How farmers may attract foreign funds in periods of high volatility?

How farmers may attract foreign funds in periods of high volatility?

Elena Voloshyna, head of representative office of IFC elaborated upon the ways that agribusinesses can take in order to attract funds during political and macroeconomic instability.

The grains harvest will amount to about 60mln tons in Ukraine this year. It seems to be a good result allowing the country to maintain a leading position among the major grain exporters. But in the actual circumstances, the companies from the agribusiness and the industry experts, as well as investors know that things are not as good as they appear. Ukrainian agribusiness is capable of and has to be better in increasing production, becoming more profitable, and adding value to the exports. In order to make a step forward and move to the next level, a large scale investments and modernization are vital. 

How to attract financing facing continued political and macroeconomic instability? It is not that simple. For some of the best companies in the sector, it has become possible. But a few leaders are not enough for a system change for the success of the industry. It is essential that the changes are consistent and universal. In this case, SME businesses will become key players if they decide to change their business practices, bring new products on the market, and enter into new niche markets.

Small and medium farmers work half of agricultural land in Ukraine. But for the very SME, it is harder to attract funds. They lack working capital, not to mention some longer-term facilities. Especially medium size farmers, as they are too big to fully rely upon own financial resources, and they really need some external financing. IFC is one of the largest foreign investors in the Ukrainian agribusiness. 

Over the past five years, IFC invested more than USD 845mln in various projects along the vertical of a production process. But we are well aware that efforts and the resources of our own do not suffice and the bank is working to make funding available not only for large companies for service.   

As a result of IFC work in partnership with Bayer Corporation and Ukrainian banks of Raiffeisen Bank Aval and Credit Agricole, a financial instrument such as a bill on cropland has become popular. For several years we have worked hard to make a model of financing upon the bill on cropland to become simple and clear for all the parties. The ability to share the risks and the availability of such a documentary instrument like this bill help farmers to cover the needs for financing, the purchase of fertilizers, seeds and technology in the circumstances when bank loans remain expensive. 

Last year, our joint program with Bayer and Raiffeisen Bank Aval was extended until 2018. And there is a demand not only for short-term money but also for long term facilities aiming at construction of elevators, for example; and also development of other agricultural infrastructure. IFC together with its partners are implementing a pilot program of agrarian receipts in several regions.

This financial product has a potential to attract millions of additional funds for the agricultural sector from traders, equipment manufacturers, producers of fertilizers and seeds. IFC started in Poltava region in 2014. In 2015, there were 10 agricultural receipts issued through which farmers attracted UAH 60mln worth of loans. All the obligations under the first receipts were met. 

IFC went further, and the geography of the project reached three new regions of Vinnytsia, Cherkassy, and Kharkiv. The financial instrument is new for the market, but the demand has grown fivefold in comparison to previous year. A total of 50 agrarian receipts were granted from January through August of 2016. As of end-August, they were 60 to the tune of UAH 190mln.

By the end of the year, the project will start in four more regions; these are Summy, Kharkiv, Khmelnytsk, and Ternopil. Certainly, many questions remain. At this, IFC plans to adapt the agrarian receipts so that they can be applied at all stages of the value creation.  

And, of course, IFC will continue to directly finance agribusiness in Ukraine, and work on to bring other investors for the country.    

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