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PROJECT OF DEVELOPMENT OF PRE-HARVEST FINANCING
INSTRUMENTS IN UKRAINE

FAO-150

ebrr 

Danish-Neighbourhood-Programme

AMDI-logo-big

Food and Agriculture Organization (FAO)

European Bank for Reconstruction and Development (EBRD)

The Danish Neighbourhood Programme Ministry of Foreign Affairs of Denmark Agrarian Markets Development Institute

DEVELOPMENT OF PRE-HARVEST FINANCING
INSTRUMENTS IN UKRAINE


BACKGROUND

The Food and Agriculture Organization of the United Nations (FAO) and the European Bank for Reconstruction and Development (EBRD) have been actively involved in providing technical assistance to the Ukrainian agriculture sector. With the assistance from EBRD, Ukraine established the essential elements of the legal, regulatory system for grain warehouse receipts (GWR) in order to address the post-harvest farm financing issues. This project was implemented by EBRD in 2006-2008 through the Kiev-based Agrarian Markets Development Institute (AMDI). Farmers and grain trading companies in Ukraine currently use GWR.

The existing system of pre-harvest financing of farmers in Ukraine remains weak due to the lack of a clear and easily enforced mechanism for debt recovery after the harvest. The financial institutions, grain processing and trading companies that provide pre-harvest financing to farmers in Ukraine suffer from high default rates on pre-harvest financing contracts reportedly up to 30% of financing provided). At the same time, the Ministry of Agricultural Policy and Food of Ukraine (MAPFU), estimated the deficit of pre-harvest financing for farmers at UAH 4 billion (EUR 500 million) from the total of UAH 26 billion required for crop production financing in 2009.

A Crop Receipt is an instrument that can fill this financing gap by providing both the farmers and the financiers/traders with a simple and trusted pre-harvest financing tool. It essentially represents an obligation to supply agricultural products or to make payment in future (Lo the holder of the receipt) in return for received pre-harvest finance (monetary or in kind). This obligation cannot be altered or evaded under any possible debtor’s defence (force majeure included) and can be incorporated as a tradable paper, further increasing its market value.

The instrument originated in Brazil to encourage the financing of agricultural activities by the private sector on a commercial basis. The Certificate of agricultural products (CPR) can be issued by farmers, producers, farmers’ cooperatives, etc., in order to obtain financing for the production, or is used as hedging instrument to avoid the risk of price fluctuation for the upcoming production. CPRs have been used primarily for coffee, but also for cotton, rice, livestock, wheat, maize, millet, soybeans and orange juice. The CPR instrument is now totally integrated into the agricultural financial sector in Brazil.

In March - December 2011, FAO financed the development of the draft per-harvest financing legislation through its Technical Cooperation Programme (TCP) in partnership with AMDI under a Letter of Agreement with FAO. The draft law prepared under the TCP was registered in the Ukrainian Parliament on 19 December 2011 (Reg. # 9610). The Parliament of Ukraine then approved the law on 6 November 2012 (the Law of Ukraine on Agrarian Receipts № 5479-VI) which entered into force on 18 March 2013. The Cabinet of Minister of Ukraine is tasked to work on related implementing regulations. Following the signature of the Law by the President of Ukraine, MAPFU approached EBRD and FAO on 30 January 2013 with a request to provide assistance in drafting the implementing regulations and provide other related teclmical assistance.

According to AMD I estimates, a functioning CPR System in Ukraine, would allow attracting estimated USD 250-370 million of additional farm financing from agricultural input suppliers, traders, and banks in the first years following introduction of the CPR system in Ukraine.

PROJECT GOALS

The ultimate objective of this assignment is to improve farmers’ access to pre-harvest finance and to assist the FAO and EBRD project team in promotion and implementation of this new financial instrument in Ukraine.

ACTIVITIES

The Service Provider will undertake the following activities:
• Support the FAO and EBRD Project Team while working on missions in Ukraine, in particular by facilitating meetings and communication between the relevant stakeholders, hired consultants, Interagency Working Group, MAPFU, agricultural industry organizations, etc.;
• Organize and facilitate the meetings of the Interagency Working Group on Agrarian Receipts, keep track and disseminate the conclusions of the TWG meetings;
• Draft implementing regulations, orders and other outputs.
• Regularly inform agricultural producers, input suppliers, traders and bankers on project activities through local agricultural and banking information sources.

PROJECT OBJECTIVES

1. Prepare agendas, and minutes of discussion of the IWG meetings;
2. Drafting orders on implementing regulations on accounting of agrarian receipts, monitoring of the collateral, and other regulatory documents on agrarian receipts as requested by MAFFU;
3. Concept paper for agrarian receipts registration and integration of the electronic register the existing GWHR and pledge register systems submitted to MAPFU and other government agencies;
4. Guidelines on bank lending against agrarian receipt and related provisioning requirements submitted to MAPFU and NBU;
5. Training materials and presentations for the awareness seminars prepared and at least six trainings are conducted;
6. An assessment report on the implementation of the law and the use of agrarian receipts;
7. Proposed amendments to the Law and implementing regulations (as needed and reflected in the protocols of the IWG meetings) are submitted to MAPFU, other agencies and the Parliament of Ukraine’s Agricultural Policy and Land Relations Committee.

EXPECTED RESULTS

• agendas, and minutes of discussion of the Interagency Working Group meetings;
• draft orders on Agrarian Receipts implementing regulations;
• concept paper for Agrarian Receipts registration and integration with the existing registries;
• guidelines on bank lending against agrarian receipts and related provisioning requirements;
• training materials and presentations for the awareness seminars (at least six trainings conducted);
• assessment report on the implementation of the law and the use of agrarian receipts;
• proposed amendments to the Law and implementing regulations, if necessary .

INDICATORS FOR EVALUATING THE EFFECTIVENESS OF THE PROJECT

• The number of meetings of the Interagency Working Group on Implementation of agricultural receipts;
• The number of implemented policies and administrative procedures;
• The number of information seminars and trainings;
• The number of developed amendments to the law and regulations;

EXPECTED IMPACT ON INDUSTRY DEVELOPMENT

Improving of access to finance agricultural systems simplified by the introduction of new financial instruments.

 

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