Product-based Value Chain Finance Using Grain Warehouse Receipts Calvin Miller Senior Officer, Agribusiness and Finance Group AGS Division, FAO Opportunities through Value Chain Financing

What is a Value Chain? The full range of activities required to bring a product or service from conception through the various stages of production and delivery to final consumer. A value chain includes all actors including producers, processors, suppliers, wholesalers and retailers and consumers. A value chain is defined by its particular consumer segment.

Defining Value Chain Finance Value chain finance – financial products and services flowing to and/or through a VC to address the needs of those involved in that chain, be it a need for finance, a need to secure sales, procure products, reduce risk and/or improve efficiency within the chain. Objectives: Align and structure financial products to fit the chain Reduce costs and risks of finance VCF Approach – to understand the value chain and its participant needs and structure finance and services to best address them.

Exporters / Wholesalers Processors Local Traders & Processors Producer Groups Farmers Input Suppliers Banks Non-bank Financial Institutions Private Investors & Funds Cooperatives / Associations Local MFIs / Community Orgs Financial Service Institutions Value Chain Actors Product Flows Financial Flows Technical Training Support Services Business Training Specialized Services Governmental Certification/Grades Using the Value Chain for Financing Agriculture

Value Chain Business Models Producer-driven Buyer-driven Facilitator-driven Integrated For value chains and value chain financing, a business model refers to the drivers, processes and resources for the chain. Four types of business models:

Value Chain Finance Tools/Products 1. Product Financing 2. Receivable Financing 3. Physical Asset Collateralization 4. Risk Mitigation Products 5. Financial Enhancements

Physical Asset Collateralization Concept The borrower uses an asset as a negotiable collateral (whether physical or financial) The assets can be pledged, or physically transferred The borrower reserves the rights to the proceeds of the assets The creditor may dispose of the property when the borrower defaults on its payment obligations Financial instruments Warehouse receipts (inventory-backed financing) Leasing finance Buy-back agreements (Re-purchase agreements, “repos”)

VCF Lessons Financial Service Providers Understanding: the value chain the market the value chain client and partners Assessing: risks competitiveness relationships and processes rationale and needs for financing by those in the chain Structuring financial services: according to the business model and strengths of VC participants adapting and applying appropriate financial products and services combining products and payments to reduce cost and risk linking with complementary support services, e.g. warehouse managers