The EBRD and IFC are joining forces to promote the introduction of new financial instruments that could help to unlock a huge agricultural potential of Russia and Ukraine at a time of growing global concerns over rising food prices.
The two institutions will focus on how legislation in both countries could be adapted to help fund investments that farmers make ahead of harvests, by making it possible for future crops to be accepted as collateral against loans along the lines of a successful model already operating in Brazil.
The aim would be to overcome the existing lack of acceptable security that imposes a major constraint on financing primary agriculture in Russia and Ukraine. These funding difficulties are holding back the development of vast untapped agricultural resources in both countries.
When Brazil in 1994 enacted a law which finally made financing against crop receipts possible, its agricultural sector was revolutionised. This type of funding has now reached USD 20 billion a year, as a result of which Brazil’s agribusiness sector now accounts for 30 percent of the country’s GDP.
The EBRD and IFC plan to assist high-level officials from Russia and Ukraine to study Brazil’s Crop Receipts programme and assess practical ways that each country could build on the Brazilian example.
“This initiative, which should result in joint EBRD and IFC lending against future crops, will give a boost to the development of agribusiness in EBRD countries of operations, enabling local companies to access funding for their growth,” said Peter Bryde, EBRD Deputy Director for Agribusiness.
“IFC/EBRD involvement in such type of commodity-backed lending will have a demonstration effect on other financiers and will thus capitalize the grain export potential of both countries,” said Elena Voloshina, IFC Country Representative in Ukraine.
The implementation of such Crop Receipts legislation is supported by considerable technical assistance grants provided by the EBRD’s Shareholder Special Fund, the UN’s Food and Agricultural Organisation (FAO) and USAID. These funds will cover both preliminary assessment of existing legislation and drafting new laws where needed, as well as the implementation of the entire system.
Leading industry players (Syngenta, Louis Dreyfus, BASF SE, Bunge and Avgust) sponsored a study tour of Brazil for high-level officials form Russia and Ukraine in March 2011. The willingness of these leading private sector companies to support such initiatives both financially and technically confirms the commercial rationale of these new instruments.
The study tour focused on showing how these financial instruments worked in practise and their long-term effect on the development of agriculture in Brazil. The tour consisted of discussions with key lawyers, traders, input providers, banks, court and state representatives and included visits to prominent farms close to Brasilia.