Following a successful pilot, the IFC, in partnership with the Swiss and Ukrainian governments, is rolling out crop receipts across Ukraine to enable better access to financing for small-scale farmers.
Crop receipts are a pre-harvest financial instrument which allow farmers to use future harvests as collateral, enabling them to purchase high-quality seeds and other essentials.
They are promissory notes to deliver a certain quantity and quality of agricultural produce at a defined future date, writes law firm Norton Rose Fulbright in a note published on its website. “By purchasing the crop receipt, the buyer pre-finances the production of the crop and is repaid at the delivery or expiry date of the receipt. Crop receipts can be issued by farmers, co-operatives or agro-processors and purchased by input suppliers, offtakers, banks or financial investors.”
The instrument is expected to facilitate up to US$520mn for Ukraine’s agricultural sector over the next two years. The nationwide roll-out follows a pilot project in eight Ukrainian regions which began in 2016. Over two hundred crop receipts valued at over US$53mn have been issued since then.
As part of the development of the project, the IFC has also worked with the Ukrainian government to develop the necessary legislation and create a registry to track crop receipts easily and transparently.
Switzerland’s State Secretariat for Economic Affairs (Seco) is providing financial support for the project.
“Ukraine has the potential to become a global agribusiness leader,” says Jason Pellmar, IFC’s regional head for Ukraine, Belarus and Moldova. “Our aim is to encourage more private investment to unlock that potential, expanding access to finance for smaller farmers and fostering innovation in the farming sector.”
Crop receipts have been successfully used in a number of countries. Last year Norton Rose Fulbright announced that it was advising the IFC and the Food and Agriculture Organization of the United Nations (FAO) on a feasibility study relating to the introduction of crop receipts in Africa using Zambia and Uganda as pilot jurisdictions.
According to the law firm, there are two basic types of crop receipts:
- Physical crop receipt: A promissory note by a producer to deliver a specified quantity of commodity, of specified quality, at a specified location, on a given date.
- Financial crop receipt: A promissory note by a producer to deliver the cash equivalent value of a specified quantity of commodity, of specified quality, on a given date – two variants:
- Fixed price variant: the repayment amount is set in advance;
- Indexed price variant: the repayment amount is indexed against a commodity price that prevails on the specified date.
The IFC says it will continue to work to attract new creditors, introduce crop receipts in organic and non-export-oriented agricultural sectors, and support legislation to make crop receipts a tradeable security.