how finance can foster the food chain...brescia, 11-12 june 2015 how finance can foster the food...
TRANSCRIPT
Calvin Miller
Group leader, Agribusiness and Finance
Food and Agriculture Organization of the
United Nations (FAO)
Rome, Italy
INTERNATIONAL BANKING FORUM 2015
Brescia, 11-12 June 2015
How finance
can foster the
food chain
2 2
Presentation focus
I. Food security and imperative for food growth
II. Changing role of agriculture
III. Agricultural credit and potential
IV. Agricultural value chains and AgVC finance
V. Addressing the risks
VI. Meeting the needs and opportunities of small farmers and SMEs
VII.Investing in food value chains
3 3
Source: FAO, 2015
Agriculture is profitable; the trends are right; risk is manageable
4 4
Urbanization – growing need for food transformation
UN Department of Economic and Social Affairs, 2014
5 5
Sustainability – a growing investment challenge
• Water scarcity
• Bio-tech
• Land use and ownership conflicts
• Food vs fuel
• Animal rights
• Indigenous rights
• Conservation and recycling
• Deforestation
• Energy consumption and renewal
6 6
Value Added Gap & Investment Opportunities
200000
100000
0
300000
400000
800000
700000
600000
500000
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Low income
Lower middle income
Upper middle income
High income
Agriculture value added by year and income levels
7 7
Financial services must be inclusive to address food security
8 8
Agriculture Share of Credit by region, 1991-2013
0
2
4
6
8
10
12
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Ave
rag
e A
gri
cu
ltu
re S
hare
of
To
tal C
red
it, %
Africa Asia & Pacific Europe
Latin America & Caribbean Other Developed World
9 9
Private investment is increasing
Agricultural capital stock in Asia, LAC and Africa (in millions of 2005 USD)
Latin America and the Caribbean
820000
800000
780000
760000
740000
720000
700000
680000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Asia 2200000 2150000 2100000 2050000 2000000 1950000 1900000 1850000 1800000 1750000 1700000
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Africa 600000
500000
400000
300000
200000
100000
0
Source: FAOSTAT
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
10 10
Private and public investment in agriculture
Components of agriculture investment for a sample of 31
developing countries
Source: ODI, 2012
11 11
Where do we invest in the VC?
Inp
ut
Su
pp
ly
Production Processing Wholesale Retail
Co
ns
um
er
11
12 12
Basmati rice value chain map in Pakistan
12
13 13
Defining Value Chain Finance
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.
Objectives:
Align and structure financial products to fit the VC
Reduce costs and risks of finance
14 14
A food systems approach
Financial Services
Input Suppliers
Growers
Food
Processing
Industries
Food
Retail
Industries
Business Support Services
Production Agri-food industries
Operating Environment
Transport Storage
Services
Logistics & VC services
Input
Suppliers
Financial Services
VCs are transformational, not just transactional
15 15
Understanding the risks
Growing Storing
Production
Price
Operational
Financial
Institutional
Infrastructure
Quality control
Technology
Logistics
Seasonal glut
Processing Marketing
Infrastructure
Storage
Price
Product loss
Govt. policy
Technology
Procurement of
produce and
goods
Human resource
Product quality
Input
Supply
Quality
Availability
Infrastructure
Knowledge
Financial
16 16
Addressing risks
Key risks Risk mitigation Risk mitigation Risk tools
• Improved and resistance seeds
• Input supply financing
• Leasing and equipment financing
• Irrigation and long-term financing
• Cash flow based tailored lending
• Warehouse receipt financing
• Crop, animal and other insurance
• Index-based weather insurance
• Value chain linkages & contracts
• Market information
• Credit bureaus
Production
practices
• Price and
market risk
• Weather risk
• Production
risk
• Collateral risk
• Human risk
• Competitive-
ness risk
• Price and
market risk
• Weather risk
• Production
risk
• Collateral risk
• Human risk
• Competitive-
ness risk
Market
management
Financial
innovation
and tailoring
Client/
business
assessment
• Hedging and forward contracts
• Futures and options
• Buffer stocks
17 17
Using food price monitoring for food security and
investment risks and opportunities
FAOstat data
18 18
Pakistan Crop Information Portal
• Agriculture Information System project – building
capacity of provincial governments to timely collect,
analyze and report agricultural information.
• The Portal – web access for historical archive and current
crop and agro-meteorological data, integrated with
satellite based information into a GIS like environment.
National information services
19 19
Portal Outputs
20 20
Insuring catastrophic and non-catastrophic risks
Source: Adapted from Carter et al. 2014
Self-coping risk layer
Commercial risk layer
Catastrophic risk layer
21 21
Category Financing instrument
Agricultural product based • Trade credit
• Input supply credit
• Marketing company credit
• Lead firm financing / contract farming
Receivable based • Trade receivable finance
• Bill discounting
• Factoring and reverse factoring
• Forfaiting
Physical asset based • Warehouse receipts system
• Re-purchase agreements
• Leasing
Categories of AgVC financing instruments
21
22 22
Type of product Financial instrument
Risk mitigation • Insurance
• Forwards contract
• Futures
Financial enhancements • Securitization
• Loan guarantees
• Joint ventures
There are multiple agricultural value chain financing instruments
to consider; often to be used in conjunction with one another.
Financing Instruments
22
23 23
Parafinanciera
service provider
Bank/
Non-bank financial
fnstitution
Individual
producers
Family
groups
Civil Society
90 days 8 days
Financial institution - Parafinanciera
Line of credit
Parafinanciera - Producer
Individual credit
Producer
organizations
FIRA parafinanciera credit delivery mechanism in Mexico
24 24
FIRA Mexico Summary of the FIRA para-financiera system
25 25
• Receivables financing is one of the fastest growing financial services
with annual global transactions of USD 2.3 trillion dollars.
• “Reverse Factoring allows us to accelerate payments to Suppliers at
extremely fast turn-around-times, and provide timely liquidity for
entrepreneurs to build and grow their businesses ,“ Chairman,
eBiashara, Kenya, whose IT platform allows banks to offer on-line
invoice discounting services that can process hundreds of invoices
simultaneously at low cost
Receivables financing
Adapted from Financial Access
Supplier
Buyer
Ag corporate client
Factor/
Bank
Supplier Supplier
Reverse Factoring
Supplier
Buyer
Ag SME
Buyer Buyer
Factor/
Bank
Factoring
26 26
BRAC Bank
BRAC Cold Storage Potato farmers
Potato seed dealers
Wholesaler
Buyers/Farmers
Home Consumption & Seeds
Potato production
Sales by Farmers
Seeds & inputs
Financing
Financing
Financing
Financing Loan
Repayments
Payment
Payment (Service Charge)
Seed Payment
Potato production, cold storage, finance and
marketing - BRAC, Bangladesh
27 27
Finance and investment opportunity
Cold storage -- rapid development of cold stores for potatoes in
India and Bangladesh is raising farm prices and reducing
seasonality for consumers
• In western Uttar Pradesh, India from 5% cold storage in 1990,
40% start in 2000 to 73% in 2009; also now in the poor Bihar
state
• Cold storage centers are an important conduit for providing
credit to farmers
There is a “perfect storm” of cities, roads, electricity, new
varieties, irrigation and partial subsidies leading to growth in
private investment and financing n the agricultural VCs
28 28
The challenges
Warehouse capacity
29 29
The management
The challenges
30 30
Ethiopia blended approach to AgVCF Inclusion
Companies
Farmers / groups
BDS providers
MFIs
Commercial Banks
Terrafina Local
NGO
Rabo Advisory
Services
FAO & Int NGOs
Rabobank (guarantee) Rabobank (loans)
Adapted from Harms
31 31
Useful Websites
www.fao.org/ag/ags
www.ruralfinanceandinvestment.org
Grazie