FINANCING IN AGRIBUSINESS PROJECTS

FINANCING IN AGRIBUSINESS PROJECTS
Financing of Agriclinics and Agribusiness Centres
· Soil and water quality cum inputs testing laboratories (with Atomic Absorption Spectrophotometers)
· Pest surveillance, diagnostic and control services
· Maintenance, repairs and custom hiring of agricultural implements and machinery including micro irrigation systems (sprinkler and drip)
· Agri Service Centres including the three activities mentioned above (Group Activity).
· Seed processing Units
· Micro-propagation through Plant Tissue Culture Labs and Hardening Units
· Setting up of Vermiculture units, production of bio-fertilisers, bio-pesticides, bio-control agents.
· Setting up of Apiaries (bee-keeping) and honey & bee product's processing units
· Provision of Extension Consultancy Services
· Facilitation and agency of agricultural insurance services
· Hatcheries and production of fish finger-lings for aquaculture
· Provision of livestock health cover, setting up veterinary dispensaries & services including frozen semen banks and liquid nitrogen supply.
· Setting up of Information Technology Kiosks in rural areas for access to various agriculture related portals
· Feed Processing and testing units
· Value Addition Centres
· Setting up of Cool Chain from the farm level onwards (Group Activity)
· Post Harvest Management Centres for sorting, grading, standardisation, storage and packaging.
· Setting up of Metallic/ non-Metallic Storage Structures (Group Activity)
· Retail marketing outlets for processed agri-products
· Rural marketing dealerships of farm inputs and outputs
· Rural marketing dealerships of farm input and outputs
Any combination of two or more of the above viable activities alongwith any other economically viable activity selected by the Graduates, which is acceptable to the Bank.
SWINE FACILITY REFINANCING
Product Overview
· Swine facility loans
o Competitive fixed and variable rate first mortgage loans
o Terms up to 10 years
o Loan amounts of 65% of appraised facility values
o Loan amounts of up to 100% of appraised facility values available with additional collateral
· Land refinancing available
o 15 – 20 year fixed rate loans
o 65% of appraised values
· $100,000 minimum term loan size
Types of Swine Facilities
· Generally facilities five years old or newer
· Part of an efficient production system
· Finishing, wean to finish, nursery, farrowing, gestation, breeding and gilt isolation buildings
Producer Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Pay legal, filing, appraisal and closing fees, including loan origination fee
· Submit periodic financial statements and production records
· Utilize approved production system
o Management system
o Genetics
o Pig Flow
o Marketing
o Risk Protection
o Utilize Land O' Lakes consulting services
o Meet underwriting criteriaTop of Form
Finishing & Wean to Finish Facility Financing
Product Overview
· Loan amounts of up to 90% of cost not including the building site
· Cash down payment requirement of 10%, plus building site
· Terms up to 10 years
· Competitive interest rates
· Additional collateral may be required
· Construction loan with variable interest rate
Types of Swine Facilities
· Modern, state of the art finishing buildings, minimum 400 head
· Approved building contractor
Program Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Pay legal, filing, appraisal, closing fees, including 1% loan origination fee
· Submit periodic financial statements and production records
· Utilize approved production system
o Management system
o Genetics
o Pig Flow
o Marketing
o Risk Protection
· Utilize Land O' Lakes consulting services
· Meet underwriting criteria
Farrowing Unit Financing
Product Overview
· Loan amounts of up to 80% of cost not including the building site
· Cash down payment requirement of 20%, plus building site
· Terms up to 10 years
· Competitive interest rates
· Additional collateral may be required
· Construction loan with variable interest rate
Types of Swine Facilities
· Modern, state of the art nursery, farrowing, gestation, breeding and gilt isolation buildings
· Approved building contractor
Program Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Pay legal, filing, appraisal, closing fees, including 1% loan origination fee
· Submit periodic financial statements and production records
· Utilize approved production system
o Management system
o Genetics
o Pig Flow
o Marketing
o Risk Protection
· Utilize Land O' Lakes consulting services
· Meet underwriting criteria


CATTLE FARMER/FEEDER FINANCING
Product Overview
· Cattle operating loan for:
o Cattle
o Feed
o Grain
o Animal health
o Hedging costs
· Competitive variable interest rate
· Equity requirement (cash, feed, grain or other)
o 25% on hedged cattle
o 35% on non-hedged cattle
· $350,000 operating line minimum
Producer Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Submit periodic financial statements
· Submit periodic production and inventory records
· Maintain minimum equity requirements
· Cattle marketing plan
· Feed sourcing & pricing plan
· Meet underwriting criteria
Cattle Investor Feeder Financing
Product Overview
· Cattle operating loan for:
o Cattle
o Feed
o Grain
o Animal health
o Hedging costs
o Yardage costs
· Competitive variable interest rate
· Equity requirement (cash, feed, grain or other)
o $100-$150 per head on hedged cattle
o $150-$200 per head on non-hedged cattle
· $350,000 operating line minimum

Program Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Submit periodic financial statements
· Submit periodic production and inventory records
· Maintain minimum equity requirements
· Cattle marketing plan
· Feed sourcing & pricing plan
· Meet underwriting criteria
· Commercial Cattle Feedlot Financing
Product Overview
· Commercial Feedlot operating line for: accounts receivable, carried feed bills, resale cattle, feed inventories, customer financed cattle and customer hedging costs
· Operating loan for owned cattle for: cattle, feed, grain, animal health, hedging costs
· Competitive variable interest rate
· Equity requirement
o Owned Cattle
§ 25% on hedged cattle
§ 35% on non-hedged cattle
o Customer financed cattle
§ $100-$150 per head on hedged cattle
§ $150-$200 per head on non-hedged cattle
· $350,000 operating line minimum
Program Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Submit periodic financial statements
· Submit periodic production and inventory records
· Maintain minimum equity requirements
· Cattle marketing plan
· Feed sourcing & pricing plan
· Meet underwriting criteria
Dairy Operation Refinancing
Product Overview
· Dairy operation loans
· Competitive fixed and variable rate first mortgage loans
o One Loan
o One Interest Rate
o One Monthly Payment
· Terms up to 15 years
· Loan amounts generally of up to $3000 per cow, may be higher based on overall farming operation
· Land refinancing available
· 15 – 20 year fixed rate loans
· 65% of appraised values
· Loan closing 30 to 60 days after loan commitment
Types of Dairy Operations
· Facilities designed to support efficient milk production and that will provide adequate collateral value
· 300 cow minimum, may be lower based on overall farming operation
Producer Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Pay legal, filing, appraisal, closing fees, including ½% loan origination fee
· Submit periodic financial statements
· Submit periodic production records
· Proven production system, including: production management, breeding system and herd health, replacement and culling plan
· Milk marketing plan
· Feed sourcing & pricing plan
· Meet underwriting criteria
Dairy Expansion Financing
Product Overview
· Dairy operation loans
· Competitive fixed and variable rate first mortgage loans
o One Loan
o One Interest Rate
o One Monthly Payment
· Terms up to 15 years
· Loan amounts generally of up to $3000 per cow, may be higher based on overall farming operation
· Construction loan with variable interest rate
Types of Dairy Operations
· Facilities designed to support efficient milk production and that will provide adequate collateral value
· 300 cow minimum, may be lower based on overall farming operation
· Land O' Lakes approved expansion and facility plan
Producer Criteria
· Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
· Pay legal, filing, appraisal, closing fees, including up to a 1% loan origination fee
· Submit periodic financial statements
· Submit periodic production records
· Proven production system, including: production management, breeding system and herd health, replacement and culling plan
· Milk marketing plan
· Feed sourcing & pricing plan
· Meet underwriting criteria
Equity Line of Credit
With the Equity Line of Credit, you have the security of knowing funds are available at any time, for whatever purpose you wish…without having to re-apply for a loan…24 hours a day…365 days per year!! Your Equity Line of Credit can be accessed anytime you want.
Product Overview
· Competitive variable rate Equity Line of Credit
· Credit line term of 5 years, reviewed annually
· Credit line amounts of up to 75% of real estate value minus prior liens
Loan Purpose
· Ag related operating expenses and purchases
Program Criteria
· Meet underwriting criteria
· Pay legal, filing, appraisal and closing fees
· Submit periodic financial records
· Minimum loan amount $100,000
· Interest rate reduction for Internet transactions
AGRICULTURAL LAND FINANCING
Land O' Lakes Finance Company is committed to securing your future in the livestock industry. To further support your livestock operation, Land O' Lakes Finance Company has available agricultural land financing.
If your financing needs are different than the products listed, contact us to discuss your situation.
Product Overview
Agricultural land refinancing product
Competitive fixed rate first mortgage loans
15 – 20 year terms
65% of appraised values
Up to 100% financing available with additional collateral
$100,000 minimum term loan size
Producer Criteria
Purchase Land O' Lakes/Farmland or Purina Mills branded feed and feed ingredients
Pay legal, filing, appraisal, closing fees, including loan origination fee
Submit periodic financial statements and production records

Financing the value chain in agriculture
M. Jayadev
AGRICULTURE was front-page news in the recent Budget, being one of the paanch priorities listed by the Finance Minister, Mr Jaswant Singh. Budget after Budget has emphasised the importance of agriculture, but the ratio of agricultural growth to GDP has been decelerating in the recent past.
The Economic Survey pointed out the disappointing performance of agriculture and allied sectors in 2002-03. The Index of agricultural production shows 156 (in 2002-03), substantially lower than the past two years (171.1 in 2001-02 and 167.3 in 2000-01).
The financial sector reforms, which strengthened the performance of banks and widened the financial markets — both debt and equity — failed to provide a new direction to farm finance. The deregulation of interest rates brought a bonanza benefits to the middle class, and consumer finance and housing finance have become cheaper.
Most commercial banks are redefining their business strategies and increasing their market share in retail finance. Each bank is trying to outdo the other in announcing lower interest rates in retail finance.
The new strategies of channel financing and dealer financing further improved credit delivery and reduced the interest rate to the ultimate consumer. The benefits of deregulation of interest rate to corporates are also substantial, both in domestic and overseas markets. Corporates have been securing the loans at a rock-bottom level of 6 per cent through the market for commercial paper.
But the poor Indian farmer has not gained any benefit from this lower interest rate regime. Most of the commercial banks have not shown any interest in focussing their activities to increase the share of agricultural finance.
The Finance Minister has said that the issue of franchising agricultural credit is to be re-examined. This time his target is private sector banks. He has said the Government would encourage private sector banks to open branches in rural areas also.

Will an extended branch network alone help improve credit delivery? The government-owned banks, with their vast network of branches in the rural areas, have not met the minimum mandatory target of 18 per cent of advances to agriculture in the past few years (Tables 1 and 2).





The loan per branch of state-owned banks is lower than private banks. In spite of a huge branch network, the credit delivery to farm sector is always below the target level.

The number of public sector banks that have reached the 18 per cent target of agriculture advances were seven in 2001-02, and just four in 2000-01. The large branch network-supported banks, such as SBI, Bank of India, Bank of Baroda, and Punjab National Bank, are in the 15 per cent range.
Banks have been favouring indirect rather than direct finance to agriculture. Finance to dealers, commission agents, NBFCs and SEBs, and investment in bonds earmarked for the priority sector have gained more priority than basic agricultural finance.
Banks are parking the funds in priority sector bonds or contributing to the RIDF of Nabard or SIDBI deposits in reaching the statutory norm of 40 per cent of net bank credit to the priority sector. Undoubtedly this indirect finance will improve the infrastructure facilities in rural areas and create new services. But the farmer has no purchasing power to buy these services.
It is more important to support the basic economic activity of the farmer. The Finance Minister has envisaged that the private sector banks will be encouraged to open few branches in the rural areas. In the changing paradigm of banking services the branch network importance has vanished and new platforms are gaining popularity.
The share of banks' advances to allied agricultural industries is also not significant (Table3).





India is the second largest producer of fruits and vegetables in the world. But the share of commercial banks' advances to this sector has been no more than 4 per cent in the past few years. The Indian commercial banks have potential competitive advantage in financing this sector.
The new generation banks, such as ICICI bank, have devised innovative supply chain solutions to agricultural finance. It is time banks understood the entire chain of value creation in farm finance. Agro-based industries, dealers, seed finance and fertiliser finance are major components in this value chain. Innovative financial solutions are essential for an effective loan delivery mechanism to support these operations.
The previous two Budgets focussed on `Kisan Credit Cards', a flexible loan product to help farmers meet short-term financial requirements. Though this innovative product gained popularity, a long-run comprehensive integrated policy is required to meet the credit demand and to push the agricultural production in the economy.
Securitisation of receivables and lease finance are certain viable options. Though a farmer's income is non-taxable, lease finance may be worth considerable option. Higher leverage position for an asset is possible through lease finance. Policies that stimulate growth and raise output prices must be preceded by elimination of subsidies. Government policy should focus more on improving and maintaining effective agricultural infrastructure — roads, irrigation, power, appropriate technology, education of farmers and uninterrupted supply of inputs at the right prices.
The multiple agencies of rural credit — commercial banks, RRBs and cooperative banks — should evolve as a single platform in delivering credit. Agriculture finance should not be viewed as a mere stipulation to be complied with but as an area of competitive advantage. Cooperative banks with a grassroots presence suffer from the handicap of less qualified staff and financial crunch. Private banks, instead of opening up of new branches, should design innovative products to leverage the existing infrastructure.
Banks have to adopt modern tools and techniques in estimation of risks in agriculture. Agriculture is always exposed to an uncontrolled environment, unlike other production activities. The market for agricultural output will be perpetual because everyone needs food to live.
The risks farmer face are much higher than those for other producers. In the absence of a suitable and comprehensive public policy, such risks lead either to under-production or mispricing of output. The practice of increasing the minimum support price has to be re-examined as it results in to large procurement of foodgrains by the public sector agencies and can distort the price formation mechanism.
The main aim should be to increase the risk-adjusted rate of return on investment in agriculture. The rupee borrowed by a farmer should give as high a rate of return as that borrowed by either Reliance or Infosys or any other well-rated company.
With the increased globalisation and integration of markets, companies have been able to raise equity sources with greater flexibility; whereas the availability of equity capital for farmers is still from traditional sources. The debt market for farm credit is through commercial banks, co-operatives and Nabard.
By evolving suitable mechanisms, LIC and other insurance companies should increase their exposure to agricultural loans. LIC has penetrated rural markets and mobilised savings in rural areas through innovative schemes. It is time LIC looked at financing farm credit either directly or indirectly. Strategic alliances with commercial banks and utilising their physical infrastructure may be one viable option.
The risk in financing agriculture can be estimated and subsequently mitigated provided the banker projects the financial conditions of the farm sector. In this context, the role of policy-makers is significant. Data on recent levels of farm income, asset quantities and prices of agricultural output are vital to building a suitable projection model. Development of such a database with a high level of speed and accuracy, and accessibility of such a database to bankers, is essential for quantification of risk in agricultural finance.

More sophisticated market microstructure is required for agriculture. Agricultural capital markets should be widened and deepened with more opportunities to raise equity capital. An independent regulatory agency is to be constituted to supervise the agricultural credit.
All institutions cooperative banks, commercial banks, and Nabard should be brought under this agency. The RBI should concentrate more on regulation of money, debt and foreign market; agricultural finance should be under separate regulation.
The existing forward markets commission, which oversees the commodity exchanges, should also be brought under the farm credit regulating agency. This will develop primary and secondary market structures for farm credit.
Banks should understand that agriculture is a way of life for the farmer and is only subsequently transformed into a business. It cannot simplistically be compared with exposures to industrial and other retail advances. There is, therefore, need to look beyond mandatory targets.
Designing new strategies and leveraging existing infrastructure, quantification of credit risk and activating a package of financial services is essential in improving the farm credit system and increasing agricultural output.
(The author is Associate Professor, IIM Lucknow.)
Horticulture Clinic and Business Centre
1. Objectives :
• To create facilities for provision of technical guidance, custom hiring services including grading and packing to the fruit growers under a single roof.
• To create additional job opportunities within the village itself to the unemployed Agriculture/Hort. Graduates.
• To ensure easy availability of various horticultural inputs and technical/extension services to the orchardists / fruit growers to increase productivity.
2. Location & Area of Operation :
Rural areas having more than 200 ha area of orchards and farmers generally willing to avail of such services in about 100 ha and a minimum plant population of 15000 trees / plants per annum.
3. Project Components :
Power sprayer, Foot sprayers, Horticultural tool set.
4. Project Cost :
Sr. Particulars Units Total Cost (Rs.) No.
A. Capital Cost
(i) Power Sprayers (3.5 H.P.) 1 No. 25,000
(ii) Tool kit including Gas Mask, 1 Set 3,000 Spraying Coat, Gum Boots Etc.
(iii) Foot Sprayers 2 Nos. 4,000
(iv) Tub, Bucket, Jug etc. 2 sets 3,000
(v) Horticultural Tool Kit. 5,000
Total (1) : 40,000
B. Recurring Cost :
(1) Rental Charges for clinic and 12 Months 12,000 store (12 months)
(ii) Petrol & Lubricants and cost 33,000 of maintenance
(iii) Misc. Contingencies 12 Months 41,000
(iv) Cost of fungicides / 200,000 insecticides for spraying
Total (2) 286,000
Grand Total (1+2) :- 326,000
(It is proposed to capitalise 25% of the total recurring cost of Rs. 2,86,000 i.e., Rs. 71,500 and this forms part of the loan amount. This amount will be utilised as working capital to be revolved in a rotation of three months during the year. Therefore, total outlay will be Rs. 1,11,500/- say Rs. 1,12,000/-).
5. Margin (10%) : Rs. 0.11 lakhs
6. Bank Loan : Rs. 1.01 lakhs
7. Rate of Interest : 14% p.a.
8. Repayment Period : 7 years including a grace period of one year.
9. Income :
Sr. No. Item Year 1 Year 2 Year 3
1 Spraying charges @ Rs. 1.50 per tree for 81,000 101,250 135,000
six sprays per annum for 15,000/- fruit trees
2 Sale of fungicide/Pesticide @ Rs. 2.50 per 135,000 168,750 225,000
tree for 15,000 trees for six sprays per annum
3 Picking/grading, Packing etc. @ Rs. 5/- per 12,000 15,000 20,000
box for 4,000 boxes.
4 Training/Pruning and Other Misc. Activities 12,000 15,000 20,000
Total 240,000 300,000 400,000
It is assumed that :
i. Fifty percent of the pesticides will be supplied by the centre and the rest by the growers/orchardists.
ii. The income generation will be 60%, 75% and 100% during first year, second year and third year respectively.
10. Economics of the Project :
Net Present Worth : Rs. 3.68 lakhs.
Benefit Cost Ratio : 1.34 : 1
Internal Rate of Return : > 50%
11. Other Information :
The activities to be taken up by the Centre are -
i. Spraying of fruit trees in the orchards with fungicides/insecticides for the control of various pests & diseases.
ii. Providing services for picking, packing & grading of fruits in the orchards by entrepreneur along with two labourers during harvesting season of fruits.
iii. Pruning operations in the orchards / vineyards for the period of one month in a year depending upon the crop/season etc. by the entrepreneur with the help of two labourers.
iv. Guidance on quality, marketing, technical inputs, arranging for soil/leaf analysis for the orchardists, supply of reading material on technical matters in local languages to create awareness amongst farmers/fruit growers and supply of quality plant material.
Note :
• Margin of 10% is assumed, but the actual margin will be as per the discretion of the banks.
• Interest rate will be as per banks' discretion.

FINANCIAL ASSISTANCE TO AGRICULTURE
Grants & Loans
The Montana Department of Agriculture offers several grant and loan opportunities for the agriculture industry.
Beginning Farm/Ranch Loans are available from a tax-exempt bond program that aids financial institutions in assisting Montana's beginning farmers and ranchers. Loans can be used to purchase agricultural land and other depreciable agricultural property.
Growth Through Agriculture (GTA) program offers investments for new and innovative agriculture marketing ideas or agribusiness developments. Program applications are reviewed quarterly. The Agriculture Development Council - which consists of representatives from industry and government - selects successful applications for GTA investments.
Junior Agriculture Loans assist and encourage members of agricultural youth organizations in financing agricultural projects when financing is unavailable from other sources. Projects can involve crop and livestock production, custom farming, marketing, processing and other financially feasible projects.
Rural Assistance Loans are available to producers with modest financial investments in agriculture. These loans finance agricultural enterprises to enhance producers' operations and assist in the economic growth and welfare of Montana agriculture.
Building Our Montana Committees (BOMC) - Three grants are awarded annually to FFA chapters that have shown outstanding BOMC projects.
Rural Community Development Grants - This program assists in funding community development projects conducted by rural youth organizations such as FFA and 4-H to improve the quality of life in rural Montana communities and improve interaction between the rural and urban portions of the communities.

Financial Solutions for Modern Agribusiness
SLS offers flexibility with loans and leases designed to solve the modernization problems facing agribusiness.
With our highly evolved programs - proven over many years of service - you can get the equipment you need simply and quickly, without tapping your bank credit lines. Leasing preserves your borrowing power for other opportunities. And, unlike some offerings, our programs - Express and Commercial - can be structured to fit your business needs. We offer a wide range of flexible payment plans, industry-specific programs and end-of-term options to make sure our capital works its hardest for you.
SLS provides innovative financing designs for farmers and agribusiness.
· Agribusinesses and sophisticated farmers make evaluations based on revenue per unit sold vs. cost per unit. Our programs make per unit comparisons easier than conventional financing.
· Flexible terms and payments schedules are designed around your unique situation.
· Payments may be fully tax deductible and the cost of the asset is more closely matched with the revenue it produces.
· Terms range from 1 to 15 years, depending on the asset and your needs. All payments are fixed over the life of the agreement.
· Leases can be structured not to show up as a liability on your balance sheet.
· Equipment and facilities can be financed at very competitive prices.
With our dedicated team of customer service representatives, we make it quick and easy. Start to finish, we are here for you for the life of your agreement, offering fast response to every question and need.
REFERENCE:
http://www.thehindubusinessline.com/2003/03/31/stories/2003033100280900.htm
http://agr.state.mt.us/business/finance.asp
http://english.people.com.cn/200612/05/eng20061205_328631.html
http://www.wheda.com/cat_ag/c_product.asp
http://www.slsfinancial.com/agri.html