Simplifying access to financing for farmers can increase the productivity and profitability of the industry, allowing producers and processors of agricultural products to invest in the latest technologies and innovative solutions, enhancing efficiency.
Supporting the agricultural sector, stimulating the growth of domestic production, and strengthening Ukraine’s food security were key priorities underpinning the introduction of agrarian notes as a new instrument that became available for the market as of January 2025.
This reform was a good example of applying a lessons-learned approach as a lot of attention was paid to such angles as new technology, accessibility, and convenience of the issuance and circulation of relevant financial instruments.
Agrarian Notes in a Nutshell
An agrarian note is a security that records the unconditional obligation of the debtor (producer or processor of agricultural products), secured by collateral, to either deliver agricultural products or pay the relevant amounts on terms agreed upon between the debtor and the creditor. The debtor can be an individual or a legal entity that owns or uses an agricultural land plot. It is expected that creditors will typically be suppliers, distributors, banks, traders, and processors of products. Creditors can be both local and foreign investors.
Business Models for Using Agrarian Notes
An agrarian note can not only be used as a tool for attracting financing but also for making payments under contracts. Unlike previous instruments linked to agricultural products, agrarian notes have a broader use as they may be transferred free of charge by the owner, sold, inherited, etc.
Collateral for Agrarian Notes
An agrarian note involves the pledge of future agricultural products, which may include crops, livestock, and/or primary processing products. This provides financing opportunities for a wide range of agricultural producers. Moreover, the performance of obligations under an agrarian note can be additionally secured by any type of eligible collateral. The collateral for an agrarian note can be insured by the creditor or the debtor, as agreed between the parties. If the creditor is designated as the beneficiary under such an insurance contract, the creditor’s receipt of the insurance payout is set off against the debtor’s obligation.
Mechanisms for Protecting Creditor Rights
If the received agricultural products are insufficient to fully fulfill the debtor’s obligations, any other agricultural products produced on the respective land plot become collateral for the agrarian note until the obligations are fully performed unless otherwise agreed between the debtor and the creditor. In case of loss of the agricultural products that are the collateral for the agrarian note, the debtor is obliged to replace the collateral with other identical or similar property by agreement with the creditor. Otherwise, the creditor may foreclose on any other agricultural products produced on the respective land plot.
Additionally, the creditor may accelerate the debt through the court. The creditor has the right to oversee the adherence to the technology of producing the agricultural products that are the collateral and may independently or by engaging third parties complete the production cycle of such products in case of a technology breach.
Technological Procedure for Issuing and Circulating Agrarian Notes
An agrarian note is issued and exists in electronic form, recorded in a securities account in the depository system, with the details of the agrarian note reflected in the Agrarian Notes Register. The registration of agrarian notes in the depository system provides access to organized capital markets, which allows transactions with agrarian notes to be conducted on the organized market and potentially expands access for foreign creditors through correspondent relationships of the Central Securities Depository.
The Agrarian Notes Register is maintained by the Central Securities Depository, which exercises control over the process of issuance of agrarian notes through electronic information exchange between the Agrarian Notes Register and state registers. The Agrarian Notes Register has electronic cabinets for all relevant parties, providing the necessary functionality for them to exercise their rights and obligations.
Enhanced Mechanism for Forced Execution
In order to enforce obligations under agricultural receipts, the creditor generates a special extract from the Agrarian Notes Register and instructs the Central Securities Depository to submit it for execution through electronic interaction with the automated enforcement system.
By Borys Lobovyk, Partner and Head of Law Practice, and Nataliia Shevchenko, Tax & Law Practice Manager, EY Law Ukraine
This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
