How agricultural receipts work: a practical guide for farmers

Contents of the article

1. What is an agricultural receipt?
2. How to issue an agricultural receipt
3. Closure of the agricultural receipt
4. Advantages of agricultural receipts and potential risks

 

Agricultural receipts are an effective tool for lending to the agricultural sector, enabling farmers to attract financing secured by a pledge obligation in the form of a future harvest. For many farmers who do not own sufficient solid collateral, agricultural receipts have become a real alternative to bank loans, providing access to agro-financing in larger volumes and on more favorable terms.

In Ukraine, on the one hand, there were experienced agricultural producers who knew how to grow products effectively but did not always have the assets to obtain a classical loan. On the other hand, there were banks, resource suppliers, and other creditors ready to finance farmers but needing clear guarantees of obligation fulfillment. Agricultural receipts made it possible to use the farmer’s main asset — the harvest — as full-fledged collateral, while ensuring transparency, flexibility, and legal protection for both parties.

 

What is an agricultural receipt?

An agricultural receipt is a document that certifies the obligation of an agricultural producer to deliver a specified quantity of agricultural products or to pay a certain amount of money within a specified period and on agreed terms. It has legal force and is secured by a future harvest grown on specific land plots. The circulation of agrarian receipts is regulated by the Law of Ukraine "On Agrarian Receipts" dated 06.11.2012 № 5479-VI.

Types of agricultural receipts:

• Commodity — involves settlement in agricultural products;
• Financial — involves monetary repayment of the obligation.

Regardless of the document type, the creditor receives security for the farmer's obligations, and the farmer — the required amount of funds under transparent financing conditions. Each agricultural receipt is entered into the Register of Agricultural Receipts and the State Register of Encumbrances on Movable Property, which ensures transparency and legal protection for the parties to the agreement.

 

How to issue an agricultural receipt

Agroprosperis Bank was the first Ukrainian bank to begin financing secured by agricultural receipts back in February 2016. Thanks to a deep understanding of the agricultural business, we were able to effectively implement this instrument into our lending practice. Below are the main stages of issuing an agricultural receipt.

1. Borrower analysis

The bank considers the possibility of providing financing by thoroughly analyzing the client’s financial condition, business reputation, and the agronomic technologies used for growing the crop planned to be pledged.

• the client provides the following documents for consideration:
• technological map of crop cultivation;
• list of land plots with cadastral numbers broken down by field;
• certificate of yield in previous years;
• financial statements.

A mandatory stage is a field visit to where the pledged crop is grown. At Agroprosperis Bank, this function is performed by the specialized Department for Assessing Borrowers’ Agro-Technologies. Its specialists possess not only deep theoretical knowledge but also significant practical experience working directly in the field.

2. Agreement of financing terms

The interest rate is determined depending on the amount and term of financing, business stability, and the client’s experience in agriculture. The term of the receipt is from 6 to 12 months. Detailed conditions can be found on the bank’s website in the relevant section.

3. Document preparation

If the decision is positive, the preparation of the required document package for issuing the receipt begins. If several crops are pledged, a separate receipt is issued for each. From our experience, agricultural enterprises usually conclude two or three receipts simultaneously.

A mandatory condition for notarization is the state registration of the land plots on which the pledged crop is grown in the State Register of Property Rights to Immovable Property.

For each field, the bank performs identification and visualization of land plots by cadastral numbers. It is important that at least 70% of the land plots within each field are owned or leased by the borrower and are duly registered.

4. Signing and registration

After signing by the parties, the document is notarized. The duration and cost of issuance depend on the number of plots, since an extract from the register is required for each. The notary enters information about the obligation into the State Register of Encumbrances on Movable Property and into the Register of Agricultural Receipts.

5. Monitoring of obligation fulfillment

Monitoring the condition of pledged crops is a mandatory stage and is carried out by the bank’s qualified agronomists with relevant experience. Inspections are conducted twice during the following periods, depending on the crop type:

Winter crops:

• October — assessment of seedling quality and uniformity;
• May — determination of potential yield.

Spring crops:

• End of May — verification of seeding, quality of work performed, and phytosanitary condition;
• August — assessment of yield potential and compliance with agrotechnical requirements.

 

Closure of the agricultural receipt

After full fulfillment of the obligations under the agricultural receipt — by paying funds or delivering the agreed amount of harvest — the creditor must, within three business days, mark the original document with “Fulfilled,” confirm the note with their signature and seal (if available), and return the document to the borrower.

The final stage is the borrower's appeal to the notary who certified the receipt. The notary makes the relevant entries in the Register of Agricultural Receipts and the State Register of Encumbrances on Movable Property, officially confirming the termination of obligations and the legal force of the document as fulfilled.

If the farmer was unable to fulfill all obligations on time but reached an agreement with the creditor on partial repayment of the debt, it is permissible to record partial fulfillment on the receipt. This note must be signed by both parties — the debtor and the creditor — indicating the amount already paid or the delivered volume of harvest and the remaining obligation. Important: the possibility of phased fulfillment must be explicitly stipulated in the terms of the agricultural receipt.

 

Advantages of agricultural receipts and potential risks

Agricultural receipts have a number of advantages compared to other financing instruments, especially for small farms:

1. allow the use of yet-to-be-grown harvests as collateral and, as a result, attract a larger amount of credit;
2. provide access to financing even for micro and small farms;
3. feature a simplified legal procedure that ensures protection for both parties;
4. offer reputational benefits for the farmer through the ability to build a positive credit history, facilitating future dealings with various creditors — banks, resource suppliers.

Like any financial instrument, an agricultural receipt involves certain risks of non-performance due to adverse weather conditions, military factors, or other force majeure circumstances. To protect against these risks, farmers may insure their crops. The bank does not require clients to enter into such contracts, as crop failure risks are covered at the level of the entire loan portfolio. Additionally, in case of crop failure, it is possible to replace the pledged asset with new future crops to be grown on the same land plots.