The Law on Сrop Receipts (hereinafter referred to as “the Law”) came into force in 2013, but it became really effective only in 2015. By the end of September 2017, crop receipts for a total amount of more than UAH 1 billion were issued in Ukraine, for 2015-2017. In terms of the entire country, of course, this number is not very significant; however, one should remember that, during the first year, the project was effective in only 4 regions (oblasts) – Poltava, Vinnitsa, Kharkiv, Cherkasy, and since October 2016, another four were added: Khmelnytsky, Mykolaiv, Ternopil and Sumy regions. In 2018, the launch of this legal instrument is planned throughout the entire territory of Ukraine.
Crop receipt appeared in our legal field thanks to active support of the International Finance Corporation which operates within the World Bank Group. This mechanism was created to support and develop small and medium-sized agricultural companies; for those, cooperation with banks is challenging due to lack of proper collateral, lack of positive credit history, etc.. The core of this problem is absence of collateral. The land can not be used as a mortgage item because of the currently acting moratorium on alienation of agricultural land. This moratorium is part of the country’s Soviet past, and the respective legislative reform has been postponed for many years. Also, for the Ukrainian economy, the instrument is relevant as a means of balancing out the share of large agriholdings, on the one hand, and small and medium businesses, on the other hand. The experience of Brazil, where crop receipts have been successfully used for more than 15 years, is an example to follow when introducing crop receipts in Ukraine.
The Law defines a crop receipt as a document that establishes the commitment and the unconditional obligation of the Borrower (secured by the collateral), to supply agricultural products or to pay in cash on certain conditions, pre-specified in the contract. This legal instrument allows the farmer to receive financing or production resources, using the future harvest as a collateral. Crop receipts are cheaper and easier to issue and manage than bank loans, note-backed lending and commodity loans, which, until recently, were the most popular sources of financing in agribusiness.
Key features:
■ it is an agreement between the farmer (the Borrower) and the Lender (any other company);
■ it must be certified by a notary officer and filed in a special register, available for checking online;
■ collateral is the future agricultural product (the crop) grown on these lands.
■ a land parcel is not a collateral for a crop receipt;
■ the obligation remains valid until it is fully repaid;
■ monitoring system for future agricultural product that serves as a collateral;
■ disambiguation of the requirements (no need for an official statement that the debt exists) and extra-judicial procedure of enforcement;
■ automatic distribution of the crop receipt for the next harvest, in case of loss of crop yield or evasion from fulfillment of obligations by the Borrower.
Key advantages of crop receipts:
■ simplified access to financial and technical resources for farmerss;
■ the possibility of pre-sale of agricultural products;
■ increase of collateral amount, reduction of dependence on loans;
■ ability to manage currency and price risks;
■ additional guarantees of payment to creditors, as compared to other financial instruments;
■ a working mechanism for securing liabilities with a collateral of the future agricultural products;
■ standardization of the process of issuing and executing the crop receipts;
■ national electronic registration system;
■ quick enforcement procedure.
Thus, crop receipts are a relatively new and effective tool for raising funds in agriculture. It will soon expand throughout the entire territory of Ukraine, which will help consolidate the agrarian sector as one of the leading ones in the national economy. Even amidst the economic crisis, this sector is consistently demonstrating increase of production volumes.
Ihor Kravtsov, Head of Dispute Resolution
