How to finance future harvest?

AgroTimes March 2021

As the spring rolls around, the field works restart. Agrarians must do a lot in a very short time. Not only is this process labor-intensive, but it requires serious financial investments. Among many issues arising before the new sowing season, the most relevant one is how to finance costs.  Traditionally, it makes sense to divide long-term and short-term expenses by funding sources. Own funds, commodity loan, bank loan – each of these resources have their cost, tenor, and limitations. Credit Agricole experts tell about the wide range of financial products of the bank aimed to cover agribusiness’s needs during the sowing campaign period.

Financing current expenses of agribusiness 

Together with the agrarians, banks are getting ready to the new sowing season.

Natalia Porvina, the Head of Agribusiness Support Department of Credit Agricole Bank: “As bank experts have accumulated significant experience in cooperation with agribusiness, we can provide this client segment with the tools adapted to the specifics and peculiarities of the agrarian market. We understand special aspects and risks inherent in agriculture, and we developed comprehensive solutions that include expert support by the bank and cover all the needs of agrarian companies. With respect to the current seasonal expenses like purchase of seeds, fertilizers, and crop protection agents, we propose tried and tested and effective tools”. According to the expert, working capital finance is the most demanded product. Credit Agricole offers loans up to 18 months with debt repayment schedule adapted to the agrarian cycle.

In the recent years, there has been a high demand for trade finance tools: bill avalization and banking guarantees that are traditionally much cheaper than the classic lending.

Credit Agricole was among the first banks that implemented a special banking product for agribusiness in Ukraine: bill avalization to pay for seeds, crop protection agents, and fertilizers. This tool is attractive for agrarian producers as it is easy to complete. Having said that, the avalization of the bill by the bank makes it as reliable as the classic bank guarantee. “Additional benefits can be obtained from participation in partnership programs of the bank on bill avalization for purchase of seeds and crop protection agents from leading producers. Under some programs, the cost of finance is only 1% of the bill amount, and there is no fee for funding limit setting”, adds Natalia Porvina.

Another good reason to apply to the bank for trade finance is the willingness of the clients to manage and mitigate their risks.

Vladyslav Berezhnyi, Head of Trade and Structured Finance Department of Credit Agricole Bank: “International producers and large Ukrainian distributors play key roles in the market of crop protection agents. To support sales, big selling companies have strong commodity and monetary resources, vast experience, statistics of settlements, etc. This creates the basis for trade finance. On the other hand, producers and distributors are ready to provide large volumes of products against a loan expecting a successful harvest. But in many cases, to manage risks and to finance a company’s trading activity, the companies apply to banks. Credit Agricole is a reliable partner to both buyers and sellers in the Ukrainian market of agricultural production resources. We can take into account the interests of various parties of the deal thanks to the trade finance tools than combine settlement, guarantee and credit transactions”.   

According to the expert, one of the services popular among agrarian companies is a bank guarantee of payments for seeds, crop protection agents, fertilizers, fuel, and other items required for the successful start of the sowing campaign. To provide a guarantee, the bank has to assess the buying company, its current and future financial situation, and risks of the respective market segment.

“This is an interesting example of how the bank creates additional opportunities for the client without providing cash funds. In case of the guarantee, the bank upon request of the client gives commitment that the payment will be received in time, advance payment will be refunded, and all terms and conditions of the contract will be performed”, tells Vladislav Berezhnyi. 

The expert notes that the conditions on which the bank provides trade finance depend on the financial position of the client, its experience in the respective trade segment, and history of previous transactions.  

Partnership programs

Through a range of its partnership programs, Credit Agricole satisfies all needs of the business within the agrarian cycle on a comprehensive and beneficial basis. The bank finances purchase of seeds, crop protection agents, fertilizers, fuels and oils, agricultural machinery and equipment.

“Getting ready to the start of the new sowing season, we significantly expanded the list of partnership programs having signed new deals with the key players of various market segments. In particular, at the end of 2020, together with our partners we launched bill avalization at 1% for payment for seeds and crop protection agents. We have also signed a new partnership program with one of the largest operators of liquefied gas supply to Ukraine and a powerful supplier of oil products GK “Nadia” (BVS network). Now our agrarian clients can promptly get funding for purchase of fuels and oils”, tells Natalia Porvina.

There is also a big demand for partnership programs aimed at financing investment needs of agrarian companies. As part of the partnership programs, the bank offers beneficial conditions of financing agricultural machinery and equipment. Partners of Credit Agricole include leading market players: Claas, John DEERE, KUHN, LEMKEN, POTTINGER, MZURI, VERSATILE, Väderstad, etc.  

Leasing  

With respect to alternative investment finance tools, last year Credit Agricole proposed agrarian companies to acquire agricultural machinery through leasing. Representatives of the bank shared why leasing is interesting for the business. At first, it allows the company to use its working capital more rationally. Fixed assets can be acquired through leasing, and the released funds can be used for finance of such important balance sheet items as inventory, marketing, research and development, etc.  At second, credit lines provided by the bank to the business have some limitations, specifically, collateral requirements. With leasing, the agrarian company, in fact, opens new credit lines that normally do not require any additional collateral, and the opportunities of current (and future) bank loans are retained. At third, leasing conditions can be adapted to any financial model of the company: the bank offers both standard and seasonal repayment schedule, as well as a tailor-made schedule developed in accordance with the cash flows of the agrarian company. Moreover, the customer avoids the risk of currency rates fluctuation as lease agreements are based on a fixed rate.

“And even more: leasing is the possibility to get the machinery within the shortest time possible. Our agrarian clients that have already tried this service know how convenient it is”, adds Natalia Porvina.

Signing of partnership agreement with Winner Leasing

Credit Agricole – strategic partner to agrarians

Credit Agricole knows and understands agribusiness as it has a strong expertise in this area. “Credit Agricole Group was founded 130 years ago as a bank for farmers. In the corporate portfolio of Credit Agricole Ukraine, the share of agrarian sector exceeds 50% while the land bank of all our clients represents about 10% of the total land bank of Ukraine. We build long-term relations with clients offering them a combination of agrarian and financial expertise, as well as innovative solutions. As a result, a quarter of agroclients has been staying with us for more than 10 years. We keep expanding our expertise, inter alia, thanks to our own educational project “Agro School”, in the framework of which there have already been two graduations, and 50 employees of the bank gained unique theoretical knowledge and practical skills in the area of agribusiness”, Natalia Porvina comments. By the way, the project was recognized as “The Best Leadership Development Program” by the HR Brand Premium Ukraine 2020.   

Agribusiness is being actively developed in Ukraine, and distribution markets are being expanded. Year-to-year, the agrarians improve their performance, implement and use new technologies, acquire advanced international experience of running and managing business. “Credit Agricole is proud to contribute to such success stories. The bank now serves more than 3,000 customers of the agricultural sector, including multinational corporations, large agro-holdings, medium-sized agricultural companies, and small farming entities. We have a powerful base to support further development of agribusiness”, adds Natalia Porvina.