Agricultural Finance in Ukraine: Potential and Challenges. AGRO 2012 International Exhibition Fair September 6, 2012 Kyiv, Ukraine

Transcription

1 1 Agricultural Finance in Ukraine: Potential and Challenges AGRO 2012 International Exhibition Fair September 6, 2012 Kyiv, Ukraine

2 Content 2 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

3 Excellent agro-climatic conditions but low productivity and yields 3

4 Important role of agriculture 4 (2010) Primary agriculture Food processing Share in employment 6% 4% Share in GDP 7.2% 8% + all supporting sectors 25% of GDP Share in loan portfolio 5.3% 5.9%

5 Growth since Average growth of Gross Agricultural Output (GAO) of 3.2% per year Share in total exports from 12.0% to 19.3%

6 Content 6 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

7 Overall objective 7 Demand Supply Gap Solutions Reasons

8 The value chain approach was used 8 Banks 11 CU Assoc. 1 Leasing 2 Insurance 1 VC developers 3 Int l projects 7 Governmental 5 Source: R. Kosodiy, A. Bondarenko, Value Chain Approach to Rural Finance, IAMO Forum 2008

9 Two stages of demand assessment 9 qualitative quantitative Focus groups Regional survey 784 respondents

10 Content 10 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

11 11 Demand survey results (1) 1. Informal borrowing is widespread 2. Farmers prefer banks but are cost-sensitive Never taken a loan Friends or family are primary sources of credit Would go to banks Loans for <1 year

12 Demand survey results (2) Different subsectors have different time horizons: Crop production 82% 65% 17% Animal husbandry 23% 51% 28% 44% Processing 40% 80% 40% Services 25% 63% 38% 38% less than 12 mos mos mos more than 61 mos

13 Demand survey results (3) Leasing and insurance remain unpopular: Have experience or interested with leasing No interest in crop insurance

14 Content 14 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

15 Agriculture & food sector gain importance for banks Source: NBU, loan portfolio at year end

16 The agrilending market is very concentrated 16 Source: 2010 Annual Reports

17 Lenders miss smaller clients 17 Large enterprises 3,000+ ha State-owned agri enterprises avg 2,500 ha Private agri entities avg 1,000 ha Preferred clients 1, ,150 Private farms avg 100 ha Producers with limited access 42,100 Rural households avg 2 ha 5,750,000 Size Number

18 Imported agrilending experience 18 dedicated loan officers special IT solutions not only financial but also technical assessment

19 Content 19 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

20 Key challenges for agrifinance Risk management seasonality price volatility targeting financial literacy lack of collateral

21 Key challenges for agrifinance Political risks investment climate import restrictions export restrictions regulation land market reform

22 Key challenges for agrifinance Low efficiency/high transaction costs lower density lack of infrastructure

23 Content 23 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendation

24 Is agriculture that risky?! 24 Insufficient understanding Overestimated risk High interest rates

25 25 Understand the business improve your risk assessment get grip on your costs Solutions in risk management: risk assessment tool capacity building targeting/benchmarking Solutions in operational efficiency: reduce transaction costs per borrower

26 Agriculture is a universe of its own 26 Corporate SME Agro Retail R & D Marketing Sales Underwriting

27 Content 27 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations

28 Potential for seasonal loans 28 Crop production: Total crop land Annual working capital needs Total annual working capital needs Self-financing rate of 50% (assumed) Additional annual working capital needs Current supply (estimated) Additional annual market potential 27.5 million ha USD 300 per ha USD 8 billion USD 4 billion USD 4 billion USD 2 billion USD 2 billion

29 Leasing s growth perspectives 29 Agricultural machinery: Tractors Combines Total number (2009) Replacement cost Total replacement cost 80% replacement cost Total replacement needs Annual market potential Current supply (est.) Additional annual potential 318,788 USD 90,000 56,580 USD 180,000 USD 28.7 billion USD 10.2 billion USD 23.0 billion USD 8.0 billion USD 31 billion USD 5 billion USD 1.5 billion USD 3.5 billion

30 Value-chain financing is promising (1) 30 Processor Bank Financing through processors: dairy sector fruit and vegetables Farmer Farmer Farmer

31 Value-chain financing is promising (2) 31 Input supplier (participant) Partner bank IFI (participant) 1/3 risk 1/3 risk 1/3 risk first loss guarantee Farmer Partner bank (agent) Farmer Farmer Financing through input suppliers: seeds agro-chemicals fertilizers

32 Technical assistance is needed 32 Key: 1- not important 2- important 3- very important

33 Agrilending has never been a low hanging fruit for lenders 33 but with proper tools and knowledge, one can get up there

34 34 Thank You! Questions? BFC Consulting Training Research Investment Analysis Max-Högger-Strasse 6 Phone: info@bfconsulting.com CH-8048 Zurich, Switzerland Fax: