Companies in agriculture and farmers - under the direct impact of the Ukraine war

Reporter: It's been a year since you came to Romania, specifically to lead Agricover Credit IFN. Why did you choose our country, and why Agricover?

Serhan Hacisuleyman: My nearly 25-year career in the financial-banking sector in Turkey includes over 15 years dedicated to developing banking services for SMEs and agriculture. I have overseen innovative development projects, such as digital banking, back-office process automation, projects carried out at prestigious financial institutions, including Deniz Bank, Deniz Leasing, HSBC Bank, Garanti Bank.

The agricultural sector is equally important for Turkey as it is for Romania. Turkey is among the top ten agricultural producers globally, with approximately half of the country's land dedicated to agriculture. The agricultural sector contributes around 7% of GDP, with Turkey being a significant producer of wheat, sugar beets, milk, poultry, cotton, tomatoes, and other fruits and vegetables, and the world's leading producer of apricots and hazelnuts.

Agricover is an exceptionally dynamic entrepreneurial group that actively promotes the most modern agricultural technologies, supporting their adoption by farmers through easy access to specialized financing solutions. As the number of farmers served by the Agricover Group increases, especially among medium and small farmers, digitization and automation become vital necessities for both Agricover and farmers. My experience in this field is relevant to Agricover, but it is also a personal challenge in finding optimal ways to apply validated solutions from other countries to the specific conditions of Romanian agriculture.

Reporter: How do you assess the evolution of agriculture in our country? Serhan Hacisuleyman: Speaking about my perceptions of Romanian agriculture, I would draw a parallel with Turkey. In the last decade, Romania has made significant performance strides, and the role played by the accelerated use of advanced technologies has been defining, as the total cultivated area has increased insignificantly. In contrast, production per hectare for major crops has seen a significant increase of around 9.6%. At the same time, production per hectare for major field crops (wheat, rapeseed, barley, sunflower, soybean, corn) in Turkey has remained roughly constant, with Romania today achieving almost the same total production while cultivating an area representing about half of Turkey's cultivated land.

Access to financing has been a key element in supporting this development need through investments in technology. Romanian farmers consistently invest in land acquisitions and state-of-the-art agricultural inputs, as well as irrigation systems and precision farming solutions. Agricover Credit IFN is one of the primary agriculture financiers offering specialized credit solutions to farmers.

Furthermore, Romanian farmers benefit from the European Union subsidy system, which is much more substantial and predictable than Turkey's. Other points of differentiation arise from the fact that the agricultural year in Romania has two seasons (compared to only one in Turkey), and Romanian farms tend to have a better economy of scale.

Reporter: What do you consider to be the biggest challenges of the moment for this sector, considering the context created by inflation, interest rates, war, supply chain restrictions, etc.? Serhan Hacisuleyman: The agricultural sector in Romania is at the confluence of several factors that influence its evolution and whose effects are directly felt by both companies in the field and farmers. The current challenges are generated by factors such as the prolongation of the war in Ukraine, the exacerbation of climate change, as well as developments in global agricultural markets or the modest growth prospects of the global economy.

If we look strictly at the financial market's evolution, in the first half of 2023, we can say that agriculture financing continued its growth trend from 2022, albeit slowing down to some extent. The total agriculture financing market grew by 19.4% in December 2022 compared to December 2021, and by 6.5% at the end of June 2023 compared to December 2022.

Overall, bank financing is supported by the Government's Agro SME Invest Program, even though the allocated amounts in 2023 (0.4 billion lei) are smaller than in 2022 (2.5 billion lei) or 2021 (1.0 billion lei).

Reporter: What do you perceive from investors in this field? Serhan Hacisuleyman: Agriculture has enormous growth and development potential, which makes it potentially attractive to financial investors. The economic and geopolitical context of the last three years has been very challenging, with the sector demonstrating remarkable resilience, which is also important for investors. However, agriculture remains a less understood sector, which introduces a fairly high level of caution among investors. Under these conditions, farmers continue to be the main investors, along with specialized companies in the field that have a high degree of familiarity with the sector.

Reporter: What are the products you offer to support farmers, and how have you adapted interest rates to current market conditions?

Serhan Hacisuleyman: Agricover Credit IFN is the leading non-banking financial institution in Romania specialized exclusively in financing farmers. We provide our farmer partners with easy and quick access to financing and related services (including insurance intermediation services through our group companies) tailored to their needs and the specific requirements of the agricultural sector.

The primary product accessed by farmers is the working capital credit, which covers expenses like agricultural inputs and labor throughout the entire agricultural cycle, with full repayment after harvest and monetization of the produce. For farmers who prefer to postpone the sale of their harvest in hopes of getting a better price during off-season periods, we offer inventory-backed term financing.

We also support farmers' development projects through investment loans, primarily financing land acquisitions and farm consolidation, as well as other agricultural investments in equipment, machinery, irrigation systems, and more. Investment loans have longer maturities and repayment schedules tied to the agricultural seasons, such as June-July for spring crops like wheat or barley and October-November for autumn crops like corn or sunflower.

Another product tailored to the specific needs of agriculture is the credit card for small and medium-sized enterprises (SMEs), which provides revolving financing, typically valid for up to three years, with minimal annual repayments (60% of the utilized limit) and repayment schedules adapted to the predominant crop seasons. It's a unique product appreciated by farmers, designed to facilitate quick access to liquidity, which is crucial in farm production.

Reporter: How do you characterize the competition in the agricultural financing sector?

Serhan Hacisuleyman: Agricover Credit IFN holds a strong position in the Romanian agricultural financing market, built over 15 years of daily activities closely aligned with farmers to understand their specific financing needs and facilitate rapid access to funds through specialized products. Our strong market presence, well-established distribution channels, and in-depth knowledge of the agricultural sector enable us to assess financing opportunities efficiently.

The financial sector in Romania is generally developed and sophisticated, but it lacks a dedicated focus on agriculture. Agricover Credit IFN currently holds approximately 7% of the total agricultural financing market share. However, Agricover fills an essential gap by offering unique advantages to farmers. Furthermore, we have the capacity to accept crop-based collateral within our financing facilities, which distinguishes us from other financial institutions that may not have the same level of interaction with farmers or deep agricultural understanding.

Reporter: What are the most accessed products by those investing in agriculture?

Serhan Hacisuleyman: Considering the specific nature of agricultural activities and their seasonality, the need for working capital to carry out agricultural production is crucial for farmers. Agricover Credit IFN has developed specific products with quick accessibility, such as Instant Credit, to provide support throughout the entire agricultural cycle. Additionally, we have financing products dedicated to the primary agricultural inputs that contribute significantly to production costs per hectare, such as financing for the diesel needed for the entire production cycle and financing for plant nutrition products.

Another highly demanded product among farmers is for the acquisition of agricultural land, either for farm consolidation or farm takeover.

Over time, as the financing market matures, financing products are likely to evolve towards longer-term commercial loans and working capital requirements typical of stable enterprises. Alongside these developments, farmers' understanding of how financing products can best support their farming activities will also grow.

Reporter: How do you assess the value of European funds that farmers can access, and the associated legislative framework?

Serhan Hacisuleyman: Agriculture is one of the sectors in Romania with a high absorption capacity for European funds. This is because Romanian farmers aspire to grow, achieve excellence, and understand the opportunity for development and improvement of productivity standards using European funding.

The EU supports the agricultural sector through the Common Agricultural Policy (CAP), which represents a significant portion of the EU budget, despite recent reductions. Romania consistently benefits significantly from CAP funds, which aim at important objectives for increasing the competitiveness of the agricultural sector. Accessing these European funds is crucial for agricultural development, and the new CAP strategic plan for 2023-2027 allocates 14.9 billion euros to Romania, compared to a national budget of only 0.8 billion euros.

Reporter: What products do you offer to help farmers access European funds?

Serhan Hacisuleyman: We encourage and support farmers in accessing European funds because the role and impact of these investments in agriculture are essential for the development of a competitive agriculture sector in Europe.

To support farmers, we have introduced a co-financing facility for European Fund projects. This allows them to access the necessary funds for various project components, cover their own contributions, or address ineligible expenses within the project.

Reporter: You have reported positive financial results. What has contributed to these performances?

Serhan Hacisuleyman: Agricover Credit IFN has solidified its position in the local agriculture financing market, recording a nominal value of 2.96 billion lei in loans and outstanding advances as of June 30, 2023 (13.9% higher than June 30, 2022). This growth in exposure was driven by rising prices of financed inputs in the second half of 2022, resulting in a greater need for financing from existing customers. Another significant growth driver for Agricover Credit IFN is the increase in the number of farmers served, both directly through financing solutions and indirectly through other services within the group. Remarkably, as of June 2023, the total number of farmers who have used the group's services exceeded 10,500, which we estimate to be approximately 40% of the universe of farmers with farms larger than 50 hectares.

Due to robust loan placements and the number of clients served, the profit before tax achieved in the first half of 2023 was 57.46 million lei (52.8% higher than the first six months of 2022). This profit will be reinvested entirely in expanding Agricover Credit's financing capacity for as many farmers as possible.

Additionally, the non-performing loan ratio was 3.2% as of June 30, 2023, lower than the local market average for loans and advances to SMEs and corporations (4.12% as of March 31, 2023, based on the Financial Stability Report published by the National Bank of Romania in June 2023).

In conclusion, our specialized product portfolio, streamlined lending procedures, and extensive understanding of agricultural activities have contributed to remarkable results in the first half of 2023. These factors have also stimulated the growth of small and very small farmers accessing financing through Agricover Credit IFN.

Reporter: What are your estimates for the current year? Serhan Hacisuleyman: We continue to see a strong interest in financing, given the low prices for agricultural production and the reduced interest from farmers in immediately selling their harvested produce. At the same time, farmers are seeking solutions for financing "green" projects, so we expect investment loans for such projects to see increased demand.

Reporter: How would you characterize Agricover Credit IFN's performance after a year in office, and what investment projects do you have?

Serhan Hacisuleyman: The performance in the first half and the very promising outlook for solid growth in the coming years are supported, on one hand, by a unique synergistic business model designed to meet farmers' needs, deep knowledge of the agricultural sector acquired over more than 22 years of group activity, and, on the other hand, by well-prepared professionals who are experts in their respective fields.

I believe this mix defines the key to Agricover's success. I am pleased to be part of the team and contribute with my expertise to the development of Romanian farmers by continually offering new financing solutions to support their growth. To continue responding quickly and efficiently to a growing volume of clients and financing requests, we are looking at significant projects aimed at digitizing our operations.

The main capital investments made this year at Agricover Credit IFN include the implementation of SAP and the necessary infrastructure. In the coming period, we will continue investment projects with other digitalization applications and solutions to streamline credit and operational processes, as well as to develop self-banking services for our clients.

Simultaneously, we aim to strengthen our portfolio of strategic partnerships by bringing established financial institutions on board, both to secure the capital needed for financing and to contribute knowledge and best practices to the field.

Our ambition is to support farmers in reaching their maximum potential and, at the same time, to help the Romanian agricultural sector become competitive and sustainable at the European level. With this goal in mind, we will continue to refine our product and service portfolio for an increasing number of farmers.

Reporter: Thank you!