Distinct Financing Phases

1. How can we get more financing into Russian AgricultureRussian agriculture and its place in the world: challenges & opportunities6 September 2010

2. Harvest Distinct Financing Phases PRE HARVEST POST HARVEST

3. Harvest What can the farmer provide as security? • Pre-Harvest: • Land & buildings • Machinery • Future Crop • Post-Harvest: • Same as pre-harvest • + • Crop

4. What is the security value for banks today? • Pre-Harvest: • Land & buildings Some but difficult to enforce and value is volatile • Machinery Significant good second hand market • Future Crop Limited difficult to perfect, enforce and monitor • Post-Harvest: • Crop Significant transparent and efficient market

5. How can this be improved? By increasing the ‘value’ of the farmers assets which he/she can provide as security, through clear and specific legislation, which allows for these assets to be provided as security and should problems occur, are easy to enforce for the Banks

6. What is EBRD doing? • EBRD is assisting the Russian Grain Union in preparing specific warehouse receipt legislation which will: • Strengthen the title document to agricultural commodities stored in warehouses • Provide for certification of warehouses and as a result improve standards • Create an indemnity fund to cover the fraud risk at the warehouses • Increased access to financing as warehouse receipts are easier to enforce, compared with current moveable pledge

7. What else would EBRD like to do? Introduce specific legislation which enables farmers to use their future crop as security, as it is being successfully done in Brazil today

8. Brazil’s Experience • Lending against future crop, based on specific legislation introduced in 1994, have increased steadily and today annual financing exceeds $5bn • Financing is provided by: • Input suppliers - in return for purchasing their goods • Off-takers – to secure future deliveries • Local banks – small to large scale farmers • International banks – pre-export financing from growing, through to storage through to export

9. Key Pillars of Future Crop Legislation 1. Inspection Right The lender or its agent shall have full access to the farm and fields during the life of the loan. Experience from Brazil is regular monitoring throughout the growing phase and 24 hour inspection during harvesting. 2. Longevity of pledge The pledge remains in force until the debt is fully repaid, i.e. if the production from the coming season does not repay the debt, the pledge (and its ranking) remains in place for future seasons.

10. Key Pillars of Future Crop Legislation 3. Acts of God or Force Majeure Can not be used as an excuse to not repay the debt 4. Priority Clear priority to proceeds from enforcement should be identified and should preferably be (1) court enforcement costs; (2) bank debt (in order of registered priority); (3) unpaid taxes of owner; and (4) owner or owners estate. 5. Central Registry One registry for registration of all Crop Receipts with on-line access to check priority and existing pledges

11. Key Pillars of Future Crop Legislation 6. Easy Enforcement The key success factor from Brazil is the easy enforcement, whereby enforcement decisions are reached within 24 – 48 hours and there is very limited (if practically no) ability of the borrower to object.

12. Conclusion Although the above instruments are clearly not the ultimate answer to farmer financing, we strongly believe that these instruments will greatly enable increased liquidity for the food chain