Best in Class Treasury Solution in Latin America Highly Commended: Bayer

Published: Aug 2023
Farmer in a field of crop

Marcos Arruda

Finance Director Agro Division

Headquartered in Leverkusen, Germany, Bayer AG is a multinational pharmaceutical and biotechnology company and one of the largest pharmaceutical companies in the world. Bayer Cropscience do Brasil, is the fourth largest operation of Bayer Group’s worldwide business and one of the most important agrochemical companies in the region.

in partnership with

Citi logo

FIDC solution helps Bayer support farmers and distributors in Brazil

The challenge

Farmers face considerable challenges when purchasing the necessary crop protection from Bayer, due to cost increases caused by geopolitical factors, such as the conflict between Russia and Ukraine. These factors are compounded by rising climate impacts which are increasing threats to farming. Farmers often need to finance the purchase of seeds and crop protection products because upfront costs are high and revenue from selling commodities isn’t available until many months after the harvest season. However, because many of these farmers and distributors are small businesses, access to credit is frequently limited, and when available, interest rates are high.

To support its customers’ working capital needs and address the cyclical nature of the business, Bayer recognised the importance of providing farmers and distributors with alternative financing with favourable rates. Bayer Cropscience’s treasury team set out to address this problem through the implementation of a tailored supply chain solution, providing extended payment terms for distributors and farmers in a highly cost-efficient manner. The solution would leverage innovative market instruments to deliver a completely digital client experience. By extending financing up to 360 days, farmers could in turn purchase the required products from Bayer to protect their crops.

The digital functionality of this solution was viewed as crucial to the success of the initiative. Because of Brazil’s extensive land, distributors and farmers are spread across the country, making the physical signing and shipping of documents to the bank unwieldy and cumbersome. This administrative process took time, significantly slowing down the release of funds. The formalisation of digital documentation would streamline and simplify the process, in turn, speeding up access to funds.

The solution

Bayer worked closely with banking partner, Citi, to structure an exclusive securitisation instrument in Brazil called Fundo de Investimentos em Direitos Creditorios, (FIDC) to the amount of R$600m.

Through this FIDC, Bayer enabled the issuance of Commercial Notes (Notas Comerciais) to distributors and farmers with tenors up to 360 days, allowing them to finance the purchase of crop protection supplies.

The FIDC was structured in three tranches, allowing investors to step in and boost the reach of this important tool to better meet the needs of farmers and distributors.

These encompassed:

  1. A subordinated tranche covering up to 1.5% of the programme amount.

  2. A Mezzanine tranche starting at 1.5% to 20% of the programme amount.

  3. A Senior Tranche starting at 20% up to 100% of the programme amount. By joining the FIDC as one of its investors, and sharing the risk, Bayer has been able to address a very important issue for its clients – the cost of financing.

“Since launching the solution, over 1,500 distributors and farmers were eligible per programme documentation, and the first disbursements was marketed to 100 clients and top utilisation was reached with the first 50 clients,” explains Marcos Arruda, Finance Director Agro Division.

Best practice and innovation

Bayer has taken a unique approach to supporting vital partners. Because the industry has long finance cycles due to seasonal patterns, and a large, widespread number of counterparties, treasury put in place a customised finance solution with risk assessment based on weighted average probability of default, and not on each individual buyer’s risk.

One of the innovations of this tool is the highly dynamic way it manages eligibility criteria, automatically including farmers and distributors once they meet Bayer’s origination policy. Another key innovation is how documentation is fully digitised, making the structure a fast and powerful commercial tool for Bayer’s commercial team.

Key benefits

  • Cost savings.

  • Process efficiencies.

  • Increased automation.

  • Risk mitigated.

  • Improved visibility.

  • Errors reduced.

  • Manual intervention reduced.

  • Exceptional implementation (budget/time).

  • Improved key performance indicator (KPI) metrics.

Using this best-of-breed solution, Bayer is supporting farmers and distributors with extended financing terms, while growing its own business. This is a true win-win situation for both Bayer and its customers, helping to strengthen strategic relationships with vital supply chain partners, which are often smaller enterprises.

Gustavo Castro

Latin America Head of Trade Structuring, Treasury and Trade Solutions, Citi

At Citi, we continue to work closely with our clients across the globe to support their needs by extending financing solutions, especially in the agribusiness sector, which benefits greatly from this kind of solution due to crop cycle terms. In conjunction with Bayer, we were able to establish a bespoke but flexible solution, leveraging on innovative market instruments, to deliver a completely digital client experience. We feel very honoured to join Bayer on this deal, a company that is committed to supporting and developing the agribusiness industry in Brazil.

in partnership with

Citi logo

The Adam Smith Awards is the industry benchmark for best practice and innovation in corporate treasury. The 2023 awards attracted 320 nominations spanning 34 countries. To find out more please visit: treasurytoday.com/adam-smith-awards.

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