According to the UN forecast, the world population will reach 9,1 billion people by 2020. In order to feed all the people, the world food production must grow 70% by that time.
The agricultural sector occupies circa 10,5% in the Ukrainian GDP while the share of agricultural products and raw materials for their production constitutes nearly 41% (data: 2015)
The share of agricultural credits in the whole volume of credits to legal persons is about 7,3% (data: 01.07.2016)
According to the Ministry of Agrarian Policy and Food of Ukraine, there are more than 40.000 agricultural enterprises in the country. Nearly 10% of all the agricultural companies produce circa 90% of the whole production (indicator of weak efficiency of small farms and of high level of concentration in the field).
Agricultural borrowers in Ukraine may be divided in three groups according to their size and attractiveness for agri-financing:
- Agriculture holdings: more agri-financing is not very attractive for banks
- Medium agricultural enterprises: such companies already work with banks and use agri-financing, but there is still space for credit growth
- Small agricultural enterprises: make almost no use of agri-financing but have the biggest potential for increase of production efficiency
Hence, the most attractive segment for the growth of banks’ credit activity is the one of small and medium agricultural enterprises.
So what are the factors that hold back the development of agri-financing?
Among the principal factors there are: low level of protection of the rights of creditors and investors, high credit costs, high interest rates, absence of reliable statistics on the land use.
As for small agricultural enterprises, the main difficulties are constituted by: distance from the bank to the farm (up to 250 km), specificity of seasonal services, the source for repaying the credit is a product (with up to 9 months of “standby position” for the bank), weather risks of products destruction. All this makes it hard for the bank and the farmer to formalize a credit in 3-5 days.
However, even now bank credits for farmers have become much cheaper in comparison with the last years, with a profitability not inferior to other financial instruments.
In fact, such problems have been discussed during the Agricultural Forum organized by Strategia & Sviluppo Consultants in collaboration with the Independent Association of Banks of Ukraine (NABU) which took place in Kiev recently. The Forum has been supported by IFC, UniCredit Bank, Agroprosperis Bank, Credit Dnepr Bank and other financial companies.
The participants of the Forum - bankers, representatives of international organizations, experts - have discussed the difficulties of agri-financing in Ukraine and the possible solutions. During the Forum several prominent European and national experts have tried to develop practical recommendations for avoiding obstacles in a free cash flow for small and medium enterprises.
Strategia & Sviluppo Ukraine experts - Oleksandr Zhuravel and Liudmyla Tymoshenko - have proposed an efficient model of agri-financing for small agricultural companies and farmers. It consists of two parts: strategy “Win-Win Agrifinance” aimed at needs and interests of the farmers; strategy “Agro-credit” and “Agro-assessment” – modern solutions for advice services for banks and financial institutions on how to organize efficient work with agricultural enterprises. The bankers’ point of view on this topic has been presented by Olena Korobkova – Executive Director, NABU; Natalia Tyhovska – First Vice-President, UniCredit; and Tetyana Poplavska, Head of Sales Management Development in Agricultural Sector, PJSC “Credit Dnepr Bank”.
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