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Export restructuring
10 November 2015
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Agricultural complex of Ukraine in conditions of crisis became in 2014 the main driver of domestic exports and, hence, the main source of foreign currency inflow: exports of agricultural products totaled $16.67 billion which is almost 30% of total exports ($53.91 billion). Record pace of expansion into foreign markets is primarily a reflection of the country's potential. We produce more than we consume, and there is a significant demand for food in the world. Not so long ago, Ukraine was famous as "the breadbasket of Europe," but we have all chances to turn the country into "feeding nurse of the planet." The main thing is to set the goal for the industry and to move towards it step by step.

The export success of farmers, even though it is paradoxically, was caused by factors that included setbacks in previous years. When in the early 90's in the structure of export of agricultural products dominated the former Soviet Union, of which the lion's share was presented by Russia, over the years of independence all has changed a lot. Looking for the magic wand, domestic farmers have diversified the directions of the external sales. Now, most of Ukrainian production is bought by China (for the first half of 2015 we earned $783,344 thousand in the market of this country), Arab countries (Egypt $567,805 thousand, Iran - $350,174 thousand, Turkey - $339,332 thousand) as well as countries of the Eurozone (Spain- $340,665 thousand, Netherlands - $265,621 thousand, Italy - $263,708 thousand, Poland - $205,554 thousand). However, the trading range is still dominated by raw materials, mainly by grain crops. The share of processed agricultural goods is increasing every year and now stands at 41% ($6.9 billion). Among them are chicken, cooking oils, juice, honey, jams, chocolate and so on.

What will help to consolidate the success of Ukrainian farmers in the context of the political instability, currency fluctuations, the very low predictability of the financial resources cost? Today, information becomes a key value for the entrepreneur. What kind of crops will be more profitable to grow in the next season? How to get financing for the sowing campaign? How to sell the crops? Infographic guide "Ahroeksporter", which is now being prepared by the team of LatifundistMedia and TopLead with the support of FUIB, is designed to help farmers to find new ideas for business development. You'll learn about the most successful agricultural exporters of the world, about what helped them succeed, what financial instruments they use and which ones you can use in Ukraine. You should definitely acquire this "crib sheet on export"!

As a banker, I am often asked about how the bank helps the agrarian manufacturers? Throughout the world, including in Ukraine, there are only three key types of financing for farmers: seasonal financing, one for the purchase of machinery and trade financing. But the conditions of our economy make them specific in some aspects.

Seasonal financing. Because of the large gap in time between the planting and sale of products, an agrarian does not always have enough money to cover their own production needs, and they often turn to the bank for a loan for a period of 12 to 18 months. Despite the fact that the Ukrainian farmers traditionally lack liquid collateral, banks have learned to work with them, taking grain and agricultural receipts as collateral. If the enterprise is profitable, and regularly repays the loan, the bankers will crowd at its door, even in such difficult times as we have now. But according to the Ministry of Agricultural Policy, for the spring sowing campaign of 2015 farmers spent 63 billion UAH, of which only 8.4 billion UAH were bank loans, and the remainder came from agrarians' own funds. This is not surprising, because the cost of loan now is so high, that it will make the work unprofitable, even in the case of very efficient agrarians. Therefore, in this spring, bank bills of exchange, a relatively forgotten but effective instrument, have been used again. With the bills the farmers could get a trade loan from suppliers of seeds and crop protection goods. The bill has made it possible to partially solve the problem of underfinancing of the sector by the banks. There are no precise data on the amount of bills issued by agrarians, but it can exceed 1 billion UAH. FUIB alone has issued bills in the amount of 100 million UAH since the beginning of this year.

Financing for the purchase of machinery. This type of lending has practically vanished this year. When an agrarian can return a seasonal loan in a year or a year and a half, then this loan is repaid over several years. Over the last 1.5 years, the financial forecasting horizon of banks declined, no kidding, down to one month! Under such circumstances, it is not possible to provide a loan for several years without endangering the stability of the bank. So now it is possible to buy the machinery actually only for own funds or from leasing companies.

Trade financing. Ukrainian farmers prefer to hold their crops in anticipation of more favorable prices. And while waiting for this price, one can take a loan from the bank for a replenishment of working capital for a period of 1 to 6 months upon the security of these crops. In Europe, in contrast to Ukraine, this type of lending is not common. European farmers prefer to have a clear forecast of the price of harvest, even though it may not promise big profits. To do this, they conclude contracts for the export of products to traders, which provides financing to farmers for a period of several months.

In the next few months under the project "Ahroeksporter" we will tell you about other financial instruments for farmers, which are working successfully in other countries and may appear in Ukraine in the coming years. Subscribe to the guide and find new ideas for business!

Source: agricultural portal Latifundist


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