DESARROLLO DEL SISTEMA FINANCIERO PARA EL SECTOR AGROPECUARIO DE URUGUAY

Eduardo Fernández-Arias, Francisco Rosas, Fernando Lorenzo

Resumen:

Se analiza el mercado financiero agropecuario de Uruguay con el objetivo de contribuir a mejorar las políticas e instituciones responsables de su desarrollo eficiente. Se concluye que la oferta de financiamiento de largo plazo es escasa a pesar de la creciente utilización de fideicomisos financieros, que se requiere un mejor aprovechamiento del valor de la tierra como colateral, políticas públicas que faciliten estructuraciones financieras innovadoras homogéneas, replicables y fácilmente adoptables, y un relacionamiento financiero más profundo con la fase industrial. Asimismo, la cobertura de riesgos agropecuarios se ha desarrollado con éxito, pero es aún un desafío en la ganadería.

Abstract:

This study on rural financial development in Uruguay focusses on the innovations introduced over the past fifteen years concerning financial instruments, institutions and supporting public policies. It describes their evolution, analyze their roles, identifies challenges to overcome, and suggests directions to address them. In summary, it portrays updated information on rural financial development in Uruguay and produces analysis useful to improve it. It first reviews the main features of the macrofinancial context in which rural financing is inserted and the evolution of traditional bank credit for the sector. Against this background, it then analyzes the use of multiple innovative, non-traditional credit and insurance mechanisms that have sprung up. Finally, it reviews some key public policies that have facilitated these innovations and concludes with policy suggestions to overcome existing challenges. The analysis shows that rural financial markets have evolved successfully to meet some of the challenges encountered based on market adaptation and policy interventions designed to solve specific problems. However, this evolution has not been systematically geared towards addressing the multiple market failures that impede overall rural financial development. A systematic approach to policy design ought to cover the three main pillars of rural financial markets, namely i) financing for investment and productive transformation, ii) financing for production or working capital, and iii) insurance to cover production and commercial risks. The study concludes with an evaluation and policy suggestions for each one these three pillars. Financing for investment and productive transformation. Investment requires the availability of financial products matching its long maturation period and the risk involved in innovative investments for productive transformation. The analysis shows that the financial system in this regard is poor and faces strong limitations. Traditional credit to the rural sector is remarkably short term. Traditional bank credit supported by short-term liabilities has not been able to produce the required long-term financing and is structurally limited to provide the required long-term financing. Financial trusts have sprung up as a market adaptation to supplement bank credit to finance on a long-term basis. They have been used in forestry, livestock and extensive farming. However, financial trusts require the intervention of specialized agents and are more involved to implement, which poses substantial limitations to their use outside very large projects. Furthermore, financial trusts have relied on the participation of institutional investors such as pension funds and insurance companies that, looking ahead, face regulatory constraints to increase their exposure in these ventures. Other sources of long-term financing based on capital markets and investment funds have not developed despite policy efforts to promote them. It can be concluded that rural long-term financing needs new solutions. An appropriate financial structuring to deliver long-term finance would recognize the high capitalization of rural enterprises and make efficient use of the value of land as collateral. Traditional mortgage loans do not facilitate the use of land as collateral for several reasons, such as property fragmentation, an imperfect valuation system, and costly implementation. There is room for public policy to facilitate long-term rural financing by removing obstacles to land mortgaging and developing templates for standard financial structuring that can be adopted on a massive scale, especially for small to medium-sized farmers. Long-term rural financing can also benefit from linking investments in primary production to the demand of the industrial sector processing it, mainly to export. In forestry, for example, the study highlights the explicit supporting role of the industrial phase in facilitating access to long-term credit for aforestation by ensuring demand. Likewise, in dairy and rice production the participation of the industrial phase, critical for commercialization, could be deepened to facilitate the long-term financing of primary producers. Other subsectors may adopt similar strategies for taking advantage of the strengths of their up and downstream value chains to improve long-term creditworthiness of primary producers. However, it is important to note that livestock, the predominant primary production in Uruguay, does not have a synergistic relationship with the industry and faces difficult challenges to make use of this value chain approach. Financing for production or working capital. Apart from investment needs, rural enterprises require short- and medium-term financing for working capital to sustain normal production over the production cycle. Since production cycles and the terms of the associated financial needs vary widely across rural activities, financial products for working capital ought to be correspondingly diverse. The study reviews the specific situation in several subsectors and concludes that the financial fabric available in Uruguay for short- and medium-term financing is reasonably dense and offers a good starting point for improvements. The support of up and downstream links of value chains to ensure access to credit to rural enterprises plays an important role. Without these financial enhancements from stronger links in the value change with a special relation with producers, many of them would not have access to required credit, be it because of insufficient collateral or a perception of high risk. The value chain approach also ensures that financing terms adapt well to the production cycle, which exhibits different characteristics in extensive farming, intensive farming, and dairy production. This kind of financial mechanism demonstrates the capacity of market and regulatory adaptation, but also that the traditional system falls short of solving the underlying market failures. Public guarantee funds created in 2009 are also successful instruments designed to address the market failures limiting credit access by producers. The study reviews at length the use of dairy and rice producers of the support of their processing industries to improve their access to adequate financing, and of public guarantee funds. These subsectors require a steady stream of financing to support normal productive activities which is often not met by traditional credit lines, be it because of maturity not matching production flows or insufficient collateral. The macrofinancial crisis of 2002 deepened these challenges and led to the creation of the dairy and rice financing funds, a program designed with a sound financial structuring based on the value chain approach. Twenty years later after they were created to address a specific economic problem, these funds remain relevant to producers and are an excellent starting point for further refinement. This also shows that traditional credit has structural limitations to satisfy the financial needs of these sectors. Insurance to cover production and commercial risks. Rural enterprises face substantial market risks, especially concerning production yields and prices. These risks are not only a hindrance to productive activities but also to access to financing. The study finds that in Uruguay there is a robust climate risk coverage. Furthermore, there are insurance innovations in crop production, such as those to cover reseeding risk and other risks at harvest time, and incipient products of yield insurance for soy and corn production. Nevertheless, adequate insurance products are lacking in livestock, the predominant rural subsector in Uruguay. Barring isolated instances, by and large, there is no insurance coverage for low yields or productivity neither for price risks. An important challenge to address these problems is that contrary to full-cycle livestock operations, the segmentation of production phases in different farm operations prevalent in Uruguay (namely cow-calf production and cattle finishing), adds idiosyncratic risks to each segment.