Ukraine: new system eases farmers’ access to pre-harvest financing
For farmers in Ukraine, securing affordable pre-harvest financing for producing their crops just got easier.
Thanks to the efforts of Ukraine's Ministry of Agrarian Policy and Food, the European Bank for Reconstruction and Development (EBRD) and FAO, a pilot project in the country's Poltava Oblast has issued the first “crop receipts” – a mechanism that enables farmers to use their future harvest − crops, vegetables, even fish − as collateral for financing from banks, suppliers, traders and processors.
Here’s how it works. Farmers receive a crop receipt or bond, which represents a promise to deliver agricultural products, or make a payment, after the harvest or sale of the products. It can also be used as a hedging instrument to avoid the risk of price fluctuations.
“Securing affordable financing has been a challenge for Ukraine's farmers unable to provide acceptable collateral to creditors,” said EBRD food security economist Iride Ceccacci.
Until now, farmers who lacked the capital to invest in high-quality seed, fertilizer and other inputs struggled to boost their production levels and turn a profit. The initial crop receipts issued in Ukraine are valued at roughly US$ 635,000 (UAH 14 million).
In order to get the system off the ground FAO, EBRD, Ukraine's Ministry of Agrarian Policy and Food, the International Finance Corporation, DANIDA, USAID, the Agrarian Markets Development Institute, private sector companies and other partners worked hard to build the necessary infrastructure. Pre-harvest financing instruments were introduced into Ukraine’s legislation in 2011, and in 2013 a law on agrarian receipts was passed.
Experts estimate that in the medium term crop receipts will be able to provide at least US$ 1.5 billion in additional liquidity for producers, while the long-term potential could be even greater.
“This is just the beginning,” said Dmitry Prikhodko, an agricultural economist with FAO's Investment Centre. "We are confident that with the continued support by the government, companies, FAO and the EBRD, more financing will follow after the testing phase."
FAO and EBRD have a long history of providing technical assistance to Ukraine's agriculture sector and facilitating policy dialogue. Earlier assistance focused on helping the Government to lay the groundwork for a legal regulatory system for grain warehouse receipts to tackle post-harvest financing issues.
10 June 2015, Budapest, Hungary