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Highquest Partners Experts: Eurozone crisis gives lift to old-fashioned lending (7.17.2012)

BOSTON (July 17, 2012) – Dealing with risk is nothing new in agriculture, with years of market speculation, droughts, a world population boom and biofuels production pushing commodity prices higher and higher. But, as some of the major trade financing banks face crisis in the Eurozone, exporters and importers of soft commodities are looking at old ways of doing business to ensure that agriculture exports are still moving.

One approach for wholesale grain traders manage volatility in the markets is by using forfaiting. Forfaiting is a form of international supply chain financing involving the discount of future payment obligations on a without recourse basis.

“Since a lot of traditional financing sources for the retail markets just aren’t available for, say, containerized shipping,” said HighQuest Partners’ Director of Global Food and Agribusiness Practice Philippe de Lapérouse. “Companies are shipping and connecting with buyers in overseas markets. Forfaiting provides them with capital to finance sales and purchases of container loads of commodities.”

Forfaiting is a financial transaction involving the purchase of receivables from exporters by a forfaiter. The forfaiter takes on all the risks associated with the receivables but earns a margin. The forfaiting is a transaction involving the sale of one of the firm's transactions. The characteristics of a forfaiting transaction include:

• Credit is extended to the exporter for a period ranging between 180 days to seven years.
• Minimum bill size is normally $250,000, although $500,000 is preferred.
• The payment is normally receivable in any major convertible currency.
• A letter of credit or a guarantee is made by a bank, usually in the importer's country.

This shows that despite the economic crisis worldwide, agriculture is still thriving in the commodity trading market – in addition, there are also ways around traditional banking.

Learn more about forfaiting from representatives of London Forfaiting, who will be at the Soy & Grain Trade Summit in New Orleans, Sept. 17-19 to meet with wholesalers and retailers from around the world. For more information, go to www.soyandgraintrade.com.

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