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11/02/2013

Appetite for pre-harvest financing legislation confirmed at Moscow roundtable, January 2013

A roundtable discussion dedicated to pre-harvest financing opportunities in the Russian Federation drew over 50 input traders, producers, agricultural banks and government representatives on 29 January 2013 in Moscow. The event, organized by the Ministry of Agriculture and hosted by the Timiryazev Agricultural Academy, was facilitated by FAO and the European Bank for Reconstruction and Development (EBRD), who addressed questions about the introduction of pre-harvest financing instruments and validated the interest of key stakeholders in the introduction of a supportive legal framework.

The proposed instrument is the crop receipt, a type of document that represent a farmer’s obligation to deliver a certain amount of commodities or cash using his or her future crop as collateral. Pre-harvest financing through crop receipts will facilitate farmers’ access to credit at an early stage of the working capital cycle while ensuring financial security to input providers and other creditors.

The idea of introducing crop receipts in the Russian Federation is a result of a 2011 study tour to Brazil, where the instrument has proven very successful. A Russian delegation led by the Ministry of Agriculture was able to witness firsthand the use and impact of crop receipts for farmers and finance institutions. In the wake of the study tour, the EBRD and FAO conducted a feasibility study to assess whether the instrument could work effectively in the Russian Federation and these results were presented at the event in Moscow.

The time is right to introduce a proper legislative framework for pre-harvest financing in the Russian Federation, not only because banks and input suppliers have already started to devise similar products, investing some USD 270 million into these transactions, but also because providing more secure and efficient credit to Russian farmers will greatly assist the country’s ability to achieve its agricultural potential. “Although this is clearly not the ultimate answer to farmer financing, we strongly believe that this instrument will greatly enable increased liquidity in the very early stages of the supply chain,” commented Peter Bryde, EBRD Deputy Director for Agribusiness.

FAO and the EBRD anticipate that, through the use of crop receipts, an additional USD 1.5 billion could be made available to farmers, thereby significantly supporting the agricultural sector. “Clarity, simplicity and standardization of terms are what make crop receipts so useful – this is what makes the difference,” stressed Frederique Dahan, Lead Counsel and Head of the Financial Law Unit in the Legal Transition Team of the EBRD. The system will only be successful if there are transparent and adequate procedures to ensure efficient enforcement.

FAO and the EBRD are prepared to support the reform by providing technical assistance to the country. Supporting legal reform in the Russian agricultural sector is not new to FAO and the EBRD: since 2009, the partner institutions provided assistance to the preparation of a draft law for Grain Warehouse Receipts, a post-harvest financing tool, which is in the process of being adopted. Similar projects are in progress in Bulgaria, where a feasibility study on crop receipt implementation is being performed, and Serbia and Ukraine, where studies have been completed and legal framework is now being developed.

For more information and the roundtable presentations, please click here.