By Samuel Canineu, Managing Director, Loan Syndications Latin America, ING Americas
Japan’s food self-sufficiency rate is lower than other developed economies. Agricultural imports from Argentina play a key role in feeding Japan’s population — and two recent trade finance transactions have helped make this possible.
Food production has long been a source of concern for Japan. Whereas countries such as Australia and the United States produce more food than they consume, the food self-sufficiency rate in Japan was only 39% in 2015 on a caloric-intake basis – one of the lowest rates among the world’s major economies.
Against this backdrop, Japan is working to secure its food supply. In 2010, the government adopted a plan that aimed for a self-sufficiency rate of 50% by 2020, which was revised down last year to a goal of 45% by 2025.
In the meantime, the country has been taking steps to ensure that it can import necessary food supplies from overseas. Japan imports a number of soft commodities, including soybeans and corn, both of which are widely produced in Central and South America. Indeed, the government’s “Strategy for Exporting Infrastructure Systems,” updated in 2015, refers specifically to grain purchases from Central and South America.
Some Japanese importers have been focusing their attention on Argentina. One of the world’s largest agricultural producers, Argentina is the third biggest exporter of raw soybeans and the fourth biggest exporter of corn. The current government, under president Mauricio Macri, has recently cut taxes on grain exports.
Deals made in the last year between Argentinean and Japanese trading partners highlight the importance of this growing relationship. In 2015, Compañia Argentina de Granos (CAGSA) — an Argentine trader of soybeans and corn, which handled eight million tons of grain and oilseeds in 2014 — signed a memorandum of understanding with Japanese trading company Marubeni Corporation for the purchase of 300,000 tons of grain and oilseeds from CAGSA over the next five years.
In order to finance the deal, CAGSA appointed ING to set up a five-year, $100 million working capital finance facility. The proceeds of the loan are being used to pre-finance the export of grains, oilseed and byproducts.
A similar deal followed in 2016 for the Asociación de CooperativasArgentinas (ACA), Argentina’s largest agricultural cooperative, which handles around 20% of the country’s grain and oilseed production. ACA has agreed to provide grain exports to Zen-Noh, Japan’s National Federation of Agricultural Cooperative Associations, as well as additional exports in times of emergency.
To expand the relationship, Mario Rubino, CEO of ACA, needed to restructure its financing. “We have been looking to improve our pre-export financing profile, and the challenge with that is finding longer-term financing. Normally, ACA financing is for terms of 270 days— a year at the most— and this project has a longer horizon, which lets us look longer-term at our exports,” said Rubino.
ACA was looking for a $100 million, syndicated pre-export finance loan to facilitate the trade agreement with Zen-Noh. ING was appointed as mandated lead arranger on the strength of its long standing history in Argentina, its strong global trade and commodity finance franchise, and its already-proven relationships in both Japan and Argentina. Based on its long standing and solid relationship with the company, ING provided a $40 million tranche of eight years with Bank of Tokyo-Mitsubishi UFJ (BTMU) — a well off market tenor for a transaction in Argentina. ING also arranged a second, $60 million tranche of five years also with BTMU, a tenor more customarily found in Argentina.
“ACA has been doing business with Japan for over 50 years. This new possibility of longer term financing gave us a longer horizon, which will perhaps allow us to make longer-term export commitments,” Rubino noted. “Normally, export negotiations are drawn up from one year to the next, so having our financing assured for more than a year certainly allows us to offer our Japanese buyers better conditions that will possibly result in an increase in business.”
Both deals were supported by loan insurance provided by Nippon Export and Investment Insurance (NEXI), Japan’s official export credit agency (ECA). NEXI is tasked with guaranteeing food security in Japan, as well as promoting Japanese interests in international transactions. Traditionally, ECAs back their own country’s exports — but in an innovative reversal of this model, NEXI has set up a program to support agricultural imports to Japan.
ING worked closely with NEXI to organize cover for CAGSA’s working capital loan in 2015 — the first time that coverage of this type had been provided. NEXI similarly provided coverage for the ACA transaction. For both deals, considerable collaboration was needed between the trading partners, NEXI and ING’s teams in Buenos Aires, Tokyo and New York.
“These two deals show that ING is focused on bringing solutions that involve going one step further — whether that means arranging ECA coverage out of Japan, or bringing together a group of banks to provide a syndicated arrangement,” notes Marnix van Iterson, ING Argentina’s Country Manager.
With Japan’s food production continuing to be a source of concern, the country’s trade relationship with Argentina will continue to be critical to meeting Japan’s agricultural import needs.
This type of arrangement could also have implications further afield. With the population of many Asian countries becoming larger and older, and with limitations around the availability of water and arable land, a number of these countries are looking to secure food flows to their populations. “With Japan taking steps to secure food flows from Central and South America, we could see other Asian countries doing the same in the future,” remarked van Iterson.