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Farming Investments In Romania Are About To Become Less Risky

Balkans.com Business News Correspondent – 21.10.2013 Farming investments in Romania are about to become less risky after the first agriculture mutual funds – which will take on the risks insurers do not cover – become functional in 2014. This will not only help stabilize farmers’ incomes in the event of calamities, but is also expected to lead to more favorable financing conditions. Mutual agriculture funds will become operational in Romania from spring next year, agriculture minister Daniel Constantin told BR last week. While the model is a first for the local market, it has a strong background in Western Europe. In Romania, the need to set up agriculture mutual funds has long been debated and has become more pressing in the context of climatic disasters such as last year’s drought, as well the more recent food safety scandals. importance of these funds stems from the fact that they essentially act as income stabilization tools which provide farmers with financial compensation for economic losses caused by such events as adverse weather and environmental calamities. Losses incurred due to such events are not covered by insurance companies. Had such funds been in place last year when the drought slashed farmers’ revenues, their shortfall would have been covered, explained Constantin last week during a Bursa conference. Economic deficits generated by price variations, as has happened this year after grain prices dropped following high production, could also be covered by the funds. Since Romania finally adopted EU legislation on agricultural mutual funds this summer, two local farmers’ associations have already announced they have begun procedures to set up such entities. The first was the National Federation Pro Agro, which was followed by the League of Romanian Farmers’ Associations (LAPAR). Under the current law, mutual funds can be set up as non-governmental organizations whose running costs in the first three years are covered by EU funds. Any local farmers’ organization can set up a fund but one of the main conditions is that its members represent at least 30 percent of the country’s farming surface area. Constantin told BR that under the current law, up to three such funds can be set up but that he hopes, and is willing to help mediate, that in the end only one fund will be created as this would make it stronger. However, no matter how many funds are founded, what is important is for farmers to join one. “Membership is voluntary (…). Farmers will have to choose between the mutual funds available on the market at that time. On the other hand, there is an incentive for every farmer receiving subsidies to join a mutual fund by reducing the subsidies from the national budget by 80 percent,” Pro Agro’s president, Alexandru Jurconi, told BR. Once farmers understand the benefits, they will join, even if this happens after they are faced with loss-generating situations, commented Constantin. The main purpose of setting up such funds is to reduce risks for farmers, but they should go onto generate other improvements such as easier access to financing and ultimately even cheaper bank loans. Membership of a mutual fund is an additional guarantee for banks that major agricultural risks – adverse weather, animal disease, environmental accidents and all the economic losses these cause – are covered.  This will automatically lead to better financing conditions, explained Jurconi. Moreover, members of an agriculture mutual fund could also benefit from lower insurance costs. Agriculture mutual funds will be complementary to the products insurance companies offer farmers. However, the mutual fund will be able to negotiate insurance costs for all its members which should lead to more favorable insurance policies for farmers, added Pro Agro’s president. The cost of benefitsThe funds will mostly draw on public sources – 65 percent of the compensation will come from the state and EU funds, and the remaining 35 percent will represent members’ contributions. The amount of money farmers contribute to the Pro Agro Agriculture Mutual Fund will vary depending on the risks covered. For basic risk coverage the level will be affordable for all members, regardless of their size, said Jurconi. “Of course, for special contingencies, especially when we talk about calamities, the contribution level will be different as the compensation payable in the event of losses will be substantial,” he added. Regardless of the level of the contribution, the sums farmers pay will be capitalized and, in the absence of financial compensation, can be withdrawn. Where land for which a contribution was paid is sold, the buyer will receive all rights of use, including the subsidy and the contribution to the fund. Pro Agro says it will start with some 1,300 members, accounting for more than 4 million hectares of farmland. This should change by the end of the first year of activity given the incentive to join a mutual fund and the setting up of other such funds. Better late than neverAgricultural mutual funds could have been set up in Romania as early as 2007, the year the country joined the EU. Had this been done, the local agriculture sector might have looked very different from how it does today. But now that things have finally been kick-started and farming is about to become a less risky business in Romania, more concerted and long-awaited effects could be seen in the years to come – easier access to financing, a better capacity to absorb EU funds and in the end a more competitive agriculture sector. Business Review Romania Continue reading

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‘Dishonesty’ Mars Russia’s Development In Farming

UK, 27th Sept 2013, by Agrimoney.com ‘Dishonesty’ mars Russia’s development in farming Russia’s development into a bigger agricultural power is being undermined by dishonesty among staff, and a lack of willingness to own up to errors, a leading farm advisor warned. Brian Redrup, who heads up agricultural advice for Velcourt in Eastern Europe, Africa and South America, acknowledged the challenge to farming in Russia from weather extremes, and a history of periodic droughts. “Farming in Russia will be volatile due to climate,” said Mr Redrup. However, some farm business “are investing in irrigation to reduce the climatic effect”. Irrico, the agricultural investor backed by VTB, and Stokholm-listed Trigon Agri are among groups which have highlighted the importance to Russian farm operators of access to irrigation. ‘No accountability’ Mr Redrup said that the “significant factor” holding back the development of Russian agriculture “is honest, accountable farm management”. “If the climate is one major challenge, the other is competent management,” he said. “On a typical Russian unit, there will be a general director, chief agronomist and chief engineer. They will all blame one another if things go wrong, with no accountability.” He termed dishonesty as “another major issue”, which was “endemic from tractor drivers through to the senior management. “At tractor driver level, the stealing of diesel, fertiliser and chemicals can be a problem. At a higher level, the security of grain is questionable.” Russia vs Romania Mr Redrup is one of the most experienced consultants at Velcourt, which manages some 50,000 hectares of land in its home UK market alone, 35 years ago, the last 10 of which he has represented the group in Russia. “A UK farmer visiting [Russia] for the first time in late spring would be confident that they could achieve 10 tonnes per hectare across the board,” he said. “Unfortunately, it’s not that easy.” Velcourt in March set up a joint venture, with Mintridge, for investing in Eastern Europe farmland, but settled on Romania, within the European Union, as its target market. Romania offered “a compelling case for the three central factors that makes land an attractive asset class – scope for land value growth, the ability to acquire freehold land, and the soil quality for farming the land”, Velcourt said at the time Farm scams Some other agricultural figures have also flagged scams in Russia, and other countries, with inspection groups such as seeing the detection of scams as part of their services. Societe Generale de Surveillance, for instance, last year warned the International Grains Council’s annual conference that “fraud and corruption” in the former Soviet Union were issues “to be addressed”. “It still exists,” Mr Shulga, a Ukrainian said, pointing to examples where his company, which undertakes services from soil testing to inventory inspection, had discovered attempts to exaggerate grain inventories by piling them on top of bales, or on to a false floor near the top of a silos. People pretend their silo is full, and ask an inspection company to certify 20,000 tonnes,” certification which can be used as security against bank loans. “Proper checks find only 10 tonnes stored.” However, another farm manager with Russian experience said that while the country did have “issues”, these could be found in many other nations, including those in the West, and underlined the need to offer attractive employment packages to lure high quality staff. Continue reading

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FranceTo Take Lead In Wheat Exports To Egypt

A US forecast that the European Union will lift its wheat exports to 23.0m tonnes this season, the third highest on record, is based on ideas that France will take up the baton on supplying Egypt. Romania, on the European Union side of the Black Sea, has proved the major shipper to Egypt, so far in 2013-14, chalking up orders of more than 800,000 tonnes, out of the 2.1m tonnes ordered by the top importing country. That is more than orders from Russia, which has traditionally dominated early-season orders by Egypt’s Gasc grain authority, and Ukraine, also known as a fierce competitor on international markets. And Gasc looks likely to turn largely elsewhere in the EU for supplies once Romania, a relatively minor producer, exhausts its exportable supplies, the US Department of Agriculture said. ‘France expected to take over’ “Romania is aggressive exporting to Egypt, and France is expected to take over the Egyptian business as Romanian supplies dwindle,” the USDA said. This is at a time when Egypt has been “tendering aggressively, intending to replenish the countries’ wheat stocks to provide subsidised bread to about a quarter of its population who live below the poverty level”. While Egypt has run into economic problems, and ran down its stocks in 2012-13 in an effort to save cash, “several Arab countries – Saudi Arabia, United Arab Emirates and Kuwait – pledged monetary support for Egypt to aid the currency strapped country whose trade deficit is widening”. However, French supplies at the latest Gasc tender closed the gap with offers from the Black Sea exporters. The USDA also flagged that France has been exporting to China, Algeria and Saudi Arabia, helping EU wheat exports, as measured by licences, hit 2.5m tonnes since 2013-14 began at the start of July, the fastest pace in 10 years. Squeeze on quality wheat The comments came as the USDA expanded on the reasons behind an upgrade last week of 1.0m tonnes to 23.0m tonnes in its estimate for EU wheat exports this season, besides lifting by 500,000 tonnes to 9.5m tonnes its forecast for Egyptian purchases. However, they also sharpen ideas of the uneven availability of high quality wheat, which is seen as abundant in the EU, as flagged separately by trade comments on UK wheat dynamics , but tight in many other geographies. High-quality wheat “is expected to be in short supply this year”, the USDA said, echoing comments from the likes of Australia’s Abares crop bureau and Macquarie . ‘Moisture content too high’ Indeed, Russia is viewed as having slender supplies of high quality wheat, after rains at harvest in the central region, and most lately in Siberia, where it had been hoped that a strong spring wheat crop would bolster supplies. “Russia is struggling with wet conditions on the tail end of their wheat harvest, which has raised more concerns about the overall quality of the Russian crop,” Brian Henry at US broker Benson Quinn Commodities said. In Siberia, “fields are still wet, which complicates the access of the farmers,” Agritel said. “Furthermore, the moisture content of the grains seems still too high,” a worry as it encourages sprouting which can render wheat unfit for milling, besides making storage difficult if the grain is not dried. However, “the weather conditions are getting better”, Agritel said. SovEcon, the Moscow-based consultancy, has warned of a “significant decline” in Russian grain exports this autumn, thanks to higher prices encouraged by the shortage of high quality grain. French hopes Hopes for French wheat exports, by contrast, are buoyant, with the official FranceAgriMer bureau last week forecasting an 11% rise to 11.0m tonnes in shipments outside the EU this year, and many traders believing the result could turn out higher still. France in 2012-13 shipped 17.1m tonnes of wheat, 9.9m tonnes to buyers outside the EU. Continue reading

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