Farm Finance Center

completed

FFC will provide financing to primary agricultural enterprises with strong supply links to major food and agribusiness companies in Russia. This project envisages the development of the FFC to begin with the financing of milk suppliers to Campina''s new yoghurt factory in the Stupino District of Moscow Region. IFC is already an investor (USD 10 million loan) in the Campina yoghurt factory which became operational in April 2000 with capacity to produce 28,000 MT of long-life yoghurt for the Russian market. Over time as FFC expands, other food and agribusiness companies are also expected to participate in the FFC, increasing the number of farms serviced. The FFC is an innovative structure which makes it possible to finance primary agriculture because it relies on long-term supply contracts between suppliers/farms and technically and financially strong processing industries. This tightly integrated supply chain provides sufficient comfort to attract investors and makes it possible to finance primary agricultural production. The FFC will also alleviate one of the main obstacle the F&A companies in Russia face -- the inadequate supply of raw materials, both in terms of quality and quantity, from farms.IFC has played a pivotal role in this project, most importantly :Helping develop the innovative project concept and supporting the initial pilot project as a ground breaking means of providing finance to the primary agriculture sector from which investors usually tend to shy away due to the risks of weather, disease & fluctuating commodity prices.Continuing to arrange technical assistance, via the Russia Agribusiness Technical Assistance Project, funded by IFC and the Government of the Netherlands. This support will be essential during the early phases of the company''s operations before it reaches a sufficient size to achieve economies of scale. Providing comfort to Campina and other processors by committing risk capital with other shareholders to a difficult sector which otherwise finds it difficult to attract equity investment. External finance is also not readily available to farms or start-up leasing companies like FFC.The project will have major developmental benefits:Private sector development. This access to finance will enable medium-sized enterprises in the agricultural sector, to expand their production facilities. New investment in essential farm equipment, like cooling tanks for milk, together with technical assistance, will enable these enterprises to improve efficiency in the production, distribution and the quality of raw milk. The project will facilitate the transfer of efficiency-enhancing technologies and business management techniques. Indirect developmental effects are also significant since investment in these enterprises will have a significant multiplier effect on downstream processors, which are severely constrained by the quality and quantity of raw milk. This will foster the development of processing enterprises that will benefit from a high quality and secure supply of raw milk. Poverty Alleviation : Farmers'' standards of living and employment. The expansion of the production capacity is likely to entail a net positive effect on employment and incomes. This effect is particularly welcome in a sector like agriculture that experienced a deep contraction in the 1990s, and in regions which have suffered from high unemployment and poverty. Product safety compliance: technical assistance in the use and maintenance of the equipment, milk handling and hygiene will bring a cleaner, more hygienic product to the processing factory and the consumer market. Foreign exchange earnings: The project will expand the domestic production of products, and thereby reduce the need to import; and will help over time to lower the demand for foreign exchange.