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Opportunities through Value Chain Financing

Learn how value chain finance using grain warehouse receipts can optimize efficiencies and reduce risks for all actors involved in the product's lifecycle. Understand the principles, tools, and lessons in structuring financial services to support value chain actors. Discover the benefits of product financing, receivable financing, physical asset collateralization, and risk mitigation products in agricultural finance.

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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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