Trade Finance Program helps Mongolian firm improve food storage

Published on Monday, 22 February 2016

Published by Santosh Pokharel on Monday, 22 February 2016

Exterior view of the warehouse.
Exterior view of the warehouse.

Delta Holding LLC, a diversified Mongolian company with subsidiaries in agribusiness as well as other sectors, recently built a state-of-the-art storage facility in the vast plains just outside the capital, Ulanbaatar. One of the first of its kind in the country, the warehouse has a capacity of 2,200 tons with 11 cold storage rooms – six for vegetables and five for processed meat.

Now that the freezer-chilled rooms are ready, and with constant monitoring from a team of on-the-ground staff, Delta aims to buy vegetables such as cabbages, potatoes and onions from farmers in September and October, store them for some six months, and then sell them in spring.

Mongolia has few good facilities that can store such foodstuffs for long periods of time, so once the autumn harvest season is over, these vegetables need to be imported to meet local demand. By contrast, having a good storage facility will encourage farmers to cultivate more crops or raise more livestock to meet a long-term demand of six to eight months as opposed to the current practice of growing vegetables for the short-term demand.

Over time, this will boost rural incomes. Meanwhile, prices of locally raised out-of-season meat and vegetables will be lower, and prices more stable for consumers. And lastly, dependency on imports will be reduced.

That will be particularly welcome with the dzud or harsh winter taking a heavy toll this year on farmers’ livelihoods.

Delta built its new facilities with the help of ADB’s Trade Finance Program (TFP). In June 2015, TFP provided a two-year guarantee of approximately $920,000 for post financing of a letter of credit. The letter of credit was issued by Trade and Development Bank Mongolia—one of the country’s largest and oldest commercial banks—on behalf of Delta. The company used the letter of credit to import storage equipment and refrigerator items from Netherlands-based Geerlofs Refrigeration BV to construct its cold storage facility in Ulanbaatar.

Unlike regular trade finance transactions, where payments are made on sight or have a deferred payment period of six months or less, given the early stage of this project—including the construction phase—Delta wanted more time to pay back the letter of credit. ING Bank in the Netherlands was keen to provide financing to help support their client, Geerlofs Refrigeration, but did not have the limit with the required tenor on Trade and Development Bank Mongolia to provide the financing.

To fill that market gap, ADB’s TFP, which has been working in Mongolia since 2010, stepped in to provide the required guarantee to ING Bank covering Trade and Development Bank Mongolia risk. ING Bank, on the basis of the ADB guarantee, then agreed to provide two-year funding to enable this transaction to go ahead.

In Mongolia, the TFP currently works with three banks (Khan Bank, Trade and Development Bank of Mongolia, and XacBank), and has supported $124.17 million in trade through 227 transactions since 2010. In addition to filling market gaps, the TFP’s objective is to mobilize private sector capital and involvement in developing Asia. In Mongolia, about 38% of the $124.17 million in trade supported through the TFP was cofinanced by the private sector.