The Financing of the Agricultural Enterprises in Hungary Between 2008 and 2011

Non-bank financing methods

In our point (indirect agricultural financing) of view the following indirect financing sources can be identified:

• 
  Accounts payable
  
• 
  Advances
  
• 
  Subordinated liabilities (member loan)
  

1. 
   Accounts payable
   

The accounts payable is the unpaid amount of the purchase of goods and services. This channel has become the second most important factor in agricultural lending next to bank lending, nearly a quarter of the agricultural financing comes from this source. The accounts payable has reached this seize, because agricultural suppliers compete primarily with price, but they are working out longer and longer-term deferred pay schemes.
Analyzing the relevance of the accounts payable further, we can notice, that by the bigger, typically joint ventures the role of the accounts payable is more important inside all of the funding. The smaller entrepreneurs don’t get supplier credit on the one hand (they can purchase only with prompt payment), on the other hand their accounts payable is smaller because they avail themselves the channel of the financing of integrators.
The volume of accounts payable increase nearly 25 percent between 2009 and 2013: from 681,8 million EUR to 831,9 million EUR.

Fig. 3: Accounts payable of agricultural joint ventures 2009-2013 Source: Fazekas 2015

2. 
   Advances
   

In the case of customer advances, the customer perform the payment before the product is placed in possession during the purchase. The role of advances were significant before 1990, since then because of the food industry’s crisis this role is small. The financially strong retailer chains would be able to lend advances, but – because of their dominant position – the funding position is reversed: farmers finance the retail chains.
The ratio of customer advances is insignificant: in the average of the years 2003-2008 in the case of individual farms the short term liabilities are about 1%, in the case of joint ventures it is 0.5-1.7%. (AKI 2010)

3. 
   Subordinated liabilities (member loan)
   

The member loan is classified logically to the equity, but formally it’s a liability, however it doesn’t come from an external source. The subordinated liabilities and the member loan can be handled as almost the same category in the point of our topic’s view, because based on the FADN data base of AKI 90-99% of the subordinated liabilities are member loans.