This innovative financial instrument is set to expand the funding opportunities for Ukraine’s agricultural sector while boosting transparency and reducing corruption risks.
What Are Agricultural Notes?
An agricultural note is a non-issueable security that certifies the debtor’s unconditional obligation—secured by collateral—to either deliver agricultural products or pay cash to the creditor, as per the specified conditions. In electronic form, these notes are recorded in the securities depository accounting system, ensuring a transparent and traceable process.
Main Characteristics
- Form: Digital, maintained as an account in the securities depository.
- Types:
- Financial Agricultural Note: Guarantees cash payments.
- Commodity Agricultural Note: Guarantees the delivery of agricultural products.
- Collateral: Secured by future harvests or other agricultural assets.
- Circulation: Managed through the Central Depository and affiliated institutions.
- Register of Agrarian Notes: An integrated system displaying all information related to agrarian note issuance and circulation.
How Agricultural Notes Benefit the Sector and Investors
The introduction of agricultural notes is a significant development for both agricultural producers and investors. According to experts, including Ruslan Magomedov, Chairman of the National Securities and Stock Market Commission (NSSMC), this new instrument will:
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Increase Financing Availability
- Agricultural enterprises can secure loans and financing without relying solely on traditional bank loans, offering greater flexibility in funding critical operations.
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Stimulate Capital Market Development
- The notes foster greater integration of Ukraine into global financial systems, enhancing the overall development of the capital markets.
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Boost Transparency and Investor Confidence
- With robust, digitized records and standardized documentation, investors gain confidence in the financial mechanisms supporting agricultural production.
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Improve Cash Flow Management
- Farmers can better manage seasonal fluctuations in income, ensuring more consistent cash flows and operational stability.
Implementation and Integration
The pilot issue was handled by LLC “AGROFIRMA-OBRIY” from the Khmelnytskyi region, with LLC “AP IMPORT” (a part of the Agroprosperis Group of Companies) as the first owner and JSC “Raiffeisen Bank” servicing the securities account. The process was supported by the National Depository of Ukraine (NDU) and experts from the International Finance Corporation (IFC) under the project “Development of Access of the Agricultural Sector of Ukraine to Capital Markets,” executed in cooperation with the Swiss Confederation.
Advantages for the Agricultural Sector
- Simplified Enforcement
- In cases of debtor default, creditors can obtain a special extract from the Register of Agrarian Notes, which serves as the legal basis for property recovery.
- Enhanced Protection of Creditor Rights
- Once an agrarian note is issued, the debtor cannot dispose of the collateralized land without the creditor's consent, ensuring better security for investors.
- Promotion of Industry Growth
- By increasing access to capital, agrarian notes encourage investments in agricultural production and processing, leading to higher yields and expanded export opportunities.
- Objective Data Collection
- The eHemp system enables the generation of accurate, real-time statistical and analytical data on industrial hemp, which can be extended to the broader agricultural sector for improved policymaking.
Conclusion
The launch of agricultural notes represents a transformative step for Ukraine’s agrarian sector, opening up new channels for financing and growth. With simplified loan access, enhanced transparency, and robust protection mechanisms for investors, this initiative promises to support agricultural production and bolster economic resilience. As Ukrainian producers gain better control over their cash flows and secure additional capital without solely relying on traditional bank loans, the sector is poised to flourish—paving the way for sustained development in domestic and international markets.
