The Verkhovna Rada of Ukraine has passed Bill No. 9610 “On Agricultural Receipts” that allows farmers to replenish their working capital by bank loans secured by future crops. The bill, submitted by the Lytvyn bloc’s Serhii Tereshchuk and PoR’s Hryhorii Kaletnyk, received 232 yeas. This law allows the farming business entities to use such “agricultural receipts” as financial instruments.
Each such document is the borrower’s nonnegotiable pledge to return the loan, either by delivering produce or by returning the money, on the terms and conditions duly agreed upon. In other words, a farmer can get a bank loan to buy seeds, equipment, etc., but will have to deliver or return the money, come what may.
The authors of the bill explain in a memorandum that it was necessary because a situation had developed in regard to bank loans to the farmers, especially in regard to medium and small farming businesses. The small ones practically have no access to such loans. Also, the new agribusiness VAT terms and conditions do not help this situation. The Tax Code reads that the VAT is to be computed proceeding from the results of the first transaction between the “supplier of material-technical resources” and the farmer, so the latter will have to lower his prices or subtract the VAT sum from his revenues. “More often than not, the companies that supply mineral fertilizer, pesticides, etc., have no part in the sales of this produce, which they should have by providing such supplies, so they enter into forward transactions with companies engaged in export or domestic sales, but such transactions have become impossible because of VAT mismanagement,” reads the memorandum.
The authors of the bill insist that an alternative must be found. They refer to Brazil’s experience, specifically the Cedula do Produto Rural (CPR) [created by Brazilian Law No. 8929, August 22, 1994; a financial instrument, through which the issuer (a farmer or a cooperative) sells his/their crop prior to the harvest time and receives cash, assuming an obligation to deliver a certain amount at a certain date, at a specified place]. In the case of Ukraine, it is a promissory note of sorts that allows the issuer to receive a bank loan or a supply of farming equipment, seeds, etc., that allows him/them to do his/their business. Each such “agricultural receipt” determines the amount and quality of shipment – or the sum to be repaid, considering the current prices, or the price on the date of the contract. “Using such financial instruments, Brazil shows agribusiness bank loans totaling five billion dollars, with the farming businesses being able to add to their gross output… Feasibility studies point to between two and three billion hryvnias’ worth of revenues for Ukrainian agribusiness during the year following the institution of these ‘agricultural receipts’ [Ukr. version of Brazil’s CPR. – Ed.]… In the long run, such ‘agricultural receipts’ will embrace some 30 percent of the revenues from the suppliers of ‘material-technical resources,’ traders, processing/recycling businesses, also about five percent worth of bank funds. In other words, the institution of these ‘agricultural receipts’ will allow Ukrainian agribusiness to gradually get between 45 and 50 billion hryvnias,” reads the memorandum.
Ukrainian farmers generally approve the Ukrainian version of the Brazilian CPR. They will thus be able to replenish their working capital, Mykola Markevych, President of the Association of Farmers and Private Landowners of Ukraine, told The Day. He added that the interrelationships with the traders, who are capable or getting bank loans for the farmers, would be enhanced. On the other hand, Brazil’s experience may not turn out effective in Ukraine: “These ‘agricultural receipts’ can be issued by anyone, but then, in the courtroom, you won’t be able to prove anything to the judge. There may well be problems in Ukraine, with its selective judicial system.”
