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Opportunities through Value Chain Financing

Product-based Value Chain Finance Using Grain Warehouse Receipts Calvin Miller Senior Officer, Agribusiness and Finance Group AGS Division, FAO. Opportunities through Value Chain Financing. What is a Value Chain?.

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Opportunities through Value Chain Financing

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  1. Product-based Value Chain Finance Using Grain Warehouse Receipts Calvin Miller Senior Officer, Agribusiness and Finance GroupAGS Division, FAO Opportunities through Value Chain Financing

  2. What is a Value Chain? The full range of activities required to bring a product or service from conception through the various stages of production and delivery to final consumer. A value chain includes all actors including producers, processors, suppliers, wholesalers and retailers and consumers. A value chain is defined by its particular consumer segment.

  3. Value chain finance – financial products and services flowing to and/or through a VC to address the needs of those involved in that chain, be it a need for finance, a need to secure sales, procure products, reduce risk and/or improve efficiency within the chain. Defining Value Chain Finance VCF Approach – to understand the value chain and its participant needs and structure finance and services to best address them. • Objectives: • Align and structure financial products to fit the chain • Reduce costs and risks of finance

  4. Financial Service Support Value Chain Actors Institutions Services Exporters / Wholesalers Banks Technical Training Processors Non - bank Financial Institutions Business Training Local Traders & Processors Private Investors & Funds Specialized Producer Groups Services Cooperatives / Associations Farmers Local MFIs / Governmental Community Orgs Certification/Grades Input Suppliers Product Flows Financial Flows Using the Value Chain for Financing Agriculture

  5. Producer-driven Buyer-driven Facilitator-driven Integrated Value Chain Business Models For value chains and value chain financing, a business model refers to the drivers, processes and resources for the chain. Four types of business models:

  6. Value Chain Finance Tools/Products 1. Product Financing 2. Receivable Financing 3. Physical Asset Collateralization 4. Risk Mitigation Products 5. Financial Enhancements

  7. Physical Asset Collateralization Concept • The borrower uses an asset as a negotiable collateral (whether physical or financial) • The assets can be pledged, or physically transferred • The borrower reserves the rights to the proceeds of the assets • The creditor may dispose of the property when the borrower defaults on its payment obligations • Financial instruments • Warehouse receipts (inventory-backed financing) • Leasing finance • Buy-back agreements (Re-purchase agreements, “repos”)

  8. VCF Lessons Financial Service Providers • Understanding: • the value chain • the market • the value chain client and partners • Assessing: • risks • competitiveness • relationships and processes • rationale and needs for financing by those in the chain • Structuring financial services: • according to the business model and strengths of VC participants • adapting and applying appropriate financial products and services • combining products and payments to reduce cost and risk • linking with complementary support services, e.g. warehouse managers

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