USING THE VALUE

CHAIN IN
FINANCING AGRICULTURE
Dr N B Shete

National Institute of Bank Management, Pune

PRESENTATION APPLYING AGRI VCF

AN EVOLVING AGRICULTURE

DEFINING VALUE CHAIN FINANCE

THE USE OF VCF

AGRI VALUE CHAIN - STAKEHOLDERS

VALUE CHAIN ANALYSIS FRAMEWORK

VALUE CHAIN ANALYSIS FRAMEWORK

FLOW OF PRODUCTS AND FINANCE ALONG VC

EXAMPLE : FLOW OF FINANCE IN RICE

VCF : DEMAND SIDE

VCF : SUPPLY SIDE

VALUE CHAIN BUSINESS MODELS

EXAMPLE : FACILITATION MODELS

LAFISE INTEGRATED VCF MODEL

AGRICULTURAL VCF TOOLS/PRODUCTS

VCF TOOLS

TRADER CREDIT

VCF TOOLS

FACTORING

VCF TOOLS

FIELD WAREHOUSE RECEIPTS

VCF TOOLS

TOOLS TO MITIGATE MARKET RISKS

VCF TOOLS

RISK ANALYSIS : INCORPORATING NEW ELEMENTS

BANKS : NEW PERSPECTIVE FOR AGRI FINANCE

SUMMARY KEY FACTORS FOR CONSIDERATION

GOVERNMENT : POLICIES TO SUPPORT VC FINANCE

CONSIDERATIONS : STRUCTURAL FACTORS

NEED : FOOD SECURITY CHALLENGES

Agricultural Value Chain

Financing

- Established in 1966

BAAC Historical
Background

- As a Specialized Financial Institution

- State Enterprise under the Jurisdiction of the Ministry of
Finance

Objectives
To promote the improved social and economic well-being
of Thailands farming population through the provision of
financial assistance for agricultural production, investment and
marketing purposes.

BAAC Vision
To be a secured rural development bank with
modern managerial technology focusing on the
uplift of small-scale farmers quality of life.

Value
Standing side by side and
Recognizing the Value of People

Mission

To render integrated credit services to enhance farmers

opportunity for effectively improved productivity

To streamline social development regarding agriculturebased learning for the improved quality of life of farmers
so that they will be valuable human resource assets and
worthy members of society

To administer funds in such a manner that the cost is

kept at the appropriate level reflecting the banks key
mission with emphasis on liquidity and stability

To develop new areas of services to effectively and

productively meet farmers needs on the strength of highcaliber staff with sound judgment

BAAC Financing on Value chain

Financial
Service
Learning
Support
Activities

Agricultural
Activities

Risk
Mitigation
Support
Activities

Agricultural
Produce
Processing

AMC

Domestic
Consumption/
Export

BAACs Model
in Agricultural Value Chain Financing
Agricultural value chain financing would be successful
if following aspects are well addressed:
- supervised credit management
- productivity enhancement supporting :
productivity increasing and production costs reduction
- marketing channel creation:
group formation, stop selling to middlemen
- knowledge supporting to be self-reliant :
capacity building
- providing of safe guard against risks

From farm to Mouth

Rice value chain

Year 2009

Year 2010

Farm Households Serviced by BAAC, FY 2005-2009

Rice Cultivation Area in

Thailand (Rai)

=0

< 100,000

100,001 - 500,000

500,001 - 1,000,000

1,000,001 - 2,000,000
> 2,000,000

Converted Area :
1 rai
= 1,600 sqm2
2.5 rais
= 1 acre
6 rais 400 sqm2 =1 hectare

Thai Rice Exporting in 2009

Cambodia

Total : 8,592,830 Tons

42,667
Tons

Total : 5,027 Million US$

Germany
Germany
25,604
25,604
Tons
Tons

Iran
Iran

Bangladesh
Bangladesh

24,144
24,144
Tons
Tons

44 Tons
44 Tons

Philippines
Philippines

Pakistan
Pakistan
40 Tons
40 Tons

156,033
156,033
Tons
Tons

Indonesia
Indonesia

Malaysia
Malaysia
162,437

219,643
219,643
Tons
Tons

162,437
Tons
Tons

Ceylon
Ceylon
288 Tons
288 Tons

India
India
41
41Tons
Tons

Rice Value Chain Financing

AMC network establishment

AMC network discussion

AMC : harvesting service

Transportation to AMC marketing center

Sampling for inspection

Inspection tool

Quality & price

Unloading bulk

AMC network : village collecting unit

AMC network : village collecting unit

AMC : organic jasmine rice

Financial Services
I Credit Services
Credit services for individual farmers
- short term loans for agricultural production
(working capital)
loan for seasonal expenses
repayment term within 1 year (in special cases
repayment term < 1 year)
- Medium and long term loans for investment
loan for investment in assets which last more
than 1 years, in special cases loan term can last
up to 20 years, e.g. loan to buy agricultural land
and machinery
payment in installment, loan terms more than 1

Financial Services
I

Credit Services
Credit services for individual farmers
- Loans for sale postponement of farm produce :
Crop Pledging Schemes: to provide funds to farmers to meet their
immediate expenses while waiting for crop prices to rise after the
harvest season, avoiding thinned to sell their crops when prices
are low. Repayment of this type of loan is normally due within six
months.
- Cash credit lines : To provide a convenient way for clients to
obtain BAAC loans. Clients can withdraw cash from his account
as he needs up to an agreed ceiling and within the period of
loan agreement.

- Long term loans for refinancing old debts

- Loans for farm-related and non-farm activities

Financial Services
I Credit Services
Credit services for individual farmers
- Loans for overseas working
- Loans for quality of life
- Housing
- Education
- Medical care
- Advanced Credit (A-Cash) -instant cash credit
facility for
meeting their urgent needs. The clients can obtain
and
repay credit amount at their convenience

Financial Services

I Credit Services
Credit services for farmers Institutions
- Re-lending to members
Procurement
equipment

of

farm

inputs

- Long term agricultural investments

and

Learning Support Activities

Model of Sufficiency-economyoriented Community
Project

Third Phase
Community Economic
Network

Second Phase
Inter-dependence

First Phase
Self-Reliance
- change way of living
- Practice of keeping
detailed accounts
of household expenses
- abandoning gambling habit
- have occupations that
generate extra income,
- cutting down unnecessary
expenses
- Form savings habit

- Stronger community take

part In planning,
preparing community
data and analyzing
strengths and
weaknesses
- Conducting joint business
ventures
- buying and selling
collectively
- Acting as a group e.g.
occupation, savings,
resources conservation
and fringe benefits

- Development of strong
community to create
community business
network
- Advocate joint trading
and setting up of an
economic network
at community level

Risk Mitigation Support Activities

Weather Index Insurance
- Farmer becomes confident that they will be compensated in times
of drought that caused damage to their crops
- Indemnity payment is utilized to fund a repeated cultivation
- BAAC in collaboration with the General Insurance Association has
rendered the weather index insurance service to maize farmers.
- Service areas currently covering 5 provinces
- Drought index is based on data supplied by eight rainfall stations
under the auspices of the Meteorological Department.

Risk Mitigation Support Activities

Weather Index Insurance
- Insurance premium is fixed at 100 Baht per rai with
maximum
indemnity payment of 1,228 Baht per rai.
- Indemnity appraisal relies on rainfall measurement criteria
as
stated in the insurance policy and differs from :
- degree of risk prevailing in each locality
- rainfall at each station
- starting of cultivation and crop stage, i.e. planting,
growing
or budding

Marketing Support Activities

Agricultural Marketing Cooperatives (AMCs)
- Were set-up in BAAC branch premises to support provision of
quality agricultural inputs and developing marketing channels
for agricultural products produced by client farmers.

- Crop collection: Support from AMC to collect and sell farm

produce.
Crop collection is convenient way for farmers to sell their crops
directly to buyers without any intervention from middlemen at
fair prices in accordance with quality and quantity.

Marketing Support Activities

Agricultural Marketing Cooperatives (AMCs)
- Advantages for client farmers include:
- To purchase farm inputs at fair prices with good aftersale services
- To sell farm products through the AMCs collectively
with fair prices

Central Paddy Markets

to help client to sell paddy at fair

prices and on fair terms and conditions