1 Agricultural Finance in Ukraine: Potential and Challenges AGRO 2012 International Exhibition Fair September 6, 2012 Kyiv, Ukraine
Content 2 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
Excellent agro-climatic conditions but low productivity and yields 3
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%
Growth since 2000 5 Average growth of Gross Agricultural Output (GAO) of 3.2% per year 2010 2000 Share in total exports from 12.0% to 19.3%
Content 6 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
Overall objective 7 Demand Supply Gap Solutions Reasons
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
Two stages of demand assessment 9 qualitative quantitative Focus groups Regional survey 784 respondents
Content 10 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
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
Demand survey results (2) 12 3. 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 13 24 mos 25 60 mos more than 61 mos
Demand survey results (3) 13 4. Leasing and insurance remain unpopular: Have experience or interested with leasing No interest in crop insurance
Content 14 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
Agriculture & food sector gain importance for banks 15 2011 2010 Source: NBU, loan portfolio at year end
The agrilending market is very concentrated 16 Source: 2010 Annual Reports
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 1,550 350 13,150 Private farms avg 100 ha Producers with limited access 42,100 Rural households avg 2 ha 5,750,000 Size Number
Imported agrilending experience 18 dedicated loan officers special IT solutions not only financial but also technical assessment
Content 19 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
Key challenges for agrifinance 20 1. Risk management seasonality price volatility targeting financial literacy lack of collateral
Key challenges for agrifinance 21 2. Political risks investment climate import restrictions export restrictions regulation land market reform
Key challenges for agrifinance 22 3. Low efficiency/high transaction costs lower density lack of infrastructure
Content 23 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendation
Is agriculture that risky?! 24 Insufficient understanding Overestimated risk High interest rates
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
Agriculture is a universe of its own 26 Corporate SME Agro Retail R & D Marketing Sales Underwriting
Content 27 Introducing agriculture Scope of research Demand: current situation Supply: current situation Key challenges Solutions Study recommendations
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
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
Value-chain financing is promising (1) 30 Processor Bank Financing through processors: dairy sector fruit and vegetables Farmer Farmer Farmer
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
Technical assistance is needed 32 Key: 1- not important 2- important 3- very important
Agrilending has never been a low hanging fruit for lenders 33 but with proper tools and knowledge, one can get up there
34 Thank You! Questions? BFC Consulting Training Research Investment Analysis Max-Högger-Strasse 6 Phone: +41 44 784 22 22 info@bfconsulting.com CH-8048 Zurich, Switzerland Fax: +41 44 784 23 23 www.bfconsulting.com