Grain receipts as collateral for agribusiness' financing : a feasibility study of grain receipts for corn producers in Jalisco, Mexico

Sammanfattning: Jalisco's corn producers from the Cienega province are locked in a cycle of low profitability. The corn producers have been affected by the lack of access to adequate financial intermediaries such as banks. The cycle of low profitability contributes towards a low quality of life and a lack of competitiveness. Hence, farmers have not been able to adjust to the fierce competition from the US producers. A lack of trustworthy collateral is a major problem in order to get access to credits. The grain receipts system (GRS) provides a method of collateralizing crops for access to credits, using smart cards as a shortcut for cash withdrawals. With the GRS the risk is not intended to be eliminated; instead it is a mechanism where the risk is shared between the corn producers, elevators and banks which are the subject of analysis in this study using the agency theory. Surveys were employed in order to obtain a broad picture about how farmers finance their activities, to provide knowledge concerning their agricultural and post harvest practices and their perception concerning the GRS and its feasibility. Currently some of the farmers have to wait at least one month for payment after delivery. Furthermore, most of the farmers cannot buy the inputs in advance due to the fact that after they are paid after having paid off their debt obligations. Consequently, farmers just have money to cover their livelihood expenses and not to invest in inputs. Consequently, farmers are not satisfied with their income because of high input prices and low prices of grain at harvest time. In addition, about one fourth of the farmers produces just one crop and faces a portfolio problem. Most of the farmers receive financial support from the informal credit sector such as elevators or suppliers. Therefore the farmers face the control problem due to the fact that they may become unwillingly attached to a specific elevator. The reason is that the farmer cannot freely decide where to deliver their grain because the elevator provides credit. Additionally, in the formal credit sector the farmers have never been able to use grain as collateral. Land is the most desirable collateral for the banks. Consequently, almost half of the farmers agree with the method of collateralizing their crops after harvest and using smart cards to withdraw cash from automated teller machines. Within a GRS the farmers solve the control problem due to the fact that the farmers can freely decide where to deliver their grain and ensure independent quality measurements. Furthermore, according to the analyses the farmers do not face any horizon problems using the GRS. On the other hand, despite of the fact that the banks view GRS favorably they face horizon problems and are not interested in investing in the required equipment for a GRS system such as developing smart cards to allocate ATMs among elevators' facilities or in rural communities. The banks prefer that the farmers are paid by checks which force them to visit the bank to complete formal procedures, which by farmers are considered as awkward and timeconsuming.