As We Prepare For the Next Agriculture Season......
As a nation, Zimbabwe has always been found wanting on preparing for the agriculture season. Inputs seem to come way after the season has started. Even when inputs are available, sometimes farmers do not have the finance to access the required inputs. The heavy load has been bore by government through command programs and the local financial institutions.
As we prepare for the next season and the succeeding seasons, we need to answer the question on how we can finance our agriculture, a sector which not only provides inputs to our agro-processing industry but also provides livelihood for the Zimbabwe peasant communities and at one point earned Zimbabwe the bread basket of Africa status. The sector provides employment and income for an estimated 70% of the population, whilst supplying 60% of the raw materials required by the industrial sector. Agriculture contributes as much as 40% of total export earnings. The Agriculture sector directly contributes between 15% and 19% to annual GDP. This underscores the significance and importance of the agricultural industry.
Smart subsidies and taxation has been the instruments that we have seen the Government using. These have their limitations especially in a country where the fiscal deficit is close to USD2billion. As calls are on for Government to reduce expenditure and narrow the deficit so should ideas on alternative financing mechanisms be proffered.
The Banking Sector and micro finance houses have been financing agriculture through direct loans to farmers and indirectly through loans to value chain players such. Most commercial banks have a specialised agriculture unit within their operational structures complemented by quite a number of non-governmental and developmental finance organizations actively involved in funding small holder farming projects across the country.
Providing financial services to the agriculture sector has many challenges that multiply significantly as financial institutions move from larger farmers and high value chains to smallholder farmers and lower value crops, particularly subsistence food crops. It is indeed this very high degree of heterogeneity of farmers that makes it difficult to think of a single model and approach that can make a difference. Understanding and better classifying farmers while dealing with their specific challenges is the first step in thinking about potential solutions and innovative approaches. The multiplicity of farmer organizations in Zimbabwe is a clear sign of the heterogeneity of this sector.
Highly organized value chains with strong buyers such as food processors, distributors, and commodity traders have emerged in many markets and can help to secure lending to those farmers supplying to these buyers. It must be noted, however, that the greatest benefits may be secured by those larger farmers capable of delivering high volumes at precise intervals while meeting stringent quality standards, thus reducing transaction costs for high-volume buyers.
However, the vast majority of farmers in emerging economies are outside these high-value supply chains.
Strategic and innovative leasing - through innovative leasing, structured with options of finance lease, operational lease or daily usage rental payments, agricultural machinery services and agricultural products preservation/processing equipment could be provided to numerous small farmers who do not have money to buy them. This would empower small farmers to use commercial machinery for slices of time, while remaining owners of their own growing businesses, like small and medium enterprises (SMEs), a country’s growth engine room, existing side by side with the big players in the industry. Agricultural machinery companies should consider this form of financing and could work together with commercial/microfinance banks, insurance companies and so on playing different roles in the leasing initiative.
Market-smart subsidies have been tried in countries such as Malawi and have been successful. Subsidies driven by the market and the private sector are always more efficient. Statistics show that when fertiliser subsidy schemes are strictly government undertakings, less than 11 percent of targeted farmers receive the fertilisers, and parallel fertiliser black markets with exorbitant prices, product hoarding and corruption are rampant and when they are driven by the private sector and market, over 94 percent of targeted farmers get the fertiliser, and supply timeliness and other market efficiencies are observable
Agricultural and rural banks in Africa are traditionally structured and run as ineffective Government bureaucracies, thus unable to function as financially and commercially sustainable enterprises that can accomplish strategic agricultural business growth and attain market targets. Innovative agricultural and rural development banks are key strategic institutions in rural economies that facilitate financial and economic transactions, which accelerates rural economic and monetary velocity, which is acknowledged in economics as fundamental to economic growth and development.
There is ongoing engagement with relevant Government authorities aimed at improving the collateral value of Agricultural Land. The Reserve Bank is leading efforts to establish a centralized Credit Reference Mechanism in the economy. The Ministry of Agriculture is working on a framework to introduce a Warehouse Receipt System to improve the liquidity of the agriculture value chain. The Central bank is presently seized with formulating strategies to increase the level of financial inclusion in the economy.
Stock exchanges and commodity exchanges have a key role in financing agriculture. Profitable, well-managed, well-reported and well-positioned agricultural companies in the public view can list on stock exchanges, issue initial public offerings or sell un-allotted shares on stock exchanges to raise finance for further expansion and growth. Some of the best performing stocks on the Nigerian Stock Exchange are of agricultural sector-related companies. Stock & commodity exchanges put the engine and full weight of financial markets directly behind the agricultural sector to drive and stimulate more growth and development in diverse agricultural value chains/commodities. They transcend barriers of space to connect farmers, sellers, buyers, processors, transporters, financial institutions and so on to commonly shared market information and trading and financing platforms. Through commodity and financial gate ways, provided by stock & commodity exchanges, players from everywhere in the world can link up to the African agricultural business space. South Africa, Ethiopia and Rwanda are already taking some positive steps in this direction.
Strong, effective and innovative institutions providing innovative satisfying services to those whom they serve are necessary for strategic intent to be realised. Pivotal leaders that drive strategic achievements are critical to the accomplishment of strategic goals. In agriculture, these leaders are not those who come with Government red-tape mind-sets, nor are they those who necessarily come from academic or development backgrounds (for agriculture is not an academic or philanthropic issue); instead, they are those who come with practical business and impact-solutions attitude.
Dephine Mazambani writes in her capacity as Chief Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, Dephine can be contacted on dephine@baz.org.zw or on numbers 04-744686 and 0773841566