Azerbaijan plans to introduce a new mechanism for financing the agricultural sector — the product certificate. The corresponding bill "On Product Certificates" was considered at a plenary session of the Milli Majlis and adopted in the first reading.
The document was developed to introduce the product certificate as a new tool for financing agriculture. It is a financial instrument that allows agricultural producers to be provided with the necessary resources before the season starts and combines elements of debt obligations, purchase and sale contracts and other agreements.
Before the production process begins, farmers will be able to issue product certificates in the form of securities and offer them to financial organizations and suppliers through the "Electronic Agriculture" information system. Under the certificate, the producer undertakes to transfer the results of production to the acquirer — a financial organization or procurer — on the terms of a pre-financing agreement.
Depending on the form of fulfillment of obligations, product certificates are divided into financial and commodity ones. Financial certificates are aimed primarily at financial organizations, including banks and non-bank credit organizations (NBCOs). Such a certificate stipulates the farmer's obligation to use the funds received from the sale of the future harvest to repay the debt to the certificate holder. Commodity product certificates are intended mainly for procurers and suppliers. They stipulate the farmer's obligation to transfer the future harvest to the certificate holder to repay the debt.
The main advantages of introducing product certificates include:
- the ability for farmers to obtain the necessary financial resources before the production process begins;
- increased flexibility for procurers to participate in market relations thanks to preliminary guarantees of supply of the purchased products;
- providing financial organizations with a new, more flexible tool for financing the agricultural sector;
- simplification of the recovery procedure in case of non-fulfillment of obligations. Unlike ordinary contractual disputes, a recovery mechanism with minimal court involvement and lower costs is envisaged. According to the bill, the product certificate will act as an executive document and be immediately sent for execution;
- reduction of costs for processing and notarization of documents thanks to the issuance of certificates through the "Electronic Agriculture" information system. The ability to track certificates in the electronic system will also increase trust in this tool;
- strengthening control over the production and primary processing of agricultural products. The certificate holder will have the right to monitor the production process and verify its compliance with the conditions specified in the certificate. This will increase guarantees of obtaining products of the required quality, simplify their subsequent sale and ensure the implementation of the "from field to table" principle.
The adoption of the bill is expected to help expand financing opportunities for agriculture, support producers, strengthen food security and develop the agricultural sector.
Along with the bill "On Product Certificates", amendments to the Civil Code of Azerbaijan and the law "On Enforcement Proceedings" have been prepared. In particular, the legal status of the product certificate as a new financial instrument in the agricultural sector will be enshrined in the Civil Code. The concept of a product certificate is planned to be included in the provisions of the code regulating securities, forming a separate regulatory framework for its application. The product certificate will be defined as a secured security issued by the debtor in electronic form to finance the production or primary processing of agricultural products and ensuring the fulfillment of the corresponding obligation.