Annex 7: Major export credit agencies for world food trade

This annex provides a summary of the major export credit and credit insurance agencies in the countries exporting grains and vegetable oils, focusing on their role in these exports. It is note-worthy that the export credit agencies of Argentina and South Africa are not involved in agricultural trade.

Australia

Australia’s Export Finance Insurance Corporation (EFIC) offers export credit insurance for up to 180 days through its commercial window, and up to three years through its national interest window. It covers wheat exporters (AWB and the private exporters licensed by AWB) up to 80 percent of their exposure. The exporters pass this on to their buyers through credit up to 80 percent of the value of the grains, and with a tenor of up to three years.

In cases where the risk is too great or where the acceptance of a contract would unbalance its portfolio, EFIC can make credit available though the national interest window. This requires a Ministerial decision or, as was the case in response to the Asian crisis, a Cabinet decision that extension of additional insurance coverage is in the national interest. Such credits allow longer-term coverage, with all risks ultimately covered by the Australian state.

Brazil

The Government of Brazil has four export credits and credit insurance programmes which can be used for its food exports.

The principal arm of the Federal Government involved in agricultural export finance is the Banco do Brasil, a quasi-government bank. In 1997, it made nearly US$550 million in loans for agricultural exports.

To support the export finance operations of other banks, the Brazilian Government has set up the PROEX programme. Under this programme, banks can refinance their loans to exporters at relatively low rates (equivalent to those available internationally). Most products eligible for financing under this programme are capital goods, but it can also be used for some semi-processed agricultural and food products. One of PROEX’s programmes is an interest rate-equalization mechanism for post-export loans, designed to ensure that Brazilian exporters can offer credit terms in line with those offered in international markets.

For longer-term credit, the government national development bank, BNDES, provides several facilities. Since 1996, the BNDES’s Export-Import division (BNDES-EXIM) has become more aggressive in providing export financing for Brazilian firms. BNDES-EXIM operates by identifying creditworthy banks in foreign countries for which it opens lines of credit. These banks can then, on behalf of clients that they have to accept, buy from Brazil, with BNDES-EXIM immediately paying the exporter, and the foreign bank reimbursing the loan over a period of several years.

Finally, the Brazilian Export Credit Insurance Company (SBCE) provides export credit insurance. It was established in June 1997, as a private company, having as shareholders Brazilian insurance companies (Banco do Brasil, Unibanco, Sul America e Minas Brasil) and the Compagnie française d’assurance pour le commerce extérieur (COFACE). Its purpose is to cover Brazilian exporters against commercial and political risks and force majeure losses that may affect export credit operations. It covers up to 85 percent of commercial risks and up to 90 percent of political risk and force majeure losses. Long-term (more than 2 years) commercial risks and political risks are ultimately borne by the treasury through the Export Guarantee Fund managed by BNDES and capitalized by shares held by the Government. In 1999, SBCE issued cover for US$1 billion worth of exports, 55 percent of which was for other South American countries.

Canada

The Canadian export credit insurance agency, Export Development Canada, is a “crown corporation” (a government entity that operates on private-sector principles) which provides short-term export credit insurance and medium- and long-term direct loans. Its insurance covers food exporters for up to 100 percent of their financial exposure, at rates that are low compared to other export credit insurance agencies. A major share of the business in one of its windows, providing cover for sales to private wheat buyers, is managed through the Canadian Wheat Board.

France

A number of private companies provide export credits and export credit insurance in France; one of them, Compagnie Française d’Assurance pour le Commerce Extérieur (COFACE), which is majority-owned by Natexis Banques Populaires (formerly the Banque Française du Commerce Extérieur), manages a large export guarantee programme on behalf of the Government. Natexis is also used by the Government for providing interest rate subsidies for export credit, in order to reach the minimum CIRR interest level as allowed under the OECD agreement.

COFACE offers short-term credit insurance around the world, with affiliates in many countries. In France, it manages the Government’s export insurance scheme. Each year, the Minister for the Economy, Finances and Industry determines the possibilities for providing guarantees for export operations. The guarantee is granted by the Director of Foreign Economic Relations, taking into account the opinion of the Commission des garanties et du crédit du commerce extérieur. The risks are managed by COFACE on behalf of the State. The guarantees are explicitly aimed at stimulating international operations of French companies, in particular towards developing countries considered too risky by private insurers. COFACE is active in supporting food trade finance, covering, for example, the regular French-Cuban “wheat for sugar” trades, and wheat and maize exports to Korea. The COFACE programme is announced in terms of total tonnage of wheat (and recently barley). Typically, France announces a programme for a certain volume of wheat for a certain country or region, and the programme keeps running until it is used up or until another programme replaces it. COFACE coverage does not require the use of a letter of credit; documentary collections can be covered.

Germany

Hermes Kreditversicherungs AG (Hermes) is a consortium of a private-sector insurance company and a quasi-public company that provides official export credit insurance, including for agricultural trade on behalf of the German Government, similar to COFACE in France. Hermes also provides short-term export insurance on its own account, according to standard market practices. The activities of another export credit and credit insurance agency, the Kreditanstalt für Wiederaufbau (KfW), owned by the German Government and the federal states are in capital goods exports and project finance, not in agricultural exports.

Malaysia

Malaysia has an export credit insurance programme, and a credit programme. The Malaysia Export Credit Insurance Bhd (MECIB), ultimately owned by the Ministry of Finance, provides coverage to exporters. For example, in 2001, it signed an indemnity agreement with the Compagnie Bancaire de L'Afrique Occidentale (CBAO) of Senegal, which allows it to insure Malaysian exporters. "Before this, Malaysian exporters were not very confident of exporting to non traditional countries in Africa and they have to be extra careful with corresponding banks there," said MECIB general manager Mohd Noordin Abbas. "This agreement will encourage Malaysian exporters to export their goods to Senegal on irrevocable letters of credit issued by CBAO," he added^[26]. The facility is a deferred payment term credit facility of up to 180 days for a revolving amount of US$5 million. Any issue of letters of credit from CBAO can be negotiated by Malayan Banking Bhd or Standard Chartered Bank and insured by MECIB. This new facility was primarily meant to promote palm oil exports.

The Export Credit Refinancing Scheme is a short-term credit programme administered by the central bank for eligible manufactured goods and selected primary commodities. Loans are extended by commercial banks at rates lower than commercial base lending rate. Credit for 80 percent of value is covered pre-shipment or 100 percent post-shipment. Pre-shipment credits are available for a maximum term of four months, while post-shipment credits are available for six months. Total loans to the agricultural sector in 1996 included U$1.25 billion for the palm oil sector.

Pakistan

In 2001, the Government had privatized wheat exports, but private traders were waiting for the country’s banks to start providing export finance so that they could benefit from the available market opportunities (particularly in Afghanistan). In February 2002, the Government decided to open up the State Bank of Pakistan's Export Finance Scheme for private-sector wheat exporters. The facility had become available for rice exporters a year earlier. Under the scheme, banks which provide post-shipment finance can be refinanced by the State Bank at an 8 percent per annum interest rate. The banks are allowed to charge exporters a spread of at most 1.5 percent over this refinancing rate. Banks are supposed to provide finance as part of the letter of credit process. In other words, an acceptable foreign bank opens a letter of credit, with deferred payment terms; the Pakistan bank pays the exporter at once, and refinances itself with the State Bank.

The availability of the scheme is expected to boost Pakistan’s cereal exports. However, according to a Pakistani economic periodical: “Many of the scheduled bank officials are somehow unaware of the State Bank of Pakistan's (SBP) export finance facility in US dollar available since early this year. Some exporters who approached their bankers for dollar financing of their exports were shocked when told that, "no such scheme exists”.”^[27]

Thailand

Thailand’s Export-Import Bank (ExIm Bank) operates several financing facilities to promote agricultural exports.

A “packing credit”: this is a short-term (up to 180 days) facility to allow exporters to procure and process goods for export. Under the programme, accredited exporters can obtain a credit, at a rate of not more than 10 percent a year, from commercial banks, against a simple promissory note (which needs to be backed by sales and export documents). The commercial bank can refinance 50 percent of the promissory note’s value with ExIm Bank, at a 5 percent interest rate. In 1996/97, approximately US$790 million was available to rice exporters under this programme.

A revolving line of credit for pre-shipment finance: the line of credit is negotiated directly between ExIm Bank and the exporter. It can be expressed in Baht, US dollars or Yen. Once a line of credit and a credit agreement have been established, the exporter can draw on it when a letter of credit has been opened by a foreign buyer or after the buyer has sent a purchase order. In order to de-block the credit, the exporter has to issue a promissory note to ExIm Bank, and send it together with proof of the letter of credit, or the purchase order. Any amount repaid is available for drawdown against other purchasing documents.

Negotiation of Export Bills: this is a post-shipment finance facility, similar to forfeiting. Once an exporter has shipped his merchandise, he issues an export bill, which he can discount with ExIm Bank. If exports are under a letter of credit, any exporter can discount his export bills. If there is no letter of credit, the exporter must have prior approval for a line of credit from ExIm Bank.

Export Credit Insurance: ExIm Bank provides exporters with payment coverage for political and commercial risk. Conditions depend on the kind of export contract and payment procedure. ExIm Bank establishes credit limits for individual exporters and banks.

Credit Facility for Export Agriculture Produce: this is a medium-term credit facility of up to two years, to finance the export of agricultural produce undertaken by a Thai government agency to a buyer's country under a specific repayment period. This is often for large export contracts that the Government sees as a way of supporting its domestic rice price. The Ministry of Commerce makes the proposal to sell rice to, say, the Islamic Republic of Iran, under a two year credit line. government agencies, in particular ExIm Bank, are then assigned to offer loans to Thai exporters (which allow them to offer, in turn, loans to importers of the Islamic Republic of Iran), under the overall supervision of the Ministry of Commerce. The Ministry of Finance guarantees the loans.

Express Export Credit: this is aimed at small exporters who sell under letters of credit to foreign buyers, but are unable to use this as a basis for pre- or post-shipment loans with local commercial banks because they do not have sufficient assets for collateral purposes. If all directors of a company provide a personal guarantee, a credit line of up to two million Baht is available to an eligible exporter within three working days after submitting all required documents.

Pre-Shipment Financing Facility for SMEs: this facility’s objective is to help exporters, especially those with limited financial strength, to meet their pre-shipment working capital needs. Credit consideration emphasizes exporters’ manufacturing capability, repayment ability, as well as foreign buyers’ financial status and credibility.

United States

The United States Government operates an array of export credit and credit insurance programmes, designed to help foreign importers who face foreign exchange constraints and who need credit (Boxes.A.1 to A.4). Broadly speaking, the major programmes are operated by the USDA; USAID, which has a number of food aid programmes which include sales on highly concessional credit terms; and the Export-Import Bank (Ex-Im bank), which can provide export insurance.

The main programmes, as far as the export of bulk foods is concerned, are operated by the Commodity Credit Corporation (CCC), part of USDA. Two credit insurance programmes cover foreign bank risks, one for credit insurance up to two years (GSM-102, by far the largest - sales registrations in the fiscal year 2002 totalled US$3 billion); and one for longer terms (GSM-103, with registered sales in 2001; at about US$44 million). Exporters are charged a premium for the credit guarantee, which ranges from 0.15 to 0.67 percent of the guaranteed value of exports under GSM-102, to 1.5 to 2.67 percent under GSM-103. Another programme, the Supplier Credit Guarantee Program (SCGP) covers short-term foreign buyers’ credit risk with US$452 million in sales registrations in 2002, double that of the previous year, and up from US$46 million in 1999.

Both the GSM programmes receive a fixed minimum amount under five-yearly Farm Bills. For example, as mandated by the 1996 Farm Bill, GSM-102 was to receive not less than $5 billion each fiscal year through 2002, and GSM-103 not less than $500 million each fiscal year through 2002. Within these credit ceilings, CCC establishes yearly country ceilings for the GSM and SCGP programmes. Table A8 gives an overview of GSM-102 for the fiscal year 2002 (October 2001 to September 2002). Generally, ceilings are allocated for all agricultural products, but there may also be sub-lines for individual commodity groups. The USDA can also specify who can be the beneficiaries; e.g. for Tunisia, only the National Office of Oil can buy oilseeds, with a Central Bank L/C; and for Jordan, the buyer of wheat has to be the Ministry of Industry and Trade. US exporters, foreign buyers, and banks, may request that CCC establish a GSM-102, GSM-103, or SCGP programme for a country and/or commodity. Only a part of these credit ceilings is, in effect, used. For example, in 2002, there were no applications the GSM-102 credit lines for East Africa, Egypt, Morocco, southern Africa, Sri Lanka and Tunisia (just to mention the NFIDCs and LDCs in the group). Most GSM-102 coverage is for oilseeds and oils (24 percent in 2002), followed by feed grains (21 percent) and wheat (18 percent).

In practice, most of the credit guarantees are for trade with other OECD countries. From 1995 to 1998, only 17.3 percent of US export credit went to NFIDCs - a much higher percentage than that of other countries: according to the OECD Analysis of Officially Supported Export Credits in Agriculture, for the EU it was 4.3 percent, Australia 2.3 percent, and Canada 2.8 percent.

Table A.8: Country and regional ceilings under the GSM-102 programme, 2002 fiscal year

Source: USDA, Foreign Agricultural Service.

Loans guaranteed under the GSM programme carry a lower interest rate and a longer tenor (i.e. maturity) than unguaranteed commercial bank borrowing. In the fiscal year 2000, of a total of more than $2.5 billion in major commodity exports under GSM, less than $20 million (or less than one percent of GSM registrations) was sold using loans with a tenor of 18 months or less.^[28]

The GSM has two major disadvantages from the point of view of a private importer. Firstly, it requires importers to open dollar-denominated, irrevocable letters of credit, which in itself can be a difficult proposition for many private firms, and can carry significant costs. Secondly, the beneficiary government may appoint a particular bank as the only bank to provide private companies with access to the GSM programme, and this bank can then charge high fees or a high interest rate, or (not uncommonly) impose on the beneficiaries that they pay back the loan relatively fast while the bank makes full use of the extended payment terms of the GSM programme.

The SCGP has been less actively utilized than GSM. However, as the purchase of commodities worldwide has tended to shift to the private sector and away from government buying entities, the SCGP represents a valuable attempt to tailor credit offerings to this private market. Allocations and use have increased rapidly in recent years. Most has been for exports to Mexico (63 percent of the whole programme use in fiscal 2002).

USAID operates several export-promotion initiatives for food crops, which include concessionary finance and even grants. The most important ones are the PL480 programmes. In fiscal 2002, commodity allocations for food aid under PL480 were US$520 million, enough to buy 2.5 million tonnes of commodities. The other USAID programmes added another 300 000 tonnes. PL480 Title I, for which US$150 million was allocated^[29], is in principle for government-to-government sales, with the beneficiary government reimbursing over a long period (up to 30 years) and at a low interest rate (say one percent). Reimbursement can be in local currency. It can also be used for the “Food for Progress” programme, which assists private-sector development. In this case, the food aid is generally monetized, which means that it is given to an NGO such as, say, CARE or World Vision, which sells it onwards to a local company (public or private). The sale is generally in local currency, and often, collateral management is used to mitigate payment risk (the grain or vegetable oil is delivered into the buyer’s warehouse, but put under the control of an independent collateral manager who is only authorized to release the goods when acceptable payment has been received). PL480 Title II is an emergency and private assistance donations programme.

The mission of Ex-Im bank is to help finance the sale of American goods and services worldwide, with the long-term goal of creating and sustaining jobs in the United States. Food exports are important for the US economy, and accordingly, supporting food financing is an important activity for Ex-Im Bank.

Ex-Im offers three primary means of financing:

1. working capital guarantees;

2. export credit insurance, to protect against default on exports sold under open account terms and drafts and letters of credit that are not the obligation of a US entity;

3. direct loans, or guarantees of commercial loans.

Ex-Im can provide coverage for the food commodities discussed in this paper for up to 98 percent of the commercial risk and 100 percent of the political risk. Coverage can include sales into or out of consignment and sales made from an overseas warehouse, and even payments in a foreign currency.