Product-based Value Chain Finance Using Grain Warehouse Receipts
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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?.

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Product-based Value Chain Finance Using Grain Warehouse Receipts Calvin Miller Senior Officer, Agribusiness and Finance GroupAGS Division, FAO

Opportunities through Value Chain Financing


What is a value chain
What is a Value Chain? Receipts

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 Receipts– 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.

Defining Value Chain Finance

VCF Approach – to understand the value chain and its participant needs and structure finance and services to best address them.

  • Objectives:

  • Align and structure financial products to fit the chain

  • Reduce costs and risks of finance


Financial Service Receipts

Support

Value Chain Actors

Institutions

Services

Exporters / Wholesalers

Banks

Technical Training

Processors

Non

-

bank

Financial Institutions

Business Training

Local Traders & Processors

Private Investors

& Funds

Specialized

Producer Groups

Services

Cooperatives /

Associations

Farmers

Local MFIs /

Governmental

Community Orgs

Certification/Grades

Input Suppliers

Product Flows

Financial Flows

Using the Value Chain for Financing Agriculture


Value chain business models

Producer-driven Receipts

Buyer-driven

Facilitator-driven

Integrated

Value Chain Business Models

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
Value Chain Finance Tools/Products Receipts

1. Product Financing

2. Receivable Financing

3. Physical Asset Collateralization

4. Risk Mitigation Products

5. Financial Enhancements


Physical asset collateralization
Physical Asset Collateralization Receipts

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 Receipts

  • 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


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