Gilles Mettetal, Director for Agribusiness at EBRD - Serbia remains our core market

The European Bank for Reconstruction and Development (EBRD) last week provided up to €10 million unfunded risk sharing to Erste Bank a.d. Novi Sad to finance the seasonal working capital needs of Serbian agribusiness companies, using warehouse receipts as collateral. Under the Warehouse Financing Framework for Serbia, consisting of a risk sharing facility of up to €70 million to be realised with participating banks in Serbia, the Bank aims to improve access to funding for agribusinesses and to promote the use of warehouse receipts that demonstrate the viability of lending against agricultural commodities. Since 2010 the EBRD has approved €20 million to Société Générale, €10 million to Banca Intesa and €20 million to Credit Agricole Bank.

In an exclusive interview for eKapija, EBRD Director for Agribusiness Gilles Mettetal speaks about the objectives of their latest arrangement, the ways in which it should benefit the farmers in Serbia, and some other relevant issues.

eKapija: What are the most important objectives of your arrangement with Erste Bank?

The most important objective is facilitating Erste Bank Serbia’s plan of financing the working capital needs of not only large processing companies but also successful small- and medium-sized farming operations, processors, traders and so on. The risk-sharing mechanism provided by the EBRD reduces the risk of Erste Bank Serbia and increases the appetite to finance working capital needs based on agricultural commodities as primary collateral - since very often it is the only major asset that farmers have to offer to secure loans from banks.

eKapija: Since the public warehouse system in Serbia is still insufficiently developed, small agricultural manufacturers believe that such arrangement, due to high interest rates and short repayment periods, benefits banks more than it benefits them. What is your comment?

Agriculture is perceived by banks as a risky sector. Therefore, the product provided by the EBRD that ensures risk-sharing and the development of warehouse receipts as efficient collateral should provide comfort to commercial banks to gradually reduce the cost of financing.

eKapija: Is it more realistic to expect the EBRD to approve a long-term credit line, with the repayment period of 15-20 years, to directly boost the agricultural sector rather than finance the working capital needs?

The EBRD is engaged in providing direct long-term financing through debt or equity to mainly larger agribusiness companies in Serbia, while the small- and medium-sized sector is reached either via dedicated credit lines to local commercial banks or established instruments for Western Balkans countries to finance projects up to €10 million directly by the EBRD through a somewhat streamlined procedure. Serbia is and will remain our core market, with 29 signed projects of €360 million in the agribusiness sector alone.

eKapija: What do you expect in regard to the trend of rapid increase in the price of agricultural land in Serbia?

It is difficult to predict, but given Serbia’s position and its fertile land, good climate, its tradition in agricultural production compared with regional peers, EU accession and further room to improve yields, it is reasonable to expect a further convergence of land prices with those of the EU-15 over the medium to long term.

eKapija: You already have a stake in Victoria Group. Do you plan to invest in the agricultural sector in Serbia by acquiring a stake in one of the agricultural companies listed on the stock exchange?

Serbia is and will remain our core market. It is classified within the EBRD as a strategic country in the “grain value chain” together with Kazakhstan, Romania, Russia and Ukraine. The Bank will continue to support valuable local companies and projects irrespective of whether they are listed or not. Furthermore, in addition to development of warehouse receipts to support financing of the post-harvest activities, the Bank is supporting Serbia in developing an instrument for pre-harvest financing using future crops as collateral based on the so-called “crop receipts”. The Bank and the Food and Agriculture Organization provided funding, and a working group within the Ministry of Agriculture has been formed and has just started working on the draft law which should be adopted in early 2012.

eKapija: How will the restitution of agricultural land affect the agricultural land market and further agricultural development in Serbia?

This is a political question. However, what is important is that the implementation of any such law provides for predictability and transparency.

eKapija: What is your position about the policy of agricultural subsidies? Do you find the policy conducted by the Ministry of Agriculture of Serbia, by which these subsidies will most probably be revoked next year, correct?

Probably the structure and the way subsidies are given can be improved. We saw in the case of Brazil, which is one of the most successful agribusiness countries, and which some of the EBRD’s agribusiness bankers visited in March 2011 together with the Serbian Ministry of Agriculture, that targeted subsidies for investment and research and development yield better results in improving long-term competitiveness. The state should support investments in irrigation, modern storage and warehousing, renewal of machinery and equipment and so on, rather than just direct payment per hectare.

eKapija: What are your forecasts for the global trend of increase in food prices?

I guess no one can have the right answer. But looking at the demographic trends, the pressure from the energy sector, coupled with the growth in Asia and changes in consumer preferences and climate change, it is difficult to expect significant reductions.

J.Đ.

EBRD Evropska banka za obnovu i razvoj

Erste Bank a.d. Novi Sad

OTP banka Srbija a.d. Novi Sad

RBA banka a.d. Novi Sad

Ministarstvo poljoprivrede, šumarstva i vodoprivrede Republike Srbije