eBusiness Weekly
With a little over 3 million farmers now registered for Pfumvudza/Intwasa and almost 11,5 million plots holed out with inputs delivered or promised, this scheme has largely come of age with any major increase in future farm income in the smallholder sector going to need additional sources of finance, almost certainly loan finance.
The scheme, launched four years ago after a successful trial, was built around the need for smallholder farmers to grow enough food for their own households and for them to start moving away from subsistence farming towards commercial operations by producing surpluses of food crops for sale and for adding cash crops to the farming mix.
The technology chosen was basic, but effective. Farmers using simple handtools would dig planting holes over fairly small plots, would use reasonable quantities of fertiliser and would mulch heavily. The crop selection has been modified considerably since the start, with maize now basically banned from State-funded schemes in natural regions four and five, and with sunflower pushed very fast from a small backyard operation to becoming the major oil seed crop.
The funding was that farmers could get free inputs of seed, fertiliser and chemicals for up to five plots. To register they had to have their local extension officer confirm they had access to land, had to go on a short training course in their area, and then had to dig the holes and collect the mulch. Only then could the inputs be collected.
The main reason for making the inputs, up to that fairly low level of five plots, free was to ensure that the farmers would have the inputs and because they had already invested a lot of hard work on land preparations would use them. The cost was less than the cost of providing food aid, in effect backing people to grow their own food, and a loan scheme for the initial stages was not viable.
Up to three plots, the minimum now that a family must prepare before qualifying, provides very little surplus for sale. There will be some, but not enough to cover the costs of the inputs for all three plots. At this sort of level we are still largely talking about household food security, that the family will have enough grain, beans and other legumes to eat and for other farm needs, such as poultry and animal feed.
For a repayable loan scheme you need to be able to earn more money from delivering the harvest to the Grain Marketing Board or other designated agent than the total cost of the farming inputs, including those for self-sufficiency, so that there is enough money for the deductions.
Additionally in the earlier years the crop choices had not been tightened, so there was still an unacceptable risk of some harvest failure, particularly for maize, if rainfall was not close to perfect. So there were crop failures when the wrong crops were planted.
One important point in the whole scheme is that it is possible to add extra plots each year. Older plots can be recycled, the holes just cleaned out and repaired and more mulches brought in. Only new plots have to be dug from scratch. Many families have, in fact, built up their number of plots by adding one or two each year and recycling the older plots.
There was nothing particularly magical about setting the maximum at five for free inputs. For a start it would allow many families to grow twice as much food as they could eat, so making the first stages of commercial operations easier to prove and ensure that the first very modest incomes did start becoming a regular inflow. And it was affordable by the Government, even when the reassignment of most of the food aid to farm inputs was taken in account.
Expansion of production on any smallholder farm will be purely commercial, being grown for sale, and this does open to door to commercial financing with deduction at the point of sale, preferably, as is already done with tobacco, is done with the contract farming for the next level of farmers, and had been done in the past.
This also reduces the costs of the financing, when there can be something that is largely automatic and which does not see recovery costs equal close to what is being recovered. On the other hand the normal commercial operation of farmers repaying loans does need to be accepted.
Already it is generally accepted that commercial crops can be using loan finance, or at least grown under contract and delivered, and then payment made after the deductions for inputs. Tobacco has paved the way on how smallholders can borrow inputs and repay, interest free, on delivery of the crop.
Although sums are fairly small for some farmers, around US$700 for the smallest contract of around 0,5ha, the system has very low administrative costs, partly because there is a good system in place, there can be very little side marketing, and because there is good oversight by the Tobacco Industry and Marketing Board.
TIMB does all the registration of farmers and contractors and merchants. You cannot farm or deal in tobacco unless you are registered and the withdrawal of registration is obviously an obvious sanction to deal with any persistent cheating, which would include any attempt at side marketing designed to avoid repayment for inputs.
Since tobacco managed the transition from production by around 2 000 large plantation owners to around 50 000 smallholder and medium farmers, it is worth seeing how that industry operates and what are the critical factors that need to be adopted.
We can also look partly into the past. The old Cotton Marketing Board, in the days when it was the only one of the farming parastatals that dealt much with communal farmers and before its administration and viability was destroyed on the commercialisation as Cottco, had developed some very effective ways of financing for smallholders at minimum administrative costs.
The centrepiece was the farming club, of around 40 farmers, who would all mutually guarantee one another.
This relied on the fact that club members knew each other, and who could be trusted within their community to be allowed to join, and on the cotton marketing monopoly the CMB maintained.
Side marketing, as with tobacco, was theoretically possible, for a larger licensed grower to buy the crop of the small grower, at some sort of major discount, and then sell it as if they had grown it. But this was complicated and in any case the neighbours in the case of cotton would find out, object and turn the cheat in.
Another important factor is the competence of the farmers borrowing the money, that is can they grow and harvest or, if in livestock, produce enough or high enough quality to be able to cover the loan and still have a reasonable amount left over as profit, so that they will not be tempted to cheat.
One useful part of the Pfumvudza /Intwasa schemes is the requirement to keep records, largely for the benefit of the farmer so they know what they are doing and can work out how they can improve yields and profits.
But a reasonable set of records going back at least two or three years covering four or five Pfumvudza/Intwasa plots would give prospective finance providers with a very good idea of just how much surplus was produced, and what sort of incomes the farmer was earning from those surpluses.
The final point is the one made last week, that the borrowed money needs to be directed towards crops and livestock that can find markets. As noted, there might be need to examine the mix of what crops are grown as we reach and exceed self-sufficiency in each crop to make sure the national surpluses can be sold and what sort of price they can fetch in export markets.
There is a difference between meeting local self-sufficiency, where for example the transport costs of bringing in imports can be instead used to boost the local prices, and having to make a living in global and regional markets. Subsidies of exports needs careful thought as logically it does not seen long-term viable.
But if small-scale farmers are to continue to expand their operations and their incomes they need access to finance, they need that finance to be low interest, they need to be efficient, they need to be competent so they can repay, and they need to be honest so they will repay.
The tobacco sector has shown that all this possible, and has now created that group of several tens of thousands of prosperous smallholders across natural region two in the three Mashonaland provinces and northern Manicaland.
We now need other suitable crops and more commercial livestock production for the rest of the country, and even to expand operations in the small farms in the tobacco belt so they are not so dependent on a single crop.
