Agric Financing



Agricultural finance generally means studying, examining and analyzing the financial aspects pertaining to farm business, which is the core sector of Zimbabwe alongside mining. The financial aspects include money matters relating to production of agricultural products and their disposal.Upgrading and expanding all sectors of agriculture, the base of economic growth and development in Zimbabwe, has to be built on the twin foundations of skilled energetic farmers and a sustainable financial and marketing structure.This was impossible with high inflation, economic instability and significant cheating by some of the farmers who were funded. The Government and Treasury will still be involved, and heavily involved, but more as the overseer with Budget allocations going more to building up equity in the AFC, AMA and other financing and marketing organisations rather than in direct funding.

Co-operation between the Government, the private sector, the banking sector and, perhaps most importantly the farmers, is possible. Now we can build on that to continue converting the farming sector into what it must be, a huge group of millions of farmers running prosperous businesses and producing our food, raw materials and a large slice of our exports.

As the name implies, Agric-finance loans are offered to farmers and other individuals engaged in agri-related activities to meet their various working capital requirements.All this has to be in the context of modern Zimbabwean land policies, whereby the overwhelming bulk of farmed land is now in small-scale and medium-scale farms rather than the inherited system of huge estates and “native reserves” roughly splitting the agricultural land evenly.

Land reform, and subsequent Government policies, did far more than end a racial split of land.

It would have been quite feasible to have changed the ownership of the large estates, while retaining them intact, for example.

Instead land reform, and this will be its lasting legacy, changed the whole system and allowed vast numbers of families to own and run their own family farming businesses.

The latest commercialisation policies of the Second Republic have significantly ended the distinction between farmers using farms allocated through traditional systems in the communal lands and farms allocated through offer letters, which will be formalised in leases.

In practice there is no longer a sharp divide between small farms and large estates, but rather a continuum of farms with maximum sizes now regulated.

The differences in tenure are far less important than the new map.

At the same time there is now a determination to ensure that this new range of family farms are properly farmed.

Absentee landholders are discouraged and new requirements now compel all farmers who benefited from land reform to explain how they use their farms, what they plant and what they produce, with the aim being to ensure that all land is well used, if necessary through changes in allocation.

This has required a revolutionary change in how farming is financed.

Almost all farmers require financing for inputs and require secure markets for what they produce, with payment on delivery. And that second condition requires that buyers have the finance to pay on delivery, when crops are harvested, and then recoup that huge payment in what is a seasonal business when the sell or use the crops they have bought over the next 12 months.

This does require capitalisation, either equity itself or a formal system of borrowing, through bonds and the like.

There has been a major effort to solve this double problem, of funding input loans for farmers, basically through provision of the actual inputs, and funding the purchase of the harvest when it is delivered over a fairly few weeks.

Tobacco has largely switched to a contract system, whereby the major buyers sign contracts with farmers, provide the inputs and then buy the crops with prices set by a formula.

It has worked quite well, with record harvests now being recorded, and the oversight of the Tobacco Industry and Marketing Board has prevented any major cheating. But farmers are unhappy over how inputs are costed and how prices are set, and there is unhappiness that the financing of the buying of the crop is largely offshore, minimising the advantages for Zimbabwe.

The distrust of farmers for the buyers is hardly new.

It dates right back to the beginning of tobacco farming early last century and was a major factor in the establishment of the auction floors, although possibilities of collusion were still mentioned.

But the recent Cabinet decision to move towards more independent funding for tobacco farmers and a larger share of the crop on auction should be a major advance, especially as such funding will be local, rather than offshore.

From the farmers’ point of view, even if contract farming remains a major force, with a larger percentage of the crop sold on open auction, the pricing formulas for contract crops should reflect those prices.

At the moment is well under 10 percent.

Obviously, when it comes to costing inputs and other problems the TIMB needs to be more open and again the option of more bank lending should provide the necessary competition to ensure the best deals for farmers.
While the contractors have done much to rebuild the industry, the Government intervention will help make that rebuild permanent.

The second recent advance is the approval for the Agricultural Marketing Authority to make a $100 million bond issue so it can make the necessary input loans to more farmers, especially for oil seeds.

The major grain harvests come under the Command Agriculture and Pfumvudza schemes. Cheating has been stopped, with side marketing criminalised. Command Agriculture, for the larger farmers, is now primarily within the banking sector and there was a major advance after last year’s drought when the major bank involved decided not to cash in the Government guarantee but instead work with farmers to spread repayments.

Harvest payments for grain, and much of the cotton, harvests still have direct financing of the Grain Marketing Board. What is now needed is to follow the pilot scheme of the AMA and start building up the capital of the GMB, or the Agricultural Finance Corporation, and start financing through established money markets the seasonal requirement for a lot of cash at harvest that is reclaimed from future resale

Ross Moyo

ZimDollar remains unchanged

Previous article

Business Nicodemously warms up to SI 127 of 2021

Next article

You may also like


Leave a reply

Your email address will not be published.

More in Business