This document discusses agricultural finance and risk management. It provides examples of different agricultural finance structures like emerging farmer finance schemes, value chain finance, warehouse receipt finance, and crop promissory receipt finance. It also discusses key risks in agriculture like weather, pests, and price/market risks. Mitigation strategies are described like production contracts, futures, options, and intermediaries that provide price risk management services. Enabling conditions for agricultural finance are outlined like the legal framework, infrastructure, skills, and value chain organization.

1. Elies Fongers
Senior Project Manager
RIASAgribusiness Advisory Services
Managing Production and
Marketing Risks to enable
Agricultural Finance

2. 2
Rabo Development within the
Rabobank Group
Rabobank Foundation
• StrengtheningCommunities
Rabo Development
• Financial Inclusion
Rabobank Group
• Rabo International
• F&A Banking
• Local Member banks
• Retail banking
• Group entities
• Leasing, insurance,
asset mgt.
Sustainable cooperative banking with involvement in the F&A chain

3. Agricultural finance: positive cash
flow and risk / uncertainty are key
determinants
3
• Yield / ha
• Soil type, soil fertility
• Weather
• Floods
• Pests & diseases
• Farming practices
• Technical skills
• Post harvest losses
• Price / amount
• Quality of produce
• Buyer
• Supply & demand relationships (local,
domestic, regional, world market)
• Business skills
• Cost of production
• Inputs (o.a. seeds, ferts, pesticides)
• Labour (a.o. own labour versus hired
labour)
• Energy (a.o. fuel, electricity, solar
energy)
• Investments in means of production
• Animals and trees
• Machinery
• Irrigation
• Land and buildings
• External financing
• Working capital facilities
• Term loans
• Own consumption / farmer income
Cash in Cash out

4. Since the cost structure is
relatively fixed, production and
marketing risks are important
drivers of uncertainty
4
• Good farmers can realise 10 – 20% higher yields
• Established relationships between farmers and off-takers result in
secure market and reduce uncertainty
• A floor price and / or fixed price reduce uncertainty as well
-> Good farmer selection + formalised value chain relationships and/or
price risk management enable agricultural finance

5. However, there are always risks
that cannot be fully mitigated
5
• Examples
• Weather risks
• Pests & diseases
• Floods
-> Financiers need to accept these inherent risks

6. Key mitigants for market and/or
price risk
6
• Physical contracts
• Fixed price
• Price to be fixed
• Minimum price contracts
• Crop Promissory Receipts
• Combination of physical contract + pledge over crop in the field
• Fixed price, price to be fixed, etc
• Improved collateral position of the financiers
• Different elements can be traded seperately (price, goods, credit risk)
• Futures and options
• Exchange traded: phyiscal contract and/or price risk management tool
• OTC: price risk management tools

7. Example I: Emerging farmer
finance schemes
7
• A financing approach incorporating technical assistance on business
management and agronomics
• Purpose of finance is combination of mechanisation financing and
working capital
• Focus is on farmers with;
• Minimum three year track record
• Entrepreneurial character
• Growth ambitions
• Adequate equity
• Minimum farm size (depending on sector)

8. Example II:Value chain finance
structure
8
Coop 1
Coop 6 Coop 7 Coop 8 Coop 9 Coop 10
Coop 2 Coop 3 Coop 4 Coop 5
Paddy rice supplied to UCORIBU
18,000
members
BANK
UNION input loan
+
acquisition
loan
paddy
proceeds

9. Example III: WHR finance
9
1.Farmer deposits grains
2.Farmer borrow
against the grains
5.Exporter
receives grains
from warehouse
4.Exporter un-
pledges grains
from bank
3.Farmer Sells
grain to trader
CP
CT
CT
CP
CT
Loan
Payments
CP CP

10. Example IV: CPR finance in Brasil
10
• The system was developed in the early 1970’s
• Answer to special circumstances: no collateral available plus mercantile
contracts were difficult and slow to enforce
• Crop Promissory Receipts: mercantile contract, fixed quantity, fixed
price or price to be fixed, easy and cheap to register and good
enforceability
• Adopted by small scale and large scale farmers in well organised value
chains
• Over time the market for CPRs has become more advanced

11. Example IV: Price risk
management services through
intermediaries
11
-> accessible to large(r) range of clients, characteristics of insurance policy,
lower operational risks, no / less cash calls

12. Contacts
12
Rabobank
Office address – NL
Croeselaan 18/28
3521 CB Utrecht
Postal address
P.O. Box 17100
3500 HG Utrecht
The Netherlands
RABO DEVELOPMENT/RIAS
Agribusiness
Hans Bogaard
Head Agribusiness
T. +31 30 21 30073
M.+ 31 6 515 03468
J.J.Bogaard@rn.rabobank.nl
René Verberk
Senior Project Manager
M. +31 6 10938714
R.G.F.Verberk@rn.rabobank.nl
Pierre Schonenberg
Senior Project Manager
M. +31 651001143
P.G.A.M. Schonenberg@rn.rabobank.nl
Wim Verzijlenberg
Cooperative expert
M.+31 615092978
wverzijlenberg@hotmail.com
Elies Fongers
Senior Project Manager
M. +31 6 23976502
E.M.M.Fongers@rn.rabobank.nl
Corné de Louw
Senior Project Manager
M. +31 6 22239678
C.M.W.Louw@rn.rabobank.nl

13. 17
Enabling environment is critical
to agriculture & agri finance
Agri finance
 Tenor
 Interest rate
 Volumes
Legal & regulatory framework
 Contract enforceability
 Land ownership
 Pledge systems
 Agri policies
 WHR systems
 CPR systems
Collateral availability
 Land
 Commodity stocks
 WHRs
 CPRs
 Guarantees
 Cash savings
Capital markets
 Long-term funding
 Hedging
Business culture
 Corruption
 Contract performance
 Cooperation
Government support
framework
 Education
 Research
 Extension services
 Guarantee instruments
 Subsidies
Skill level
 Farmers
 Coops
 SMEs
 Banks
 Ministries
Infrastructure
 Roads
 Power
 (Cold) storage
 Irrigation
 Ports
Value chain organisation
 Input supply
 Cooperative system
 Integration
 Information
 Traceability
 Retail/fresh market

14. Macro:
• Trends, price info
• Market studies
• Cooperation with
Universities, etc
Micro:
• Collection of technical
& financial data
• Branch information
system
• Benchmarking clients
Sector policies:
• Client segmentation per sector
 Smallholders
 Emerging farmers
 Cooperatives
 Commercial farmers
 Traders
 Processors
• Value chain analysis per
sector
• Risk analysis per sector
• Financing guidelines
per sector
• Key technical & financial
parameters per sector
Agri finance products:
• Input financing
• Raw material collection
financing
• Asset financing/leasing
• WHR financing
• CPR financing
• Outgrower financing schemes
• Commodity pre-export
financing
• Saving-based-loan schemes
• Cooperative financing
schemes
• Agri related guarantee
schemes
Internal:
• Training agri credit skills
• Training on sector issues
• Certification program for
agri loan officers
(Basic/Advanced)
External:
• TA to Cooperatives
• TA to farmers
Universities
FAO
USDA
Sector bodies
Accountants,
Feed companies,
Integrators, etc
Emerging
farmers,
cooperatives
Industry
partners,
NGOs,
consultants
Product development
Knowledge collection
& dissimination
Sector
policy making
Capacity building
AGRI Department HQ
- Head Agribusiness
- AGRI (sector) Experts
Branches
Agri-loan officers &
Risk management
Financing agricultural sector
requires considerable
investments in knowledge and
know-how