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23/11/2012

New Ukrainian law on agrarian receipts developed with help from FAO and EBRD passed on 6 November 2012

A new law on agrarian receipts was adopted by the Ukrainian Parliament on 6 November 2012. Agrarian receipts are a financial instrument that helps farmers to obtain working capital from banks or input suppliers before harvest. The instrument introduced by the new Law on Agrarian Receipts will allow Ukrainian farmers to pledge their future crops and, against this pledge, obtain loans to buy farm inputs such as seeds or fertilizers.

Emmanuel Hidier, Senior Economist in FAO’s Investment Centre, explained, “This idea of agrarian receipts developed from the cédula de produtto rural, or CPRs, in Brazil. CPRs  have been a powerful way to finance agriculture in Brazil. This is why FAO has been working with its partner the European Bank for Reconstruction and Development (EBRD) to help introduce agrarian receipt legislation in countries like Ukraine.”

FAO and delegates from the Russian Federation, Ukraine and Serbia, attended a study tour to Brazil in 2011 for high-level officials to see firsthand how the system can function. This triggered interest and, as a result, similar efforts to introduce pre-harvest financing instruments are being pursued by FAO and the EBRD in these countries.

The key to a successful agrarian receipt system is legislation that allows a good enforcement of the pledge, which means that this new law is a significant step forward. The initial draft of the law in Ukraine, as well as a study on potential demand for pre-harvest financing, was supported by FAO’s Investment Centre in close collaboration with FAO’s Development Law Branch and Regional Office for Europe. Ukraine’s Ministry of Agrarian Policy and Food of Ukraine (MAPFU) requested FAO’s assistance and, following the completion of the project, the draft law was registered in the Ukrainian Parliament on 19 December 2011 and passed in final reading by a majority vote on 6 November 2012.

Dmitry Prikhodko, Economist in FAO’s Investment Centre and Lead Technical Officer for the project, remarked, “The introduction of agrarian receipts in Ukraine would allow farmers to attract about USD 250-370 million of financing from agricultural input suppliers, traders and banks in the first years after the adoption of the law. We are very pleased that this law has been passed, which could not have happened without the dedication of the Agrarian Markets Development Institute (AMDI) staff and support from MAPFU.”

The creation of this law and the foundation of an agrarian receipts system in Ukraine was supported by a wide range of partners including the IFC, USAID, BASF, Syngenta, Louis Dreyfus, Bunge, Avgust, who co-financed the study tour to Brazil in 2011. The IFC was particularly indispensable as a member of the Working Group that was instrumental in developing the law.

Now that the law has been passed, the MAPFU will be in charge of implementing this law. FAO and the EBRD stand ready to provide its expertise in the implementation of the law in Ukraine in order to improve farmers’ access to financing.