The Milli Majlis (National Assembly) Committee on Agrarian Policy discussed a new draft law titled “On Product Certificates” at a meeting held today.
According to the “Operative Information Center-OMM”, the meeting heard that the document was prepared to introduce product certificates as a new financing mechanism in the agricultural sector.
A product certificate is a financial instrument designed to provide agricultural producers with financial resources before the start of the season. It incorporates elements of loan, sale and purchase, and other types of agreements.
Before production begins, producers offer product certificates in the form of securities to financial institutions and suppliers through the “Electronic Agriculture” information system. Under a pre-financing agreement, the product certificate requires the results of production to be delivered to the person who acquires the certificate, such as a financial institution or supplier. Depending on whether the obligation is fulfilled through the provision of money or agricultural products, product certificates may be financial or commodity certificates.
Financial product certificates are generally of interest to financial institutions, including banks and non-bank credit organizations. Such certificates contain the farmer’s obligation to repay the creditor — the certificate holder — from proceeds generated by the sale of future produce in return for the loan.
Commodity product certificates are generally of interest to suppliers. In return for the loan, these certificates contain the farmer’s obligation to deliver future agricultural produce to the creditor — the certificate holder. The benefits of applying both types of product certificates include:
- farmers obtain and use the necessary funds before the production process begins;
- suppliers can participate more flexibly in market relations because they receive advance assurance regarding the products they will obtain;
- financial institutions gain a new and more flexible financial instrument for the agricultural sector;
- unlike conventional contracts, a swift and low-cost enforcement procedure requiring minimal court involvement is established in cases where obligations under a product certificate are not fulfilled. Under the draft law, the product certificate itself serves as an enforcement document and is immediately submitted for execution from the date it is received;
- issuing product certificates through the “Electronic Agriculture” information system eliminates the costs associated with their preparation and notarization, while the ability to track them electronically increases confidence in the certificates;
- based on the certificate holder’s right to monitor the cultivation and primary processing of agricultural products, the holder can oversee production and primary processing and ensure that the process is conducted in accordance with the terms declared in the certificate. This would help guarantee the production of goods of the required quality and facilitate their subsequent sale, supporting the implementation of the “farm-to-table” principle.
The adoption of the draft law is expected to be important for agricultural financing, producer support, the strengthening of food security and the development of the agrarian sector.
