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. Last Updated: 07/27/2016

$286M Credit Line for Agribusinesses

After a decade of stagnation and a dearth of financing, foreign investors are increasingly seeing the agricultural industry as a land of opportunity.

On Thursday, Rabobank, one of the world's largest agricultural banks, and the European Bank for Reconstruction and Development announced they will provide up to $286 million in short-term working capital for companies during the 2002-03 agribusiness season.

The Dutch bank will provide $186 million of the total and the EBRD will provide the rest, doubling its commitment to Rabobank's existing agrifinance program, which was $50 million last year.

The major beneficiaries of the financing will be "Russian soft-commodity traders, food processors, sugar refineries, oilseed crushers and grain millers in the main agricultural centers of Russia," the banks said in a joint statement. "The shortage of such capital is a major constraint on the growth of the Russian agricultural sector."

They said the facility will encourage the development of agribusinesses.

Agronomists agreed.

"The sector is gradually becoming more attractive for both Russian and foreign investors, and we see a lot of short-term financing of working capital, trade and partial production of agricultural goods," said Dmitry Rylenko, general director of the Institute for Agricultural Market Studies,.

Andrei Sizov, of research agency SovEcon, said Thursday's announcement is a sign that the sector is finally starting to develop, but he pointed out that so far no one is willing to provide financing for more than a single season.

"I would not say that there is a stable positive trend in the sector, so any investment for more than two years is questionable," Sizov said.

Russia is one of the world's largest producers of grain, harvesting 85 million metric tons in the 2001-02 season, which ran from July to June.

Despite the progress, the one thing that cannot be changed -- the weather -- will always create an element of risk in the industry, Rylko said.

Another problem is that many of the state-owned companies that dominate the sector carry a huge debt load.

Agriculture Minister Alexei Gordeyev said Thursday that Russian agribusinesses have a total debt of 280 billion rubles ($8.8 billion).

Prime Minister Mikhail Kasyanov said the government is looking for ways to help these companies restructure their debts, most of which is owed to the State Pension Fund, Gazprom and Unified Energy Systems.

Another hurdle to development, Rylko said, is the uncertainty surrounding what kind of concessions -- if any -- regarding protections and subsidies for agriculture that Russia is willing to make to enter the World Trade Organization.

Russia's tough stance on agriculture is one of the major sticking points in membership negotiations with the global trade body.

Andrew Somers, the president of the American Chamber of Commerce in Russia, said Thursday that Washington, a WTO heavyweight, and Moscow are closer to reaching agreement on the agriculture issue than Russia is with the European Union.

"The U.S. government may be willing to soften its position on Russian government subsidies to domestic agriculture," Somers said after a two-week trip to the United States, where he met with top U.S. officials.