Empowering Ukraine’s small farmers through Agri Vision

My name is Tetiana Tomash, and I am the initiator and Director of the Agri Vision Program. My background is as a seasoned finance professional working in Ukraine and in the Netherlands.

Nearly two years ago, I set out as a freelance consultant with one driving goal: to contribute to Ukraine’s recovery. My journey led me to uncover a critical funding gap affecting small farmers - a segment of the economy that is both vital and underserved. After developing the concept, I partnered with the consulting firm 89 Global to combine our efforts and expertise toward making this program a reality.

Challenge: Financial Exclusion Of Small Farmers

The reason for this under-financing is the very low level of formalization of small agricultural producers: they are often not registered as businesses, their land is not documented, they operate in cash. This market is difficult to assess due to the limitations of available data. This leads to “invisibility” of the small farmers to the banks: they don’t have financial statements, financial models, bankable assets to pledge as collateral, and there are no revenues to assess by the bank statements. Transacting in cash washes out the farmer’s revenues, as grey traders, which take the large part of their margins.

These barriers leave small farmers marginalized, relying on costly, inefficient, and unsustainable practices. The pressing question is, how can we change this? How can we make these farmers “bankable” and empower them to participate in Ukraine’s recovery?

Farmers need clear financial and practical incentives to motivate them to “go white”. Now they give up their margins twice: while buying inputs at higher prices (as they pay the cost of goods including the high funding costs plus cost of risk for the distributors) and by selling harvest to grey traders for cash at the price lower than market. This setup isn’t sustainable for Ukraine’s agricultural backbone.

However, financial incentives alone aren’t enough. Small farmers are not only interested if they get paid a little more; they also need a simple and reliable solution to get money without additional effort. The strength of grey traders lies in their simplicity - they make it easy for farmers to sell their products without added hassle. Many farmers are willing to accept lower prices from these traders because they don’t have the time, knowledge or resources to administer VAT, formal documentation, or other incentives. For small farmers to transition to 'white' transactions, any new system must be as straightforward and convenient as the cash-based approach currently offered by grey traders.

Solution: Financial Incentives for Transparency

By providing farmers with affordable financing for lower-cost inputs (i.e. excluding cost of risk and cost of funding) and buying their goods at fair market prices we can improve their margins significantly enough to compensate for the additional tax expenses.

But how can we get this affordable financing? Even with the current unusual situation when Ukrainian banks can provide loans at lower rates than IFIs, the banks cannot reach the small farmers. Cost of risk and cost of processing of a large number of small tickets makes this business not attractive.

How Agroholdings and IFIs Play a Role

At the same time IFIs and DFIs are willing to support our SME sector, increase its bankability and sustainability. There are also mechanisms available to subsidize the interest rates: for instance, pillar three of the EU Ukraine Facility allocates €4.76 billion from the EU budget to cover interest on loans provided to Ukraine. This pillar is particularly relevant for SMEs, as it includes subsidies for interest rates on loans, thereby reducing the financial burden on businesses and encouraging investment and growth within the SME sector.

Agriholdings are a critical group of stakeholders who can act as financial intermediaries between the IFIs and the small farmers. Large agribusinesses uniquely understand the business model of farmers like no other and can take risks on business rather than on financial position. These companies are interested in buying crops directly from growers, as they need to ensure compliance with new ESG reporting standards. As public companies, they must now perform due diligence on their entire supply chains. For instance, a transparent transaction backed by agrarian notes could allow a farmer to secure a season's worth of inputs at a lower cost, while the agribusiness benefits from a documented, ESG-compliant supply chain. So agriholdings are interested in supporting the creation of well established, transparent and bankable farmers.

However, IFIs as lenders prefer to deal with banks as financial intermediaries due to their regulation, reporting, and risk management capabilities. So the modern digital solution is needed to ensure the credit process is transparent and reliable and also to optimize the cost of processing large numbers of small tickets of trade credits or advances to the farmers.

Building Support with Technical Assistance

For small farmers, it’s not just about financial gains; they also need straightforward, hassle-free systems. Grey traders offer simplicity, even if they pay less, because farmers lack the time and resources for complex processes. It is critically important to combine the financing program with technical assistance that promotes new financial opportunities, explains the benefits, and educates farmers. This support would make it easier for farmers to manage VAT administration, bookkeeping, and other requirements involved in transparent trading through bank accounts. Additionally, state support for these efforts is essential for success.

And now it all boils down to the solution: through the Agri Vision Program, we aim to provide affordable financing options and remove “grey” traders from the supply chain by facilitating direct, transparent transactions with legitimate buyers. By connecting IFIs and DFIs, large agribusinesses, and digital platforms, we’re building a framework to formalize and empower small farmers.

The Agri Vision Program seeks to address these issues by making small farmers bankable through a combination of financial incentives, accessible processes, and digital solutions.

Collaboration and Future Steps

The program kicks off in the situation of positive "perfect storm": all the market participants are interested to start acting now and will be benefiting from the program. With support from the IFC, agrarian notes will be launched in digital format starting January 2025. This innovation will enhance farmers' access to financing by improving the perception of risk for lenders. Agrarian notes are secure, digital financial instruments that allow farmers to use future crops as collateral. By backing loans with these notes, we can attract capital and mitigate risks for lenders, all while keeping the transaction cycle efficient. The digital nature of these notes streamlines their execution and integration into financial systems, making them a powerful asset for early-season financing. The digital platform WeAgro financed by USAID Agro and developed by Activitis can facilitate the whole credit process (including scoring, verification, underwriting and concluding loan agreements within minutes) and is ready to scale up: by including agrarian notes to the credit process we will get the full financing cycle seamlessly covered.

Agriholdings, with their understanding of the farmer’s business model and need for ESG compliance, are ideal intermediaries. They can take on risks and benefit from working with transparent, ESG-compliant farmers.

It took me over a year to crystalize this idea into the Agri Vision Program through hours and hours of discussions with different market participants. To implement the project, I have joined 89 Global team as Director of Finance for the Reconstruction of Ukraine. 89 Global is an international consulting firm bringing world-class expertise in the financing and management of large-scale strategic projects of this nature. Our leading management team includes Tetiana Korgan, an experienced banker and ESG expert, who is our representative in Kyiv. It also includes several international experts who bring vast experience in management of large scale projects in agriculture, energy, and infrastructure. On 31 October, 89 Global organized an event in Kyiv to develop consensus among key stakeholders and is now preparing to present the Program to multilateral institutions.

To implement the project, 89 Global is partnering with EY, who will support the legal framework and provide expertise on agrarian notes as they finalize their project with IFC to introduce this instrument to the market. PwC is also joining us to provide financial, audit, and ESG consulting within the program.

By Tetiana Tomash