Harvest becomes deposit for loan - As of June 1, Serbia to be the first in Europe to implement Law on pre-harvest funding

As of June 1 this year, farmers will be able to use future yield as a banking guarantee for the funds they will get before harvest, during harvest. This will be possible thanks to the Law on pre-harvest funding which was adopted November last year and it is becoming effective in less than two weeks.

As the minister of agriculture, Snezana Bogosavljevic Boskovic,said, the law aims at introducing system of funding which will enable farmers to get to loans for agricultural production in simpler and more favorable way.

The main innovation in the new law which the Ministry of agriculture developed within the project of the European Bank for reconstruction and development (EBRD) and the UN Organization for food and agriculture (FAO), is that deposit for loans will not be real estate as it was the case before but there is an option that deposit is future agricultural product. These are short-term funds, creditors are commercial banks and users will return loan in money or goods in line with the agreement with trustees.

- First of all, the Law governs relations between a financier and an entity operating in agricultural production (legal or physical) and implements transparency in this kind of funding by setting up the Registry of deposit and contract on funding which is public and managed by the Agency for business registries of Serbia - Milos Milovanovic, a coordinator of FAO-EBRD projects in Serbia says for eKapija.

The first loans in the fall?

Insurance of future yield will be one of the conditions to sign a contract on pre-harvest funding but it is difficult to estimate at the moment when the Law has not become effective yet the amount the insurance will increase. Milovanovic says that however, the percentage will increase from current 8% of total agricultural production (according to data of the Ministry of agriculture of the Republic of Serbia).

Terms farmers will have to comply before they sign the contract will be defined through individual contracts between financier and fund users. ProCredit bank, which has been actively participating for more than 10 years in crediting agricultural producers, greeted legal framework for mortgage on future harvest, thinking it will additionally facilitate business of agricultural producers.

- It is essential to mention that deposit itself is never sole basis for a loan but it is financial analysis of a farmer. Before signing the contract with a bank, a client must be financially capable and after that it is necessary to fulfill all terms defined by the Law on pre-harvest funding – they say for "eKapija".

The bank explains that maximal loan amount is not defined while minimal repayment period is 12 months. Users will, repay loan, in line with the agreement with trustees, in goods i.e. agricultural products or funds and the interest rate will be standard in line with price list of a bank the same as for all other kinds of loan.

Taking into an account that fact that these loans are mainly for short-term investments, they can be used for procurement of all kinds of production material as well as procurement of cattle for growing, ProCredit bank says.

Market solution for lack of funds for agriculture

Recently held conference on Law on pre-harvest funding at the Agricultural Fair in Novi Sad attended by reps of a large number of representative associations of farmers showed that the interest of agricultural producers for this kind of funding is huge.

The project of EBRD and FAO, within which implementation of the law was carried out, startd at the same time in a number of east Europe countries. Serbia went furthest in its implementation and as such, the law will be implemented in our country for the first time Europe while Russia, Bulgaria, Ukraine have been working on developing similar documents.

Ivana Bezarevic