Azerbaijan considers new law on product certificates

A new draft law "On Product Certificates" was discussed at todaychr("39")s meeting of the Azerbaijani Parliamentchr("39")s Committee on Agrarian Policy.

The meeting was told that the document had been 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 and incorporates elements of loan, purchase and sale, and other agreements.

Before the production process 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, a product certificate provides for an obligation to transfer the output of production to the holder of the certificate, such as a financial institution or supplier. Depending on whether the obligation is fulfilled through the payment of funds or the delivery of agricultural products, certificates may be financial or commodity product certificates.

Financial institutions, including banks and non-bank credit organizations, are generally interested in financial product certificates. Such certificates provide for an obligation by the farmer to repay the creditor, or the holder of the certificate, from the proceeds generated by the sale of future agricultural output in return for financing.

Suppliers are generally interested in commodity product certificates. Such certificates provide for an obligation by the farmer to deliver future agricultural output to the creditor, or the holder of the certificate, in return for financing.

The advantages of introducing both types of product certificates include:

farmers can 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 financing instrument for the agricultural sector;

unlike conventional contracts, if an obligation under a product certificate is breached, a swift and low-cost enforcement procedure with minimal court involvement is provided for. Under the draft law, the product certificate itself serves as an enforcement document and is referred for immediate enforcement from the day it is received;

issuing product certificates through the Electronic Agriculture information system eliminates costs related to their preparation and certification, including notarization, while their traceability through the electronic system increases confidence in them;

based on the certificate holderchr("39")s right to monitor the cultivation and primary processing of agricultural products, the holder can oversee the production and primary processing process and ensure that it is carried out in accordance with the terms specified in the certificate. This helps guarantee products of the required quality and facilitates their subsequent sale, thereby supporting implementation of the "farm-to-fork" principle.

The adoption of the draft law is expected to be important for financing agriculture, supporting producers, strengthening food security and developing the agricultural sector.