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6.4 Special Purpose Vehicles

An even more complex form of indirect VCF, where both input suppliers and processors are included, is the use of so-called “special purpose vehicles (SPVs)”. A SPV is a stand-alone company jointly owned, for example, by the processor, input providers, and a bank. The contract between the SPV and the farms can include provisions on output, inputs, and credit.

An important advantage of such institutions is that the partners in the SPV now share the risk of contract breach. When a processing company by itself implements input and investment facilitation programs, the processor carries the entire risk of farms' breaching contracts, although both the input suppliers and the financial institutions benefit from these contract innovations. Institutions such as SPVs allow the sharing of risk between various agents, and hence will stimulate investments by companies who otherwise may be deterred by the risk.[1]

Another example of a triangular structure with a specially designed institution is the collaboration between the Russian dairy processor Wimm Bill Dann (WBD) and the Swedish dairy equipment seller DeLaval to sell milking equipment to Russian dairy farms through leasing contracts. The program allowed financially constrained dairy farms to lease milking equipment. The farms paid off by delivering the raw milk to one of the dairy processors owned by WBD (World Bank, 2005).[2]

6.5 Warehouse Receipt Finance

Warehouse receipt payments is another form of indirect VCF in which safe and secure warehouses issue warehouse receipts to depositors of commodities and allow financial institutions to use the deposited inventory as safe, dependable, and liquid collateral. This is an indirect form of VCF in which producers can use deposits at a warehouse as collateral for a loan.[3] Such a system is most common for grains and other non-perishable products.[4]

  • [1] In some cases such structures have developed with farmer participation. For example, Gow and Swinnen (2001) report that in eastern Hungary a group of sheep farmers set up a producers' co-operative through which they participated in a SPV-like joint company.
  • [2] One example of this was implemented by an international financial institution specialized in agribusiness and food supply chain financing in Hungary, in collaboration with local agribusiness partners (Gow and Swinnen, 2001). See also van Empel (2010).
  • [3] Warehouse receipts systems have also been set up, for example in the Kenyan maize market in 2007 but remain very limited there (Collins, 2009).
  • [4] Warehouse receipt systems have proven to be a successful instrument in providing finance in the value chains for source countries, in particular for storable commodities such as grains, in transition countries (World Bank, 2005).
 
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