The Basel accords, capital reserves, and agricultural lending

Purpose The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues. Design/methodology/approach Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements. Findings This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements. Research limitations/implications The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper. Practical implications Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders. Originality/value This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.

Copper prices will edge higher due to labour disputes

Subject The outlook for copper prices. Significance Having seen prices halve over five years, the copper market has stabilised since the fourth quarter of 2016. The long bear market forced the industry to cut exploration and capital reserves, and demand rebounded in 2016, growing by 1.8%. This year the market has started to tighten as there have been supply disruptions. Impacts Chile’s output could rise in coming years as the government will inject 975 million dollars to bolster state-owned Codelco’s growth. In six years, Rio Tinto and Chinalco found no copper in China and have stopped looking, so China will remain the world’s largest importer. Chile’s miners, reliant on costly coal and gas, are reviewing bids from wind and solar power producers, which may dramatically cut costs. To increase its stake in two Congolese mines, Glencore spent more than 500 million dollars to buy out Israeli financier Dan Gertler.

LINKING COMMUNITY-BASED SEED PRODUCERS TO MARKETS FOR A SUSTAINABLE SEED SUPPLY SYSTEM

SUMMARYA review of the outcomes of past attempts at establishing sustainable seed producer groups in Nepal showed that after donor support was withdrawn a lack of marketing skills resulted in the groups no longer producing seed. Learning from this review, when we initiated new attempts at establishing sustainable seed producer groups in Chitwan district, Nepal, we emphasized the strengthening of their marketing and managerial capabilities rather than training in technical issues such as seed quality control. We imparted marketing skills to committee members of farmer groups at an initial training course in Chitwan in 2001. This inspired at least three existing farmer groups in Chitwan, already established for other agricultural activities, to enter into cereal and legume seed production and its marketing. Following their establishment in 2002 we supported them initially by purchasing some of their seed production. This was progressively withdrawn and, after three years, the groups independently marketed all of their substantial seed production. They built up capital reserves mainly from subsidies and by attracting funds from new shareholders with only a small contribution from retained profits that were only about 5% of total turnover. The capital reserves reduced or eliminated the need for loans thus increasing the chances that the enterprises would be sustainable. In contrast, other government-supported groups had practically no cash reserves despite substantial seed sales. By 2010, two of the three groups were still operating and had substantially increased turnover. Shareholders who were also seed producers benefited from being members of the group and from an increased income of 10% by producing seed instead of grain. Our intention in supporting these groups was to promote the scaling out of new rice varieties produced by client-oriented breeding (COB) or identified by participatory varietal selection but most of the seed that was produced was of obsolete varieties. Policies are needed to preferentially promote new varieties by supplying more information about them and increasing the subsidy on their seeds compared with older varieties. Continuing promotion by the organizations that bred them is also desirable but constrained by limited funding for COB.