Risk management is executed under supervision by Committee of Early Detection of Risk.
EGC Agri Capital Risk Management operations are handled under two main headers as Operational and Financial Risk Management and executed under supervision by Committee of Early Detection of Risk.
Existing wet cow animal capacity and working with the milk processing facilities in the location where the activities are conducted are the requirements of the Company’s sales policy; however, this constitutes risk in dependence on a single customer. Upon consideration of existence of other national milk producers and milk products producers at neighboring locations, there is no contractual or operational problem with regard to sale to different producers. Agreements concluded with the customers in the relevant sector are annually renewed; however, there is the risk of non-extension/ renewal of the agreements due to possible diseases in the livestock or disagreement on the commercial terms and conditions.
Developments, arisen in the real economy and financial markets and not be anticipated, may have effects on the activities of the Company.
Failure to make some collections as a result of limited customer portfolio until diversification of the sales channels and the customers’ possible difficulty for this reason may adversely affect the activities of the Company.
The fundamental risks with regard to subject of activity of the Company are the risks on the livestock health. In fact, as the number of industrial producers and the number of livestock per facility are quite lower in both livestock fattening and dairy (milk) farming, it is not possible that necessary measures fully and efficiently be taken for protection of the livestock health.
Widespread livestock diseases - such as hoof and mouth diseases, brucella and tuberculosis - constitute important risk in cattle breeding. Besides these diseases, general livestock diseases and accidents may adversely affect growth of the flock and result in considerable decrease in milk production and accordingly financial breakdown of the Company.
Diseases, possibly occurring in the dairy livestock of the Company, may adversely affect the milk production and therefore incomes of the Company due to destruction of the milk produced from sick livestock.
Changes in product prices
Even though the Company enters into annual sales agreements with the national milk firms, prompt decreases in milk prices may adversely affect the milk sales prices applicable in the agreements of the following year and accordingly the incomes of the Company.
While the drops in the milk prices are supported by public subventions, failure in sustainability of the public subventions or drops in the prices or reduction in the subvention amounts result in loss of income.
Agricultural policies may have significant effects on the financial structure of the Company. In case of discontinuation of the supports and subventions provided to the sector, a financial breakdown may occur in the Company.
Within the scope of the agricultural policies, the livestock sector is made premium payment per cattle/sheep within the scope of state subventions during the year. These premiums paid within the scope of incentive policy of the state are fully free donations.
Instantaneous rises in the bait prices result in significant increases in the item “costs” of the Company. Any prompt rise possibly occurring in the bait prices may adversely affect profitability.
Significant increases in the bait prices in Turkey in the last three years have considerably affected the costs. Currently, the Company has no bait production activity; however, it satisfies its bait needs particularly by the way of prepaid and contractual cultivation from the suppliers.
As the Company runs its production activities based on natural resources, the natural disasters such as swelter, earthquake, flood have significant effects on the production capacity. Moreover, the possibility of damage to the environment caused for any reason by the wastes of the fertilizers produced from the livestock in the farm may constitute contradiction with the relevant environmental laws and regulations.
The Company is subject to various financial risks arising from its operations including effects of changes in the currency and interest rates in Debt and Capital Markets. The Bulk Risk Management Program of the Company focuses on the unpredictability of financial markets and aims to minimize potential adverse effects on the financial performance of the Company.
The details of these risks and The Company’s risk management are as follows,
Credit risk is the risk that one party to a financial instrument will fail to meet regarding the terms of their agreements as foreseen and which causes the other party to incur a financial loss.
As of 31 December, the most important credit risk is consist of deposits held at the bank and other receivables. All of the Company’s bank deposits are in Turkish banks. These deposits are not considered to have a high credit risk.
Liquidity risk is the inability of the Company to match the net funding requirements with sufficient funds. A decrease in funding sources mainly due to market instability or a decrease in credit risk results in liquidity risk. The Company manages the liquidity risk by maintaining sufficient cash and other liquid assets in order to fund the current and prospective debt requirements. The Company does not have any derivative financial liabilities.
Foreign Currency Risk
In the case of owning of foreign currency assets, liabilities and non-balance sheet liabilities, the risk that is exposed to resulting from the currency movements is defined as the foreign currency risk. Since the Company does not have material assets and liabilities denominated in foreign currency as of 31 December 2015, the Company was not exposed to currency risk.
Interest Rate Risk
The Company expose to interest rate risk due to effects of the changes in market interest rates lead to fluctuations in the prices of financial instruments. These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities.