Modernization Required to Make Agriculture a National PriorityWed, 09/05/2018 - 10:50
Q: Sofagro has extensive experience in financing the agricultural sector. In what specific areas do you see opportunities?
A: We are creating financial products to meet the sector’s needs and we are adapting these products to the needs of emerging companies. Our job is to talk to them, understand their requirements and create products that are unique to them. We will continue to work in the segments we already are in, boosting our financing solution via dispersion to small farmers in the sugarcane segment or other crops like strawberries or broccoli.
We are also working to develop greenhouses and we are venturing into financing marketers, which adds a higher degree of complexity. Marketers that export often require repurchase agreements. For instance, if a marketer has a contract with a client to sell a determined crop year-round but that crop is only produced four months a year, the marketer must buy the entire production in this short period of time and find a way to preserve it to be able to supply its client for the entire year. Because the client will not pay in advance for the product, marketers require financing. This is where we participate; we buy the product from them with the promise of reselling it at an agreed price in the future, which provides traders with liquidity. These agreements are fairly common for grains and sugar but we are venturing into creating these agreements for new products.
Q: What opportunities do new financial instruments such as CKDs offer?
A: Financing in the agricultural sector has the same problems other sectors have. The largest and most sophisticated producers find financing relatively easily. However, traditional financing companies cannot meet the needs of these large players because they do not understand the sector’s requirements. Medium-sized companies have problems finding financing because their operations are considered small for big banks, while other financing options tend to be unprofessional and not suitable for the business niche and its real needs. Small farmers suffer the most and tend to obtain their financing from micro-financiers. Sofagro plays an important role in this segment, especially in the sugarcane field.
Q: President López Obrador has made the Mexican agricultural sector a priority. What impact do you expect that to have on the industry?
A: Agricultural is a priority for the government not because of the government’s ideology but because the sector is among the country’s main industries. Although the sector had perfected its working dynamic over the years with its international counterparts, USMCA's negotiation should be taken as an incentive for the industry to improve the quality of its products and to diversify its exports. When we talk about the quality of our agricultural products, the path we must follow is quite clear since natural and organic goods are the most popular. However, these two changes cannot happen without modernizing and professionalizing the sector.
Both modernization and professionalization also depend to a large extent on the participation of the private sector. Unfortunately, farmers tend to have limited resources and do not have the money to invest in technology. This is where private initiatives can promote modernization.
We are seeing more investment, which is good news. One area that has become quite common for promoting the sector’s modernization is contract farming, a model in which small and medium-sized farming operations that work for large traders receive investment to modernize their production processes, build greenhouses and buy better seeds and agrochemicals. This results in a win-win situation for both farmers and marketers. The government also needs to provide more legal and judicial certainty related to land-ownership laws. Agriculture is among Mexico’s most important sectors and it has the potential to continue growing.
Sofagro is a nonbanking financial institution that operates under the SOFOM regime. It specializes in providing financing and funding to companies and cooperatives in the agricultural sector