effect of financial literacy on the prediction of financial performance. The results of the study suggest that access to credit has a significant impact on improving the financial performance of farmers in agricultural cooperatives. Additionally, financial education had a significant impact on the prediction of farmers’ financial performance. The study found that farmers with more financial knowledge performed better financially. The authors emphasise the importance of both access to credit and financial literacy in improving farmers’ financial performance. A study by T. Li and J.Y. Li [26] assessed the impact of financial innovations in agriculture on reducing income disparities between urban and rural areas in China. Using data from 30 provinces from 2006 to 2017, T. Li and J.Y. Li [26] showed that financial innovation in the agricultural sector significantly reduces the income gap between cities and villages. The mechanism of action is to stimulate population migration and modernise the structure of the economy. The authors advocated for further promotion of financial innovation.

Table 1. Types of financial innovations in agriculture and their advantages and disadvantages from the point of view of farms.

Type of Innovation	Description	Advantages	Disadvantages	Examples
Innovation using digital payments and mobile banking.	The use of technological advances in the execution of financial transactions.	Increased access to financial services, lower costs, convenience.	Potential threats to cyber security, the digital divide.	Mobile money management apps for farmers.
Innovations on risk management.	Protecting farmers from production and financial losses due to natural disasters or crop failure; use of financial instruments for risk management in agriculture.	Managing e.g., pricing, production risks.	Difficulty for farmers to understand the mechanism of action.	Income insurance, index, weather derivatives, contracts or options on agricultural products or exchange rates.
Innovations related to collective action.	Seeking funding for major investment projects related to agriculture and rural areas.	Use of instruments to manage production or price risks.	Difficulty for farmers to understand the mechanism of action.	Online platforms for farmers.
Innovations in blockchain and smart contracts.	Contracts that automate processes in the agricultural supply chain.	Greater transparency in commercial transactions.	Necessary investments e.g., co-financed by public funds.	Platforms for tracking products from farm to consumer.
Innovations leading to reduced financial inclusion.	Innovations leading to improved delivery of financial services to underserved farming communities.	Improved living conditions, economic growth, poverty reduction.	Significant investment in infrastructure and farmer training may be required.	Programmes that support crowdfunding, such as AgFunder.
Innovations in the financing of fixed assets used in agricultural production of technology agriculture.	Leasing/leasing loan often linked to another financial instrument, such as a working capital loan.	Increased productivity, and economic and financial efficiency of farms using leasing.	It may involve high interest rates or strict conditions regarding the assessment of financial standing (similar to credit scoring).	Products offered by banks specialising in serving agribusinesses.

Source: own compilation based on literature review.

summarises the main types of financial innovation in agriculture, as well as their advantages and disadvantages from the point of view of farms. It should be emphasised that there is no single, coherent typology of financial innovations in agriculture, which is a gap in the literature that this table partially fills by identifying and analysing different types of innovations.

Financial institutions, including fintechs, face a number of difficulties when introducing financial innovation in the agricultural sector. Key challenges include regulatory aspects regarding data quality and availability, infrastructural factors regarding farm risk assessment, or farm financial education.

• Regulation—is a barrier to innovation in the agricultural sector due to the complexity of agricultural, financial, and environmental regulations. Regulatory uncertainty associated with frequent regulatory changes can limit financial innovation.
• Quality and availability of data in the agricultural sector—this can hinder the development of data-driven financial products and services.
• Infrastructure of financial institutions—infrastructure issues, limited access to technology, and lack of physical infrastructure in some regions create difficulties in implementing financial and insurance solutions (e.g., more complex insurance products).
• Risk assessment in the agricultural sector is a significant challenge—due to the correlation of the many risks to which farms are exposed. Difficulties in developing accurate scoring models for farmers stem from limited credit histories and a lack of available data sources.
• Low levels of financial literacy—due to lack of financial education, and language barriers affect communication between financial institutions and farmers. The challenge is to ensure that financial innovations are economically viable, especially for agricultural products with low margins.
• Solving these challenges requires collaboration between financial institutions, governments, and farmer organisations to develop innovative solutions that meet farmers’ needs while ensuring the sustainability of the financial sector.

2.2. Blended Finance—New Horizons for Financial Innovation in the Agricultural Sector

Blended finance can be defined as “a structuring mechanism that strategically uses public and/or philanthropic capital to catalyse additional private capital and increase private investment” [35]. In practice, it is hybrid in nature. It operates between the public and private spheres. It refers to the combination of capital that has commercial expectations of risk and return with funding that is concessional in some form (usually from a public funder), with the aim of achieving transformative impact in the particular sector targeted and generating additional measurable development impact [36]. According to the OECD, blended finance is the strategic use of development finance to mobilise additional resources for sustainable development [37]. There are different models of blended finance, but all are characterised by public and/or commercial actors contributing the minimum amount of support necessary to encourage the private sector to invest in a project that they would not otherwise invest in. A description of blended finance instruments is provided in

Table 2. Description of mixed financial instruments.

Grants	Debt	Guarantees, Insurance	Equity
A sum of money given bestowed for a specific purpose, typically conditional upon certain qualifications as to the use, and maintenance of specific standards. Grant funding does not have to be returned.	Market loans or concessionary loans, i.e., with terms substantially more generous than market loans. Concessionality is achieved either through interest rates below those available on the market, grace periods, or a combination. Note that this funding must be returned.	A guarantee is a promise to take responsibility for another entity’s financial obligation if the initial party cannot meet its obligation. Insurance refers to an arrangement where a third party undertakes to provide a guarantee of compensation for pre-agreed losses or damages.	Equity is capital invested in a firm that is not returned in the normal course of the business. Capital providers (investors) only recover their money when they sell their shareholdings to others, when there are dividends, or when the assets are liquidated and proceeds distributed.
Grant instruments include: Technical Assistance. Design funding. Performance-based payments and results-based financing. Challenges, prizes.	In addition to more traditional instruments such as direct loans and credit lines, concessional debt instruments include: Repayable grants (interest-free loans/zero-interest loans). Impact bonds. Advances, rebates. Subordinated loans, junior.	Guarantee and insurance instruments include: Credit guarantees. Subsided production insurance (various, incl. parametric weather insurance). Subsidised market insurance (various, incl. minimum volumes). Subsidised price insurance (various, incl. hedging instruments).	In addition to direct equity investments in companies and collective investment vehicles/funds, risk absorbing equity instruments include: First loss tranches. Quasi equity. Other equity products.

Source: [38].

.

One option for blended finance to increase the effectiveness of financial support for projects in the agricultural sector is to combine a grant with a loan or credit. There are different types of combinations of a grant with a financial instrument such as a loan or credit [6]:

• Subsidy for interest rate subsidies and guarantee fees;
• Technical support grant—support for project preparation and implementation;
• A capital grant that covers the part of an investment that does not generate revenue or savings, filling a funding gap. The grant is not repaid and is not used to repay the financial instrument;
• A performance-based grant—this is intended to provide an incentive for projects with greater social or economic benefits and to achieve specific policy objectives. It can be a capital reduction (part of the loan is converted into a grant when certain results are achieved) or a repayable grant (part of the grant will be converted into a loan if the project achieves its objectives).

The combination of a grant with a loan or credit is fully in line with the priority of exploiting synergies and integrated approaches in the area of agricultural sector development. The agricultural sector is traditionally considered one of the riskiest sectors for financial investment, leading to insufficient capital allocation and exacerbating the already existing low level of investment. Blended finance can help reduce this risk and increase investment significantly [39]. The main benefits of combining a grant and a loan or credit can be detailed as follows [6]:

• Opening up and incentivising entry into higher-risk markets—combining financial instruments and grants potentially closes the financing gap to meet the investment needs of transformational projects that would not otherwise be financed solely through financial instruments; this is particularly desirable for projects that have a high economic, social, and/or development impact but provide an insufficient financial return or too high a risk for private investors. Designing flexible financing solutions tailored to the needs of the end recipients—the combination of grants and financial instruments makes it possible to tailor the repayable form of support to the expected revenues or savings while maintaining the incentive to implement a viable project.
• Combinations of financial and grant instruments can help to structure projects that would be more attractive to private investors—this can be done in several ways, such as ’de-risking’ the financing structure or demonstrating the long-term viability of specific market segments. Hybrid instruments that combine financial and grant instruments can be more effective and generate economies of scale by promoting a one-stop-shop approach, which can result from increased pooling of resources and better coordination between stakeholders.
• Provide higher incentives for viable and sustainable investment projects—grants can provide less control over a project and create less incentive for the promoter to deliver a viable project; combining the financial instrument with a grant maintains the need to generate sufficient revenue for repayment, which can also help to develop a pipeline of investment projects for funding and support more mature, higher quality projects, with a subsequent acceleration of the financial instrument’s implementation timetable.

Farmers’ decision-making, including the use of innovative financial products, is determined by a number of factors. In examining the factors influencing farmers’ implementation of innovation, G. Edwards-Jones [40] identified a comprehensive set of six groups of factors. These include: (1) farmer socio-demographics (factors such as age, education, gender, attitude to risk, and personality); (2) farmer psychological structure (factors such as values, goals, attitudes, and behaviours; (3) farm household characteristics, (4) farm enterprise structure (factors such as farm type, farm size, and debt-to-asset ratio); (5) the wider social environment (including levels of extension, information flows, local culture, social capital, attitudes of trusted friends, the political environment, and the structure and influence of a range of institutions); and (6) the characteristics of the innovation to be adopted (specific attributes of the innovation).

3. Materials and Methods

3.1. Study Area and Data Collection

The target population consisted of farms in the West Pomeranian region. Western Pomeranian is a typically agricultural region with a dominance of high-commodity production. About 21% of the total workforce is employed in agriculture, hunting, and forestry. More than 60% of agricultural land is owned by individual farms. The average area of agricultural land in a farm is 32.99 ha and is one of the highest in the country (the average for Poland is 11.42 ha). The statistical population of the survey is 27,810 individual farms. The sample size for this study was set at 388 farmers—farm managers. The survey sample was selected using cluster sampling. The clusters were individual districts in the region. From the entire list of clusters (18), a random sample of units for research was selected(Figure 2).

3.2. Research Tool

The research tool was a structured survey questionnaire. The questionnaire consisted of seven main thematic parts, aimed at collecting comprehensive information on agricultural activity, perception of climate change, application and planning of adaptation measures, financing of these activities, financial innovations in adaptation, investments in agricultural technology, and the characteristics of the farm manager. In total, the questionnaire contained 54 main questions. Most of them were closed, offering respondents the opportunity to choose one or more predefined answers. The questionnaire also included 6 open-ended questions that allowed respondents to freely express their opinions. The questionnaire also used questions with a Likert scale, in which respondents rated various aspects on a 5-point scale. This structure of the questionnaire allowed for the collection of both quantitative data, which can be statistically analysed, and qualitative data, enabling a deeper understanding of farmers’ opinions and experiences in the context of adaptation to change. The research was conducted using the CATI (Computer-Assisted Telephone Interviewing) method as part of the project “Climate change adaptive capacity for sustainable livelihoods in the agricultural sector”, funded by the National Science Centre. The survey was conducted in December 2022. The survey was anonymous and participation in the interview was based on voluntary participation. The questions in the survey questionnaire were designed to build effective programmes to support farmers’ adaptation to climate change and build their resilience to future shocks.

3.3. Methods

To investigate farmers’ intention to adopt a financial instrument combining a grant with a loan or credit, a choice experiment, also known as a choice survey or combined choice-based survey, was used [42]. This is a theory-based approach to developing questionnaires that help bring out how respondents value a concept [43]. Choice experiments can be widely used as a methodology to study the choices made by individuals [44]. In our survey, we asked respondents the question: if in the future there were funding combining a grant with a loan or credit, oriented to support investments to increase the resilience of the farm to shocks assuming a total value (of the grant and the loan or credit) of PLN 100,000, what value of the part in the form of a loan or credit would be acceptable? The loan or credit could be relatively short-term as well as long-term. It would be repaid according to a predetermined timeframe and interest rate. The grant, on the other hand, would cover part of the investment, would not be repaid, and could not be used to repay the loan or credit. A list of possible answers was drawn up for the question and respondents were asked to indicate the option (the value of the amount) most preferred to them. Using additional questions, we then explored respondents’ perceptions and attitudes towards this form of financing.

A logistic regression model was used to isolate a set of variables that are predictors of the variable Y—farmers’ willingness to use a financial instrument combining a grant and a loan or credit. It allows us to examine the influence of multiple independent variables X₁, …, X_k, as well as interaction effects, on the dependent variable Y—farmers’ willingness to use a financial instrument combining a grant and a loan or credit. The dependent variable takes two values (0—absence of the trait in question, 1—possession of the trait in question) and is dichotomous in nature. The process of conducting a regression analysis makes it possible to determine which factors are most important, which can be ignored, and whether the influence of some variables is moderated by the level of other variables (interaction effect).

The analytical form of the logistic function used in logistic regression is defined by the equation [45]:

$$f(z)={\displaystyle \frac{e^z}{1+e^z}}={\displaystyle \frac{1}{1+e^{-z}}},\hspace{1em}z\in R,$$

(1)

The logistic regression model for the dichotomous variable Y determines the conditional probability of the variable adopting a distinguished value and is expressed by the following equation [46]:

$$P(Y=1|X)={\displaystyle \frac{e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}{1+e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}}$$

(2)

where ${\alpha }_0,{\alpha }_1,\dots ,{\alpha }_k$ are the model parameters, and $X_1,\dots ,X_k$ are the independent variables, which can be either qualitative or quantitative.

Due to the non-linearity of the logistic model, a logit transformation is used to transform the logistic function into a linear model with respect to the independent variables and parameters. For this purpose, the concept of Odds Ratio is introduced, which is the ratio of the probability that a certain event occurs to the probability that this event does not occur, i.e.,

$${\displaystyle \frac{P(Y=1|X)}{1-P(Y=1|X)}}={\displaystyle \frac{e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}{1+e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}}:{\displaystyle \frac{1}{1+e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}}=e^{e^{{\alpha }_0+{\alpha }_1{X}_1+{\alpha }_2{X}_2+...+{\alpha }_k{X}_k+{\alpha }_{10}\left(X_1{X}_2\right)+\dots }}$$

(3)

The odds ratio therefore expresses how many times the probability increases or decreases that an event will occur if there is a unit change in the independent variable (with the values of the other independent variables fixed). In the next step of the logistic model-building process, measures of model fit were determined, and model validity was verified (model testing). Measures of model fit were expressed in terms of Nagelkerke’s R², McFadden’s R², McFadden’s adj.R², and CoxSnell’s R². Procedures for testing the estimation results in logistic modelling. The joint significance of the variables was performed using the value of the reliability quotient test statistic.

The stepwise forward selection method was used in variable selection. It involves selecting variables for a regression model that starts with a model with only free expression and then gradually adds more predictors to the model while improving the model fit. Both potential predictors and all possible combinations of their interactions are included in the full model containing the maximum set of variables. In each step of this method, the variable that most improves the fit of the model is selected from the variables in the so-called full model (the measure of fit is the Akaike information criterion AIC). The process of adding variables continues until none of the other variables improves the model significantly. SPSS software was used to process statistical data.

Quantitative and qualitative variables were adopted for the model. The selection of variables was based on the available database and a comprehensive review of related literature, as well as an analysis of the relationships between variables. A set of explanatory variables was used in the model and the farmers’ propensity to use a financial instrument combining a grant with a loan or credit (Y) was used as the dependent variable in the model. The explanatory variables used in the model together with a summary of basic descriptive statistics are presented in

Table 3. Set of variables adopted for the model.

Variable	Name	Description	Min	Max	Average	SD
X1	UR area	ha	0	1	0.86	0.34
X2	income from agricultural activities	1—more than PLN 100,000; 0—less than PLN 100,000.	1	500	48.04	71.18
X3	climate change risk perception	1—high; 0—low	0	1	0.23	0.42
X4	mobile age	1- under 44 years; 0—over 44 years	0	1	0.63	0.48
X5	education	1- at least secondary; 0—at most vocational	0	1	0.44	0.50
X6	attitude to risk	1—“I like risk”; 0—risk averse or neutral	0	1	0.62	0.49
X7	agricultural activity as the main source of livelihood	1—yes; 0—no	0	1	0.13	0.34
X8	credit commitments	1—yes; 0—no	0	1	0.76	0.43
X9	use of grants	1—yes; 0—no	0	1	0.64	0.48
X10	insurance—effective in the future	1—yes; 0—no	0	1	0.79	0.41
X11	succession of an agricultural holding	1—yes; 0—no	0	1	0.90	0.30
X12	conventional—intensive production	1—yes; 0—no	0	1	0.29	0.45
X13	traditional extensive production	1—yes; 0—no	0	1	0.32	0.47

.

4. Results

Descriptive statistics revealed several key findings. The average age of participants in the study was 46 years. 25% of the farmers were of mobile age (range between 18 and 44). It is assumed that people of mobile age are more able to change jobs, place of work, or possibly retrain. The value of the coefficient of variation indicates that the analysed group of farmers was characterised by very little variation in terms of age (Coefficient of Variation, CV, 22.72%). Respondents mostly had secondary and post-secondary education (45.36%). Farmers with primary and lower secondary education (0.25%) and higher education (16.75%) were the least numerous groups. Most respondents (75.00%) showed a moderate attitude toward risk. Only a few respondents were not afraid of risk, taking risks because they saw it as an opportunity to improve their business performance (13.14%).

For 75.51% of respondents, farming is the main source of livelihood. A total of 63.66% had loan commitments, while 78.60% used government environmental programmes to support agriculture. Additionally, 39.94% of respondents had estimated gross revenues of 50–100 k from the sale of agricultural products and services in 2021. One in four respondents indicated revenues of more than PLN 100 thousand. The average area of agricultural land was 48.04 ha. In terms of the area of UAA, the agricultural holdings analysed were characterised by a very high degree of diversity (CV, 148.17%). Farms, where more than 2/3 of the income came from mixed (crop and livestock) production, prevailed (50.51%), with an agricultural model oriented towards traditional agriculture based on family labour resources—extensive production (49.48%).

If, in the future, there would be financing combining a grant with a loan or credit, oriented towards supporting investments to increase the farm’s resilience to shocks, assuming the total value (grant and loan or credit) to be PLN 100,000, the value of the part in the form of a loan or credit that would be acceptable to most farmers was PLN 10,000 (57.48%). A total of 13.15% of respondents indicated a value of PLN 50,000,while 6.96% indicated a value of PLN 40,000. Meanwhile, 10.30% and 12.11% of respondents would be willing to accept an amount of PLN 20,000 and PLN 30,000, respectively.

The factor that most shaped farmers’ attitudes towards the proposed form of financing was its credibility. A total of 92.01% of the respondents indicated that such a method of financing gives adequate credibility for the implementation of the planned investment. In turn, 86.34% were of the opinion that the proposed method of financing is worth incurring the additional costs associated with the implementation of the investment. For 76.96% of the respondents, the presented method of financing combining a grant with a loan or credit is an attractive form of financing investments in an agricultural holding and may be an alternative to the forms of financing currently available on the market.

The willingness of farmers to use a financial instrument combining donation with credit or loans can be determined by a number of different factors, including organisational, socio-demographic, financial, institutional, and behavioural factors.

Table 4. Econometric model results—overview of significant relationships.

Predictor	B	DPU1	GPU1	SE	z	p	OR	DPU2	GPU2
Permanent	−0.10	−1.45	1.29	0.69	−0.14	0.888	NA	NA	NA
Insurance and its effectiveness	0.84	−0.35	1.96	0.58	1.45	0.147	2.32	0.70	7.09
Mobile age	−0.04	−1.92	1.82	0.95	−0.04	0.966	0.96	0.15	6.20
Agricultural activity—main source of livelihood	1.07	0.26	1.88	0.41	2.59	0.010	2.91	1.29	6.59
Attitude to risk	16.23	−18.18	322.41	877.75	0.02	0.985	1.12 × 107	0.00	1.05 × 10140
Currentcredit obligation	0.99	0.31	1.69	0.35	2.82	0.005	2.68	1.36	5.40
Traditional extensive production	−0.76	−1.47	−0.08	0.35	−2.16	0.031	0.47	0.23	0.92
Insurance and its effectiveness	1.84	0.11	3.62	0.89	2.07	0.039	6.28	1.11	37.26
Agricultural activity—main source of livelihood (Yes)	−1.13	−2.64	0.31	0.75	−1.52	0.129	0.32	0.07	1.37

Note: B = Non-standardised regression coefficient; DPU = Lower confidence interval; GPU = Upper confidence interval; DPU1/GPU1 = 95% confidence intervals for B; SE = Standard error for B; z = z-statistic; OR = Odds ratio; DPU2/GPU2 = 95% confidence intervals for OR. Source: own research.

presents the estimation results of the logistic regression model, which estimated the effect of all possible combinations from the set of selected independent variables X₁, …, X₁₃ (Table 2) and their interactions on the binary dependent variable Y—farmers’ propensity to use an instrument combining a grant with a loan or credit. The table provides estimates of the unstandardised coefficients B and the so-called odds ratios, i.e., exp(β_j) = OR, which refer to the impact of a one-unit change in variable j with the other explanatory variables fixed [47].

Analysis using the Likelihood Ratio Test (LRT) established that the proposed model was statistically significant, Wald test F(8.379) = 4.39; p = 0.000; χ²(8) = 58.03; p < 0.001. Analysis of the R² coefficients (Nagelkerke, McFadden, McFadden-adjusted, and CoxSnell) showed that the regression model of the included independent variables explained the following percentage of the variance in the results of the dependent variable Y—farmers’ propensity to use the subsidy and credit or loan facility: 25.28% (Nagelkerke’s R² = 0.25), 18.76% (McFadden’s R² = 0.19), 12.94% (adj. McFadden’s R² = 0.13), and 13.89% (CoxSnell’s R² = 0.14). The number of significant effects in the model was: 4.

In the full model, all variables listed in Table 1 and any combination of their interactions were included. According to the methodology adopted in the forward stepwise regression model, variables from the full model were added to the free expression in stages until only those variables that significantly improved the fit of the model during the procedure were left.

The analysis of the results of the estimation of the parameters of the probability model of farmers’ propensity to use an instrument combining a subsidy and a loan or credit showed the statistical significance of variables such as X₇—agricultural activity as the main source of livelihood; X₈—current credit obligations; X₁₃—traditional—extensive production. A significant interaction effect was also established between the variables X₁₀—insurance and its effectiveness and X₄—mobile age.

The results of the model estimation indicate that:

• The chance of farmers being willing to use an instrument combining a grant with a loan or credit increases significantly by 191.46% for farmers for whom farming is the main source of income (OR = 2.91; p = 0.010);
• The chance of farmers being willing to use an instrument combining a grant with a loan or credit increases significantly by 168.15% for farmers who use loans (OR = 2.68; p = 0.005);
• The chance of farmers being willing to use a combination of subsidy and credit or loan decreases significantly by 53.23% for farms with traditional-extensive production (OR = 0.47; p = 0.031).

In addition to the main effects, an interaction effect between the variables X₁₀—insurance and its effectiveness and X₄—mobile age (OR = 6.28; p = 0.039) was also found to be significant.

A simple effects analysis of the interaction effect revealed that if the farmer’s age was above 44 years, the variable X₁₀—insurance and its effectiveness had no significant effect on the farmers’ propensity to use the instrument combining the grant with a loan or credit (OR = 1.73; p = 0.282). Regardless of whether farmers of this age considered insurance to be an effective risk management tool, their willingness to use blended financing remained at a similar level and was not statistically different. Older farmers rely on established risk management methods, such as savings, diversification, or more conventional financial strategies. Their experience may shape preferences in which insurance is not a key factor when deciding on new financial commitments, even if they are partly secured by a subsidy. Therefore, they are less willing to use an instrument that combines a subsidy with a loan or credit. In contrast, when the farmer’s age was below 44 years (the farmer was of mobile age), variable X₁₀—insurance and its effectiveness significantly increased the chance of farmers’ propensity to use the instrument combining a grant with a loan or credit by 880.00% (OR = 9.80; p = 0.000). This means that for farmers under 44 years of age, the belief in the effectiveness of insurance significantly increased the likelihood of accepting the use of an instrument combining a subsidy with a credit or loan in the future. Younger farmers are more open to new opportunities and willing to take risks, especially when there are mechanisms to mitigate them, such as insurance. For this group of farmers, insurance can be a key element of the long-term development and modernization strategy of the farm. The belief in the effectiveness of insurance increases their self-confidence in making financial decisions, reducing the fear of potential losses. It can also be assumed that farmers of mobile age are more able to adapt and search for innovative solutions.

Simple effects analysis showed that when a farmer did not consider insurance to be an effective tool for future risk mitigation then variable X₄—mobile age had no significant effect on the farmers’ propensity to use an instrument combining a grant with a loan or credit (OR = 0.50; p = 0.327). In contrast, when a farmer indicated that insurance was an effective risk mitigation tool then his or her age (under 44 years) significantly increased the chance of being willing to use an instrument combining a grant with a loan or credit by 183.04% (OR = 2.83; p = 0.006). This means that the lack of belief in the effectiveness of insurance levelled out the differences in farmers’ willingness to use blended financing in the future between farmers of mobile and non-mobile age. Farmers of mobile age who considered insurance an effective risk management tool were 183% more likely to use blended financing compared to farmers of non-mobile age who also considered insurance an effective risk management tool.

5. Discussion

This study aimed to deepen the understanding of farmers’ preferences to use a financial instrument combining a grant with a loan or credit, and to identify factors that determine the use of such a form of financing in the future. The results of the survey indicate farmers’ varying financial needs and preferences for the use of financial instruments combining a grant with a loan or credit. The highest percentage of surveyed farmers prefers to use support in the form of a loan or credit up to the amount of PLN 10,000. The preference for smaller amounts of debt has a low repayment risk and does not significantly burden the farmer’s household. This implies easier management of financial obligations, which is important in the context of agricultural activities where financial stability is crucial to ensure continued operation and development. Farmers may perceive blended finance as an additional source of finance, complementing existing credits, rather than as a substitute for them. Hence, a preference for lower amounts of debt. Additionally, a preference for smaller amounts of credit or loan within blended finance may result from the fact that farmers may perceive subsidies as the main element of blended finance, and credit or loan as an additional element. According to Balana et al. [48], limited credit take-up by farmers may be due to high transaction costs or fear of losing collateral, which is most often land. Even if supply-side constraints on credit were removed, for example by lowering the interest rate, farmers might not take up credit because of the requirement for collateral and repayment schedules, risk aversion, in particular fear of being unable to repay the loan and subsequently losing collateral, and high transaction costs due to complicated credit application procedures. The diversity of preferences in terms of using a loan or credit within the framework of blended financing may also indicate the different investment needs of farmers. On the one hand, farmers focus on small but significant changes in production, while some may be planning larger investments that require much more financial support. Although there is a predominant preference among the farmers surveyed to use smaller amounts of loan or credit, it is worth noting that there is also a proportion of farmers open to higher amounts of loan or credit commitments (PLN 100,000 and more).

The results of the authors’ own study are consistent with the general conclusions of other studies, which emphasise the importance of access to financing, financial literacy, sustainability, and innovative financial instruments for the agricultural sector. Specific factors, such as the type of production and the age of the farmer, can modify the impact of these general trends, which are taken into account in the interaction analysis. The study by Ogochukwu et al. [25] showed that access to credit has a significant impact on improving the financial performance of farmers in agricultural cooperatives. In addition, financial education had a significant impact on the prediction of farmers’ financial performance. This confirms that credit experience and financial knowledge increase the propensity to use innovative financial instruments. Research by Antle and Diagan [27] and Shiferaw et al. [30] indicates the key role of financing in promoting sustainable agricultural practices and technology adoption. Our results are in line with this trend, suggesting that financial instruments, such as a combination of grants and loans, can be an effective tool to support sustainable development. The study by Giné and Yang [24] showed that combining insurance with credit increases farmers’ willingness to invest in modern technologies. This correlates with the results of our analysis, which indicate the important role of the belief in the effectiveness of insurance, especially among younger farmers. Li and Li [26] have shown that financial innovations in agriculture significantly reduce income disparities between urban and rural areas in China. This suggests that innovative financial instruments can contribute to improving the economic situation of farmers and reducing inequality.

A financial instrument combining a grant with a credit or loan has the potential for development in the agricultural sector in Poland. The analysis of the collected material showed that surveyed farmers are open to innovative forms of financing, including financing combining a grant with a loan or credit. Most of them responded positively to the proposed financial instrument. A high percentage of farmers perceive blended financing as credible (92.01%), worth the additional costs (86.34%), and attractive (76.96%), which is a strong argument for the potential development of this type of innovative instrument in the Polish agricultural sector. This is an important signal to governments and financial institutions to develop financial products that combine different sources of support. It also shows that there is a gap in the current market that can be filled by new forms, including financing that combines a grant with a loan or credit. A key factor in favour of using such a form of funding in the future is its credibility for the planned investment. This underlines how important it is for financial and governmental institutions to build and maintain confidence in the funding programmes on offer.

Based on the analyses conducted, it was shown that the propensity of farmers to use a financial instrument combining a grant with a loan or credit increases for those farmers for whom farming is their main source of livelihood. The increase in the propensity to use blended financing among farmers who mainly earn their living from agriculture (OR = 2.91; p = 0.010) suggests a strong motivation of this group to search for new tools to increase the stability and competitiveness of farms. Farmers who earn their livelihood primarily from farming are more committed to their business, making them more likely to seek ways to develop and secure it. As R. Kata and M. Leszczynska [49] point out, farm income is used to support the farmer’s family, determine the standard of living of the farming family, and the possibilities for sustainable farm development. Financial innovations, such as the combination of subsidies with credit or loans, can be seen as a strategic tool to increase the competitiveness and stability of farms, contributing to better resilience of farms to crises and protecting the farm from the materialisation of adverse risks related to natural and economic factors. Farmers who depend only on income from farming have a greater need for financial stability and a stronger incentive to minimise risk. As noted by N.F. Kashapov et al. [50], financial stability is generally characterised by the ability of an entity to ensure stable economic and social development through the efficient use of its own and/or external financial resources. Farmers will therefore seek financing instruments that enable them to access the financial resources they need and diversify their risks. Blended finance can help to manage risks, particularly financial risks. Combining a grant with a loan or credit can be attractive as it offsets financial risk through partial non-repayable grant aid while allowing access to additional funds. Another reason why farmers with farming as their main source of livelihood are more inclined to use a financial instrument combining a grant with a loan or credit is that they are more inclined to invest in the development of the farm and have a greater incentive to be sustainable in the long term. Combining a grant with a loan allows access to more capital, which can be key to financing investments in new technologies, sustainable farming practices, and other innovations that can improve the productivity and resilience of the farm to market and climate change. A. Apampa et al. [51] argue that combining public financing with private sector resources is the best option for financing large-scale sustainable investments.

This research also showed that farmers’ propensity to use an instrument combining a grant with a loan or credit increases by 168% for those farmers who have previously used or are currently using credit (OR = 2.68; p = 0.005). Their previous experience with debt management reduces debt concerns and increases their willingness to use innovative financing instruments, including a facility combining a grant with a loan or credit. Farmers who have previously used credit already have established relationships with financial institutions, making it easier for them to access further financial products and negotiate more favourable repayment terms. They are more willing to make further commitments, especially if they can be partly secured by a grant, which reduces the overall financial risk. The grant can be seen as an additional benefit that reduces the cost of financing and increases the profitability of the investment. This form of financing can therefore be an attractive option for financing farm development and improving the liquidity of one’s farm.

The willingness of farmers to use an instrument combining a grant with a loan or credit decreases for farms with traditional, extensive production (OR = 0.47; p = 0.031). Farmers on these farms are characterised by a rather low-risk appetite and lower investment needs. They tend to be more conservative in their approach to financial management. They often avoid getting into debt, fearing the potential risks associated with loans, so they are relatively more likely to prefer self-financing and using their own resources. Conservative values and beliefs about avoiding debt are often strongly embedded in traditional households. This mentality can be a barrier to the use of modern financial instruments, such as a combination of subsidy and credit or loan. Traditional, extensive production farmers therefore lack experience with external financing and financial institutions, which in turn may influence farmers’ limited confidence in such financing instruments as well as in financial institutions themselves. Lack of experience with external financing, or lack of trust in financial institutions, may result in a reluctance to engage in financial commitments, even if they are partly secured by a grant. Such instruments may be perceived by farmers as too complicated or risky compared to more familiar forms of financing, such as savings or family support. Extensive production is characterised by a lower degree of intensification and use of modern technologies. Consequently, farmers on such farms may not see the need to invest in expansion or modernisation, which reduces their interest in financial instruments requiring additional capital. Extensive farms often generate lower incomes, which may limit the ability to repay loan obligations. The fear of not being able to repay the loan means that farmers on such farms may be less inclined to use an instrument combining a grant with a loan or credit. Extensive farms may have less flexibility to adapt to market or technological changes. Financial instruments that require a more proactive approach to management and planning may be perceived as not fitting their business model.

Furthermore, our study provided evidence that access to insurance and its effectiveness in offsetting losses associated with risk realisation is an important predictor of farmers’ willingness to use financial instruments combining a grant with a loan or credit, particularly among farmers under 44 years of age (mobile age). For farmers under the age of 44, insurance significantly increases the attractiveness of instruments combining subsidy with credit, as it offers an additional layer of security that is crucial for them in terms of the long-term development of the farm. Farmers of mobile age (under 44) are more open to new opportunities and willing to take risks, especially if there are mechanisms to mitigate these risks, such as insurance. For them, insurance can be a key element in the decision to use a facility combining a grant with a loan or credit, as it provides a sense of security in case of unforeseen circumstances. Younger farmers (under the age of 44) have a longer period of farming ahead of them, making them more willing to invest in farm development and modernisation. Younger farmers often see insurance as an integral part of their strategy to develop and secure the future of the farm. Insurance can increase their confidence in making financial decisions as it reduces their fear of potential losses. For farmers over the age of 44, who are less inclined to take on new commitments and rely more on well-established risk management methods, insurance does not play such an important role in financial decisions. For them, life and work experience leads to a greater attachment to traditional financial management methods and less willingness to innovate. Farmers over the age of 44 may already have well-developed risk management strategies that rely on self-financing, savings, or more conventional methods. Therefore, insurance is not a key factor for them in their decision to use subsidies and credit.

Small and medium-sized agricultural holdings, in particular, encounter challenges in obtaining financing due to limited collateral, relatively high interest rates, and brief grace periods for investment loans. The banking sector in Poland demonstrates caution in financing agriculture due to factors such as low margins, seasonal production, limited profitability, and inadequate collateral [52]. The primary security for a farmer’s mortgage is a mortgage on the agricultural property. The bank may also require additional credit insurance to strengthen the guarantee. Furthermore, the value of the farmer’s assets, such as land, machinery, and buildings, is an important factor in the creditworthiness assessment process as it provides security for the loan [53]. The interest rate (i.e., the reference rate of NBP—Polish central bank) was 5.75% (as of 11 March 2025),which is higher compared to the euro area, where the ECB’s main refinancing rate reduced from 2.90% to 2.65% (as of the beginning of March 2025).

There are some barriers and challenges in the implementation of “blended finance” related to financial institutions:

• Commercial and cooperative banks require guarantees to increase lending to the agricultural sector. Guarantee funds may also need counter-guarantees, while loan funds might require funded debt instruments.
• Existing legal restrictions that limit the ability to recover agricultural assets used as collateral can be a barrier to lending in the agriculture sector. A guarantee financed by RDP funds (RDP 2023–2027) could address this issue: “The Farm Guarantee Fund Plus (FGR Plus) is a fund that facilitates credit for borrowers by offering an Agromax bank guarantee as collateral for a loan. FGR Plus additionally offers an interest subsidy. FGR Plus is a continuation of the pilot Agricultural Guarantee Fund, a support instrument created in cooperation between the Ministry of Agriculture and Rural Development as the Managing Authority and the National Economy Bank(NEB) as the implementing entity of the financial instruments. The FGR Plus guarantee is provided at lending banks that have signed an agreement with NEG and supports the financing of projects under the four interventions of the Strategic Plan for the Common Agricultural Policy 2023–2027(CAP Strategic Plan) [54].
• Financial institutions often lack expertise in managing agricultural loan portfolios, leading to high transaction costs and risk aversion.
• The implementation of blended finance in Polish agriculture is being hindered by bureaucratic hurdles, or “red tape”. These include:
• The process of navigating through various regulations and compliance requirements may be both time-consuming and costly for farmers and financial institutions (including cooperative banks).
• When combining a loan with other forms of support, it is important to verify that the maximum Rural Development Programme (RDP) aid (2023–2027P) for the operation is respected.

It is important to note that fund mismanagement can pose a significant risk when implementing blended finance in the Polish agricultural sector. This can occur due to a lack of oversight, as it is possible that insufficient monitoring and evaluation mechanisms could lead to misallocation of funds.

6. Conclusions

In conclusion, our study shows that the implementation of financial innovations, including a financing instrument combining a grant with a loan or credit, has potential. Farmers are open to new forms of financing as long as they find them credible and beneficial. This points to the need to further develop innovations in financial products, including blended finance aimed at the agricultural sector, which can contribute to its stability and growth by providing resilience to future shocks to actors in the sector. In the face of changing market conditions and climate change, enhancing the risk resilience of farms through access to blended financial instruments becomes crucial. Facilitating access to such solutions should be a priority for agricultural policy and financial institutions.

Financial innovation is essential for the development of the agricultural sector, but its implementation requires overcoming numerous barriers. The findings highlight the importance of understanding the specific factors determining farmers’ willingness to adopt innovative financial instruments combining grants with credit or loans, and the need to design policies and innovative financial products tailored to the needs of different farms. As our research shows, farmers’ willingness to use an instrument combining a grant with a loan or credit is determined by a number of factors, including livelihood, credit experience, type of production, age, and perception of insurance. This is due to the different motivations of farmers related to their business development directions and thus their search for new financial solutions and their application. It is also related to previous experience in using credit. This experience translates into greater trust in financial institutions, a better understanding of the benefits, and a higher tolerance for risk. Our study also highlights how important access to insurance and its effectiveness in managing risk in agricultural activities is for the implementation of innovative products in agriculture. Therefore, when designing and promoting financial instruments combining subsidies with credit or loans, it is worth taking into account and emphasizing the benefits of agricultural insurance as an element for reducing the risk of investment. This is particularly relevant, as the integration of insurance solutions with the offer of blended financing can significantly increase its attractiveness and the willingness of farmers to use this type of financing.

6.1. Theoretical and Managerial Implication

The varying preferences of farmers in terms of their willingness to use innovative financial instruments, including those combining subsidies with credit or loans, suggest that support programmes should be flexible and tailored to different groups of farmers. The introduction of different levels of financial support could meet the needs of both small and larger agricultural producers. By observing preferences for different forms of support, financial institutions should adapt their product offerings to better meet market needs. Considering offering flexible loans or credits with different amounts or simplifying procedures could increase farmers’ interest in this form of financing.

The government should consider introducing financing that combines subsidies with other forms of support, which can catalyse private investment in the agricultural sector. From the point of view of the long-term development of the sector, there needs to be collaborations between financial institutions, government, and agricultural organisations to develop and implement effective financial innovations. In addition, the government should analyse existing regulations and identify those that are a barrier to the development of financial innovation in agriculture. Procedures should be simplified and a more conducive regulatory environment for new financial solutions conducive to encouraging private investment should be created to build investor confidence in the agricultural sector.

To support the adoption of blended finance in Polish agriculture, policymakers and government administration should focus on several strategies, including those based on public-private partnership concepts. These include risk-sharing programmes and a deepening of the existing system of loan guarantees in agriculture, or more broadly in the food economy. Risk-sharing programmes may include the improvement of crop insurance systems (including multi-year contracts and covering drought risk as a systematic risk) displaced by ex-post disaster assistance, price risk management instruments, and the promotion of joint ventures among farmers to share risks and resources.

It should be underlined that the European Agricultural Fund for Rural Development (EAFRD) provides loan guarantees for farmers across the EU to support rural development projects. The aforesaid guarantees may help farmers access financing for investments in farm modernisation, infrastructure, and sustainable practices. The programme is considered to have played a key role in increasing the competitiveness and sustainability of EU agriculture. Government-backed loan guarantees should be targeted at smaller loans to help new or underdeveloped farmers. The effective implementation of these strategies would require policy development in cooperation with agricultural experts, the adoption of appropriate regulations, and educational activities to inform farmers about available financial tools and how to access them. These measures are intended to create a more resilient and sustainable agricultural sector in Poland. Tax incentives are difficult to implement due to the dominance of agricultural tax in Polish agriculture; they may relate to the so-called special divisions of agriculture.

Appropriate educational programmes targeting farmers need to be developed to increase their awareness of innovative financial products, their use in practice, their risks, and their benefits. A better understanding of these products will increase farmers’ confidence to use them in the future.

Financial education initiatives are also needed to help farmers better understand the benefits and risks of blended financial instruments. As financial products and decisions become more complex, financial education programmes are gaining popularity to better prepare individuals to manage their money, achieve financial goals, and avoid the stress associated with financial problems [55]. These initiatives should take into account generational differences in cognitive biases. As we prove in our research, age is a significant predictor of the perception of the usefulness of insurance, which determines the willingness to use blended financing in the future. Our research is consistent with the research of Da Silva et al. [56], which clearly emphasizes the impact of generational differences on the level of financial knowledge. Farmer organisations, farm advisors, and financial institutions should get involved in promoting financial innovations to farmers and encourage their use. It is essential to establish the necessary knowledge and capacity among national stakeholders with regard to financial instruments if the initiative is to be successfully initiated under the RDP. The FI-Compass platform is a prime example of an effective initiative. It is important to emphasise the significance of effective collaboration and a comprehensive understanding among all relevant stakeholders, encompassing those at the EU and national levels, the banking sector, and agricultural enterprises, for the effective implementation of financial instruments. In summary, the successful implementation of financial innovation in the agricultural sector requires the coordinated action of financial institutions, government, and farmer organisations. Financial institutions should develop innovative products, the government should create an enabling regulatory environment and financially support innovation, and farmer organisations should represent farmers’ interests, educating them, and facilitating their access to finance. A holistic approach that takes into account the specificities of agriculture and the needs and opportunities of different groups of farmers is key.

6.2. Limitations and Future Research

This study has some limitations that may be addressed in the future. Firstly, there are methodological limitations. The survey was conducted on a sample of 388 farmers from the region of Western Pomerania. Although this is a typically agricultural region, the results cannot be fully generalised to the whole of Poland, where agricultural structure and socio-economic conditions may differ. Therefore, we suggest that in future studies the model should be repeated, examining farmers from different regions of Poland, so that the results are more generalisable and take into account regional specificities. Although the sample is relatively large, it should be borne in mind that in studies of this type, there is always a risk of error due to random sampling. Future studies should aim to balance the sample in terms of farm size, type of production, and technological level to take into account the heterogeneity of the agricultural sector. The selection experiment method used to survey farmers’ preferences is a method based on respondents’ declarations rather than their actual behaviour. Respondents may have indicated preferences that will not necessarily translate into their real decisions in practice in the future. Secondly, there are limitations related to the range of variables studied. The research focuses on a single financial instrument. In the future, a broader spectrum of financial innovations should be investigated taking into account, among others, index insurance, futures contracts, weather derivatives, crowdfunding, blockchain-based solutions, or lease loans. Future research should also focus on comparing different financial instruments in terms of their effectiveness, acceptance by farmers, and their impact on farm resilience. Thirdly, in the current phase of research, detailed identification of barriers to the implementation of the instrument combining a subsidy with a credit or loan in Polish agriculture is difficult. The analysis conducted is based on farmers’ declarations and preferences. Therefore, capturing real obstacles that may appear at the implementation stage is limited. Therefore, future research is necessary to help assess the real possibilities and limitations of using these instruments. Future research should take into account the perspective of financial institutions and policymakers to obtain a more comprehensive picture of potential challenges and opportunities. Based on the available data, a set of variables was selected to investigate the propensity of farmers to use an instrument combining a grant with a loan or credit. However, agricultural activity is strongly dependent on external factors such as weather conditions, market prices, or changes in agricultural policy. Thus, farmers’ preferences are subject to change, which is difficult to predict and include in surveys. Therefore, it is worth conducting future research to expand the list of potential variables based on the use of mixed methods (quantitative and qualitative), which will allow a deeper understanding of farmers’ preferences and motivations. In the future, using an expert/diagnostic survey with representatives from government administration, agricultural organisations, farmers, agricultural advisors, and financial institutions for empirical research would make it possible to obtain primary data on the implementation of blended finance instruments and reduce barriers to their implementation.