USAID Business Finance Agricultural Program Final Report

Bosnia and er!ego"ina USAID Business Finance

Agriculture Program
Final Report #a$ 31% 2001 Su&mitted &$' (o)n (* #urp)$

Bosnia and er!ego"ina USAID Business Finance

Contents:
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USAID Business Finance Agricultural Program Final Report

Assignment +&ser"ations and ,onclusions Recommendations Additional Reports and Presentation summar$

Appendix:
-.)i&it 1*********/P#0 Speci1ic assignment o1 duties -.)i&it 2*********,)ie1 Dut$2s acti"it$ report -.)i&it 3 *********Bosnia er!ego"ina Farm 3oan Program Proposal -.)i&it 4*********Agronomist Position Description

Background material:
USAID B, #ar4et Intelligence Brie1 on Agriculture USAID B, Sector Sur"e$ Agri5Business and Food Processing Agri&usiness Stud$ 0AF terra s$stems ,IA 6)e 7orld Fact&oo4 2000 Bosnia er!ego"ina

Assignment:
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USAID Business Finance Agricultural Program Final Report

A detailed mandate 8as assigned% 9-.)i&it 1: #andate acti"it$ report 9-.)i&it 2: to loo4 at Bosnia er!ego"ina agriculture% aimed at' De1ining t)e scope o1 t)e Agriculture industr$ Identi1$ing e.isting credit a"aila&ilit$ Determine t)e role credit pla$s in its post 8ar re5de"elopment

Observations and Conclusions:

Bosnia er!ego"ina is an agricultural countr$% 7orld Ban4 reports t)ere are ;<0%000 1arms in t)is countr$' agriculture represents 4;= o1 non5 ser"ice 0DP* Re1ugee return and communit$ re5de"elopment )as a "er$ )ig) correlation &et8een t)e amount o1 land and agricultural resources presentl$ redeplo$ed* In t)e $ear 2000 t)ere 8ere 410%000 )ectares o1 ara&le land not put in production* 6)e amount o1 land &eing used "aried 1rom communit$ to communit$* 7)ere land 8as used t)ere 8ere man$ more )omes and &usinesses re&uilt &earing e"idence o1 re1ugee return* Agricultural production represents 4;= o1 non5ser"ice 0DP in Bi 9compared to ,roatia 2>= and Ser&ia 2?=:* ,urrent le"el o1 production represents slig)tl$ more t)an )al1 domestic 1ood needs% and )al1 o1 pre58ar production le"els* 6)is is an agricultural countr$* #an$ @o&s rel$ on t)e capacit$ to produce crops and li"estoc4* In addition% t)e "alue5added 1ood5processing sector relies on Bi 1arm producti"it$* Bi )as t)e soil% 8ater% climate conditions and t)e e.pertise to produce most 1ood products on Sara@e"o grocer$ store s)el"es* Prior to pri"ati!ation and t)e 8ar% an e.tensi"e net8or4 o1 aAueducts% 8ells and )$dro s$stems 8ere set up to pro"ide "ast irrigated agricultural production* #uc) o1 t)is in1rastructure )as &een su11icientl$ damaged &$ 8ar% rendering it unusa&le 8it)out considera&le ne8 in"estment* BF 1ood processing clients 9meat processing: import as muc) as >0= o1 ra8 material reAuirements* 6)ere are no structured agricultural loan programs in Bi * #ost 1arm credit a"aila&le to 1armers is &$ means o1 stopgap 1inancing% terms less t)an one $ear and interest rates o1 2= per mont) or more* Agent Ban4s "isited% said t)e$ lac4 t)e tec)nical e.pertise to e11ecti"el$ lend to agriculture* Bi 1armers 9top 20=: can compete 8it) t)eir -uropean counterparts% t)e current s$stem o1 import duties on 1ood items% 8)ile not per1ect% is o1 assistance* 3and is currentl$ de&t 1ree* 6op 1armers are 8ell educated and in tune 8it) modern production tec)nologies* 6raining is needed in 1inance and produce mar4eting* +n t)e ot)er )and t)ere are man$ small to mid si!ed% non5"ia&le 1arm units in Bi % pleading 1or go"ernment )elp o1 grants and or guaranteed prices* ,are must &e ta4en in considering ne8 1arm loans% to ensure a reasona&le &ase e.ists 1rom 8)ic) t)e 1armer can &uild on* 3oans cannot ma4e a losing proposition pro1ita&le% &ut a properl$ structured line o1 credit can assist a pro1ita&le 1arm to gro8 its pro1ita&ilit$*
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USAID Business Finance Agricultural Program Final Report

6)e Agri5Food industr$ in Bosnia er!ego"ina is )ampered in its capacit$ &$ t)e lac4 o1 a"aila&le credit to regain pre58ar production le"els and to re&uild and create @o&s 1or returning re1ugees* 6)e re5deplo$ment o1 agricultural resources in Ba) can reduce t)e amount o1 1ood imports 9presentl$ ;0= o1 consumption:* 3and and climate allo8 1or a "er$ 8ide arra$ o1 agricultural production as seen in t)e land use map'

USAID5BF is alread$ a ma@or tender to agriculture* 32= o1 t)e num&er o1 appro"ed loans m BF port1olio is to 1arms and Agri&usiness entities* USAID5BF Agricultural 3oans as o1 April 30% 2001 BF% represents a di"ersi1ied port1olio% in terms o1 1arm t$pe and agri&usiness'

6)e potential e.ists to dou&le current agricultural production and increase emplo$ment* In t)e $ear 2000% onl$ B0= o1 t)e 1%020%000 )a o1 ara&le land 8ere cropped 9Agenci@a !a Sta1isti4u Bi :* 7it)out adeAuate 1ertili!er% mac)iner$% ne8 culti"ates etc* 9caused &$ lac4 o1 1unds: crop $ields 8ere lo8er t)an potential* Statistics pro"ided &$ &ot) USAID B, and municipalities con1irm li"estoc4 num&ers are at ;0= o1 pre58ar le"els* 6)is e.plains 8)$ meat5processing companies import most o1 meat cuts needed 1or "alue5 added processing* Cegeta&le and 1ruit processors% in some areas are operating &elo8 capacit$ &ecause o1 pro&lems in sourcing enoug) 1res) produce to meet t)eir processing
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USAID Business Finance Agricultural Program Final Report

needs% in ot)er producti"e regions% t)ere is insu11icient processing capacities to meet production capacities* 6)e Agricultural mar4et in Bi is e.tremel$ "ariedD t)ere is a multiplicit$ o1 li"estoc4 and crop production* 6)e 1ood processing industr$ )as t)e capacit$ to produce a 8ide range o1 "alue5added 1ood items* Also% t)ere is a "er$ 8ide distri&ution in terms o1 &usiness si!e o1 &ot) 1arm and agri&usiness entities* It is t)ere1ore eas$ to conclude t)at one5si!e 1its all approac) to agricultural lending 8ill not adeAuatel$ ser"e t)e needs o1 Bi agriculture* It is 8it) t)is o&ser"ation I 8ould suggest t)e mar4et &e ser"ed using t)ree separate deli"er$ plat1orms* 3oan programs 1or agriculture need to address t)e &iological timeta&le o1 agricultural production* 6)ere are no suc) programs in Bi * Agricultural loan programs need to address speci1ic loan terms and repa$ment 1reAuencies to address speci1ic needs suc) as' planting cherry orchard for which there will be no income for three years, therefore requiring four additional years to meet a repayment schedule after production begins. 9-.)i&it 3: pro"ides a &rea4do8n o1 t)e issues% 8)ic) need to &e considered in 1inancing agriculture' addressing terms% rates% repa$ment considerations% and collateral* Recommendations: 1* De"elop a structured arra$ o1 loan products to meet t)e needs o1 t)e agricultural industr$% along t)e lines recommended in 9-.)i&it 3: Bosnia er!ego"ina* Farm loan Program Proposal* 2* De1ine and put policies in place to ena&le a segmented deli"er$ o1 1inancial ser"ices products to agriculture as 1ollo8s' 9A: 0i"en t)e large num&er o1 small &ut pro1ita&le 1arms% t)e e.isting &an4s )a"e t)e people and locations to ser"e t)e small 1arm mar4et* Direct loans to agent &an4s &$ USAID BF 8ill ena&le a"aila&le 1unds* 7it) an appropriate training structure agent &an4s can &e coac)ed to success1ull$ lend to 1armers and meet t)e 1arm customers needs in re5de"eloping t)eir operations* Discussions 8it) UPI Ban4 and Uni"ersal Ban4 re"eal t)eir current le"el o1 in"ol"ement in agriculture is Auite limited* 6)e$ did con1irm openness to 8or4ing 8it) USAID BF 8it)in t)is sort o1 an arrangement* 6)e$ 8ere particularl$ interested in t)e training element* 9B: 6)e mid5si!e 1armers and agri&usiness o8ners 8ill need a )ig)er le"el o1 training in 1inance and a lender 8)o 1ull$ understands t)eir &usiness in order 1or t)em to succeed in re&uilding and e.panding t)eir enterprise* An agricultural lending action plan% 8)ic) 1ollo8s 8ill address t)ese needs* 9,: ,urrent BF programs and structures are success1ull$ ser"ing t)e large commercial entities* 6)is can &e &uilt on &$ including an on5sta11 agronomist 8or4ing in tandem 8it) lending associates* Suc) a strateg$ could &e implemented using t)e 1ollo8ing elements and considerations

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A segmented approach to financial service delivery: 6)e resumes o1 an$ one agenc$ 8ill not meet t)e near term need 1or de&t 1inancing o1 Bi agriculture* o8e"er% a reasona&le 1irst step 8ould &e to target t)e top 1=52= o1 producers and agri&usiness companies* Suc) a step 8ould position USAID BF to assist in t)e 1inancing o1 B?00 entities 1or a total o1 /# 12 million in loans*

Suc) a strateg$ 8ould reAuire a 1ormali!ed agricultural &an4ing training program 1or BF sta11% clients and agent &an4ers in"ol"ed 8it) agricultural customers* 6o ensure success in training content and in loan Aualit$ it 8ould reAuire BF to include in its strateg$ t)e emplo$ment o1 pro1essional agronomist9s: 9sample mandate -.)i&it 4: to assist 8it) BF sta11% and client training and pro"ide on51arm &usiness plan assessments 1or eac) loan applicant* Forecast geograp)ic distri&ution o1 ne8 loans'

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USAID Business Finance Agricultural Program Action Plan

Conclusions: 6)e implementation o1 t)is action plan 8ill meet t)e o&@ecti"es o1 USAID BF on se"eral 1ronts* It 8ill mo"e 1or8ard t)e rede"elopment o1 Bi agricultural in1rastructure% it 8ill en)ance re1ugee retunes% and it 8ill reduce dependence on imported food, t)ere&$ strengt)ening t)e general econom$* It 8ill also assist in esta&lis)ing a agricultural lending plat1orm t)at 8i11 assist agent &an4s to success1u11$1end to t)is )ig) ris4 sector% and/or esta&lis) t)e &asis 1or t)e creation o1 a EFarm ,redit S$stemF agricultural loan program t)at 8ill )a"e sustaina&ilit$ in t)e post International ,ommunit$ era* Additional Reports and Presentation Summar$' ,anton 1 report #arc) interim report and USAID presentation USA1D in1rastructure 9SamirDi!dar: report #a$ pro@ect report Report re' meeting 8it) agricultural academics 9#ostar: Report on agronomics o1 egg production 96u!la o11ice: #eeting 8it) 7orld Ban4 90oran 6in@ic: re' micro lending Report Prepared article 1or USAID B, client ne8sletter Prepared S7A6 anal$sis on agricultural lending in Bi Pro"ided commentar$ on Bi egg production industr$ at USAID credit committee
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USAID Business Finance Agricultural Program Final Report

,lient call reports to Branc) managers on t)e 1ollo8ing clients' (e!er4a Citmar4 #l@e4oprodu4t Beta ,ommerce Pol@asi Agroceme. 6errano"a Bra!da Pul@are"ic Bis4le) #illing Plant D@eno Poultr$ Posa"ina /o4a Pu!icspo Bra@ louie d@l RCR ,ompan$ Bemi4o d@l A4o" Impe. Cega Fruit Cita5Ci Dair$ Farm

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