No one can see into the future. Yet.
But in the Lviv region of western Ukraine, farmers like Dmytro Suslik can now offer future harvests as bank collateral when applying for financing. Those loans enable him to purchase high-quality seeds and other items necessary to keep his farm productive, even during seasons when yields—and profits—are low.
Suslik used a new financial instrument, known as a “crop receipt,” which IFC began introducing to agricultural producers in the Lviv region last year. Though Suslik’s buckwheat farm had performed well early on, growing from three to 300 hectares with backing from a state-supported financial program, a market collapse left him in financial straits. When spring arrived, he had no money for planting. Bank finance was inaccessible for small farmers like Suslik because he could offer no collateral. Unaffordable interest rates presented another obstacle.
But then he learned about crop receipts – an innovative financial instrument from IFC, in partnership with the Swiss and Ukrainian governments.
These pre-harvest financial instruments allow farmers to use future harvests as collateral. Suslik’s crop receipt enabled him to get a loan from Agroprosperis Bank--which received training and support from IFC so it could help micro, small, and medium-sized farms access finance.
For Suslik, crop receipts came at exactly the right time: he was able to save his farm. He recently issued another crop receipt to finance a tractor purchase so that his enterprise can continue to grow. “I would not have been able to continue farming without crop receipts,” he says. “They did not seem hard to use. My experience was only positive, and I am very happy with the results.”
Meeting Farmers’ Needs
Crop receipts are a significant new development in Ukraine—a country with fertile land and favorable geography, where small farmers operate about 60 percent of agricultural land. But although agribusiness is a key economic driver and major employer in the country, a lack of crucial land reforms means that there are few incentives for long-term investments. This prevents the nation from becoming a global agribusiness leader.
Helping Ukraine realize its agribusiness potential and play a vital role in global food security is a priority for IFC. The crop receipts project was launched in 2015 by IFC and Switzerland’s State Secretariat for Economic Affairs (SECO) as a pilot in selected regions; the nationwide rollout started in 2018. So far, nearly 1,600 crop receipts have been issued, representing about $452 million.
Across Ukraine, these crop receipts cover 32 different crops and agricultural products, including hay, milk, cattle, and many other products. Over 248 notaries and 91 creditors are involved in the process, including credit unions and local traders and suppliers who work closely with operators of micro, small, and medium-sized farms.
Legislative Reform is Key
A crucial component of the crop receipts initiative unfolded in the national legislature as IFC’s advisory teams worked with the Ukrainian government to develop legislation to serve as the foundation for this innovative project. Next, IFC and Ukrainian officials created a registry to track crop receipts. Transparency and ease of use were foremost among the considerations.
IFC continues to work to attract new creditors, introduce crop receipts in organic and non-export-oriented agricultural sectors, and support legislation to make crop receipts a tradeable security. Recently, IFC worked with the National Bank of Ukraine to implement international crop receipts, enabling Ukrainian farmers better access to financing from outside the country.
IFC is a key investor in the agricultural sector in Ukraine and has committed over $1 billion in support since 2004. Advisory work on expanding access to finance for smaller farmers is part of the broader effort to catalyze efforts to drive more investment into this high-potential sector.
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Published in July 2019