New perspectives

Cartagena 18 Oct 2013

Agri Revolution

MICHAËL DE GROOT

Global Challenges

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Financing the Agricultural Value Chain

The experience of an international bank in building and integrating a more efficient agricultural supply chain environment.

Rabobank’s position in the agricultural value chain

Four examples:

i. Rural Fund / Guarantees

ii. Warehouse Receipt Finance

iii. Integrated Agriculture Finance Structure

iv. Ownership Based Financing

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Credit needs of Value Chains

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I Rabo Rural Fund (guarantees)

In many (developing) countries the agricultural sector lacks sufficient and affordable financing:

o Limited involvement of local banks

o Heavy collateral conditions/ and high financing costs

o Transaction size often too small for foreign banks

o High dependence on expensive intermediaries

However: Increasing long term off-take commitments from food processors and retailers

Premium prices for special and sustainable products

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RABO Rural Fund Local Intermediary Lender

TRIANGULAR AGREEMENT

Eligible Borrowers

(Certified Producers)

Credit Appraisal

Credit

RABOBANK

(i.c.w. Dutch Ministry of Foreign Affairs/DGIS & NGOs)

Fund-management + Participation Funding

Collateral

Guarantee (25-85 %)

IN CASE OF CLAIM

I Guarantee structure

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II Warehouse Receipt Program

Warehouse Receipt Program, to allow agricultural producers and processors to obtain working capital by using agricultural products stored in licensed warehouses as collateral.

Based on:

Creation of appropriate legal framework

Out-of-court enforcement procedures

Certification of warehouses

Organization of Indemnity Fund

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II Warehouse Receipt Program

The implementation has been very successful, with

substantial increase in finance activity.

It provides good platform for financial institutions

including Rabobank to expand exposure and increase

liquidity in the agricultural value chain.

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III Integrated Agriculture Finance Structure

“from crop to cup”

Objectives:

Risk mitigation for farmer financing

Secure good quality raw material for processors

Improve market position for equipment suppliers

Effective involvement of the bank in the

agricultural value chain

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Mechanism:

Down-payment by the farmer

Repurchase agreement from equipment

supplier

First loss guarantee from processor

Insurance and maintenance contract

III Integrated Agriculture Finance Structure

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IV Ownership Based Financing of Agricultural Commodities

Objectives:

Mitigate legal and regulatory issues

Improve the company’s balance sheet structure

Conditions:

Liquid commodity markets

Effective risk mitigation: price risk hedging,

quality certification, warehousing, collateral management

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Thank you, Michaël de Groot