Agriculture Finance in l 172.66 mils <( Box 3: Case Study of the Value Chain Approach: Gherkins For Pickling 29.53 mil S 0.00% 82.78 mils -10.00% -20% -10% -5% 0% 10% Kosovo used to import gherkins for processing purposes from FYR Average growth in relation to the World Macedonia and other countries in the region. The NOA program supported a • Albania e BiH • Croatia • Montenegro • Serbia • Macedonia • Kosovo collection center in the Mamusha municipality (with an ethnically Turkish minority population) with sorting and grading equipment and technical Source: ITC and COMTRADE Data assistance, while encouraging farmers to implement food safety standards and sign contracts with the aggregator. The impact was very positive: the collection center became an aggregatorfor Box 2: Financing Potato Processing: Success Story Working with Fl (EBRD) up to 60 farmers and now produce more than 2,000 tons of gherkins annually, fulfilling the needs of Kosovo pickle processors. Farmers have increased their profitability by at least 50 percent and created jobs in the Mamusha municipality. The collection center thus helped to stimulate The Pestova Potato Processing Company has a processing facility situated in demand for fresh vegetables and encouraged other partners, like Pestova village, Vushtrri/Vucitrn municipality. The company usually rents supermarkets, to sign contracts with local farmers for the supply of other land-about 200 hectares-and signs contracts with larger farmers (owning commodities, including tomatoes, peppers, cabbage and carrots. at least 5 hectares) at the beginning of the year for an additional 200 hectares of potatoes for processing (in total, around 40 farmers). Selected farmers must fulfil certain criteria and provide soil and water analyses of their land. After the selection process, farmers sign contracts with the company and 4.6. Agriculture Policy and Investment Climate receive potato seed, fertilizer, and other inputs. The fields are GPS registered and farmers must adhere to GlobalG.A.P. standards.13 Technical assistance is Kosovo's agricultural policy-lacking in vision but motivated by hopes of EU accession provided to all farmers from the planting period through different stages and local politics-is typical for the Western Balkans. (irrigation, fertilizer use, treatment and harvest). Farmers without the necessary equipment are supported with farm machinery to harvest A strategy paper exists, but presents no clear vision document in its programming while the Green Report is potatoes; all product from the contracted farms is delivered to the company. for the sector. The agricultural sector is well covered serving for statistics and the development of new Before being paid, farmers repay the previous year's debt to the company with strategic documents, programs and other programs on yearly basis. Usually MAFRD is including all while new farmers purchase inputs from the company, for which they pay in development documents, but these are focused mainly on main stakeholders during the development of yearly advance. The results are excellent: the company has become a leader in short term goals. MAFRD has developed an Agriculture program for grants and subsidies, but changes to strategy potato chip production and already has around 50 percent of market share in and Rural Development Plan 2014-2020 (ARDP), which to are minimal and the focus continues to cover t he whole Kosovo and exports to the region and to markets in the Middle East. date has not been officially signed by the Minister. The country and all sectors, resulting in poor results. ARDP follows EU requirements and represent a good Agricultural policies change too onen. Local politics and guide for general development; however, it gives little or policies change with each t ime a new minister is appointed, •----------- no direction to critical VC development and policies that though the overall agricultural development program 13 See https://www.globalgap.org/uk_en/. could boost the selected sub-sectors. MAFRD is using this 130 continues in place. This leaves agricultural policy to the Even though the grant disbursement was completed and 4-7- Main Barriers to the Development of Agriculture vagaries of political expediency. The main changes are documentation was evaluated, the program suffered reflected in the annual support program (grants and from insufficiency of staff qualified to monitor and advise There are (too) many barriers to the development of the sector. subsidies), which changes every year. MAFRD must develop beneficiaries, o~en resulting in the poor management by Lack of market opportunities and search for new keeping will support farmers and businesses t o qualify for a long-term vision in order to improve the results of current farmer's and results failing to meet expectations. Initially markets. According to all stakeholders, including banks, better loans and increase t he confidence of t he banking programs. The general policy objective of the GoK is: 'To the WB jointly with Danida has supported MAFRD the market is key constraint to further investment. system in the information they receive from prospective further advance and improve the situation, agricultural (through the l 'S C. > C: > 'S C. > C: > 'S C. > C: > 'S C. > C: > 'S C. > C: > 'S C. > C: .... percent and even higher in Bosnia and Herzegovina and "' :::; !!!.. :::; "' QJ Vl 0 z "' :::; !!!.. :::; "' QJ Vl 0 z "' :::; !!!.. :::; "' QJ Vl 0 z "' :::; !!!.. :::; "' QJ Vl 0 z "' :::; !!!.. :::; "' QJ Vl 0 z "' :::; ~ "' :::; "' QJ Vl 0 z "'"' ~:::; • Working capital loans for seeds and plants, fodder, Croatia. Official data for NPLs with agricultural loans pesticides, fertilizers, fuel, spare parts for agricultural doesn't exist, but according to interviews with banks, it machinery, fodder and crop protection products. is clear that it is slightly above the N PLs for other • MFls - Business • MFls - HH • Banks - Business • Banks - HH sectors. The main reason for low NPLs was reasonably MFls' offerings are similar to those of banks, with Source: CBK efficient and improving methodologies for risk greater flexibility as to the use of loans and repayment evaluation used by banks and MFls and a high terms. M Fis also offer revolving products. proportion of the small loans. Some banks and MFls are exploring the possibility off Four main banks are contributing 70 percent of offering innovative products to the fa rm ers and Interest rates for agricultural loans are high in comparison to other sectors and regional countries. Interest overall agricultural loans while 4 of the main MFls agribusinesses and include developments to date. rates varied from 6 percent to 27 percent, depending on the size of the loan and the repayment period-the higher the loan size. and the shorter period of repayment, the lower the interest rate and vice versa. Although banks have standardized 90 percent of overall agricultural loans. Dominating Loan maturity is up to 60 months, with flexible products with standardized interest rates for small clients, they are ready to adjust credit terms and interest rate for disbursed Agri-loans are PCB, RBKO, TEB, and NLB payment terms. The usual grace period is 3 to 12 larger clients. The interest rate for a medium sized credit of around €loo thousand taken by a reliable client with good while BpB is achieving very good numbers over the last months, but can be as long as 18 months. Most loan credit history is between 6 and 7 percent. two years, followed by MFls: KRK, KEP Trust, AFK, and repayment takes place a~er the harvest season. Currently, FINCA Kosovo. no banks offer of longer-term (more than 10 years') credit Interest rates are decreasing faster in agriculture than in other sectors. Since 2010, interest rates on agricultural Banks offer a range of similar banking products. for land or capital acquisition. Banks state that there is no loans have decreased by 68 percentage points, compared with a decrease in other sectors of 48 percentage points. This Standard bank offerings of the majority of banks demand for such loans; farmers and companies, on the contributes to an apparent trend toward equalization of the agricultural interest rates with those for other businesses. In include: contrary, express interest in longer term credit 2010, the interest rate for agricultural loans was 78 percent higher than for other sectors; in 2017 it was only 8 percent higher. Many factors contributed to this trend, notably the development of agricultural departments in banks and MFls' • Fixed asset loans for purchase of livestock, agricultural For small loans provided by MFls, collateral is not increasing sophistication in assessing agricultural risks, which was not the case in 2010. land, new or second-hand agricultural machinery and required. For medium and larger loans, MFls have 4, I collateral policies that are highly unfavorable to percent for livestock or machinery/equipment. S.S. Kosovo Credit Guarantee Fund clients. Banks are open to the use of different collateral Agricultural equipment for example as common types. Common collateral types are movable assets and collateral is valued at around 60 percent of fair market Table 14: Main Figures of Kosovo Credit Guarantee Fund real estate mortgages (regardless of whether there is price. clear title), but also include other instruments like cash, INDICATORS FIGURES Some banks are withdrawing from the small loan financial guarantees, treasury bills, shares in companies, segment. The floor on agricultural loans is currently Number of banks using KCGF support/ percent of total 6/10 livestock, inventory and, in some cases, receivables and €30,000 for many banks; it is expected that this will promissory notes. Collateral is usually not required for soon rise to €50,000. Other banks have not set a Total capital <15.7 million smaller loans, but is obligatory for medium and large specific floor, but are focusing on medium and larger loans, starting at €10.000. The ratio of the fair market clients. Small clients will be better served by MSME- Share of the agriculture in overall guarantee schemes Around 8 percent value of the collateral to the loan amount varies from friendly banks and by MFls. bank to bank, and also depends on the collateral type, Cost of guarantee for the banks 2 percent ranging from 100 percent for cash collateral to 30 Number of employees 5 5-4. Financing Demand with Non-Loan Resources Figure 6: Main Features of the KCGF Own resources are a preferable option, but not always possible. POSITIVE ASPECTS Kosovo's farmers have many options to finance potato processing company, a good example of full VC • Good capitalization investment: some more and some less favorable. development. including extension of credit to contracted • High quality management able to follow the market and make changes according ly There are several options for financing investments in producers. Credit is linked with technical advice, contracts, agriculture: own resources, government subsidies and implementation of food security standards and a • Donor technical assistance support, and goverment understanding and support grants, loans received from input providers or final guaranteed market Pestova-supported intermittently by product buyers, loans from friends and relatives and of European Bank for Reconstruction and Development NEGATIVE ASPECTS course credit from banks or MFls. (EBRD) investment-has successfully established a full potato processing VC. • MFls cannot currently use KCGF When available, own resources are a desirable option. Own resources may be earned in agriculture or Support from relatives and friends is widespread in • Not all banks and MFls see an interest to participate in other fields. A significant share of agribusiness rural communities. Diaspora support is a critical link in investors have earned money outside of agriculture. In capital investment. Diaspora friends and families often RESULTS Kosovo, there are some encouraging examples have little idea of opportunities in Kosovo, especially (Frutomania and Agmia) of individuals from the IT when it comes to VC opportunities in agriculture. With • Still limited utilization (all banks are under quota) sector who have invested in agricultural production and a more focused approach, diaspora support could be • More then 1000 credits guaranteed and constantly increasing processing. These investors have continued to finance organized around VC finance, increasing jobs and sales, Interested !Fis for further capitalization • their activities using public sector grants or bank loans. and could also be linked to bank funding or yet-to-be- Where profitability has been high, farmers have developed specific government incentive programs. invested their own money to expand, but are always The l