We need formal financing for farming

16 Dec, 2022 - 00:12 0 Views
We need formal financing for farming

eBusiness Weekly

With good rains now falling, plus the commitment of Government to fund, or guarantee the funding, of inputs for a swathe of crops, Zimbabwe is extremely likely to remain self-sufficient in grains, almost certainly with surpluses, and at least come close to self-sufficiency in oil seed assuming oil expressers are willing to use growing output of cottonseed and sunflower, rather than insist on soyabean.

But having climbed out of the dark hole of large imports of food, and the growing burden of providing free grain aid to hungry families, we now need to start looking at building up a more permanent and lasting financial counterpart to the high degree of fixing on the production side.

No one seriously disputes the need of the Government to intervene in the financing of most crops. Fluctuating inflation and interest rates, the complications of side marketing, the lack of security for loans, the physical shortages of a range of inputs, especially for those without foreign currency and unable in any case to plan their own imports, and the general near collapse of marketing boards made any other solution to falling harvests virtually impossible.

The first interventions in 2018 were to at least remove the worst abuses of what had been put together. This had to start with the crushing of the embedded corruption, sometimes of a fairly high level. There had been free inputs for small-scale farmers, although a percentage was creamed off by people who could not be described as “small scale”, and the “Command Agriculture” did not have that many commercial farmers repaying their loans, or even producing anything with their loans.

This was done fairly efficiently. Then the following year there was the test of the conservation small-scale agriculture, what is now called Pfumvudza/Intwasa. This worked. And so in 2021 it went national and, more importantly, took over the Presidential Inputs Scheme. The importance comes from the fact that a lot of effort has to be made by the receiving farmer before a cent of Government money is spent.

The farmer has to go on a brief course, near their home. Then comes the test. The farmer needs to mark out the plot and then dig the required holes and gather the required mulch. And the plot, the holes and the piles of mulch need to be physically checked by the Agritex person in the area. This proves the farmer physically exists, that they have land, and that they were keen enough to dig the holes. This slashes most of the corruption. Then the inputs can be given, and even here there will be a physical check at some stage that the seed was planted. There is still a problem, and it seems to be a small one, that inputs, especially fertiliser, can be sold. There have also been a number of fiddles to get farmers to pay for transport, but new systems, of committees that include heads of schools, have now been set up to cut out that potential or actual layer of corruption.

At the moment side-marketing is not a major problem in Pfumvudza. From statistics given we find that even now, in the third season, a lot of farmers still only prepare one plot although we appear to have reached the position where two is becoming the average. So most grain is still for on-farm consumption or for sale to extended families and friends. This will change. But the small quantities will favour the GMB.

The Government has limited its financial exposure by setting a maximum of five plots for free inputs. Farmers can of course use more, but from the sixth plot onwards they are buying their own inputs.

Other complications, such as the climate, have been addressed. This season saw the biggest jump, with maize largely limited to areas where some sort of crop can be guaranteed. The drier regions are still getting free grain seed, but for sorghum. The other change was to stress soya less at this level and start pushing sunflower a lot harder. It is an easier crop to grow and there is a greater memory at least of past decades when this was a popular communal crop.

Cotton is now returning to be a major smallholder cash crop, as the Government basically takes over at least operational control of the privatised Cottco. Ensuring inputs and being able to pay for the resulting crop is obviously a major step forward. The mess at Cottco, incidentally, does raise questions over the original privatisation of the Cotton Marketing Board, and some of the other marketing boards.

The CMB was an efficient outfit, and was the first, and for some time the only, marketing board that took communal farmers seriously. The board overcame the problem of security for input loans by using farmer clubs, with the club members mutually guaranteeing each other. Clubs had the last word on who could join their club, with the CMB making the intelligent guess that a local community would have an excellent idea of who was likely to be a worthwhile and honest person.

Side marketing, which eventually helped kill cotton production, was not a problem since only the CMB owned and ran gins. They had a marketing monopoly and the need to “keep white farmers on the land”, to quote the Rhodesian Front which was owned body and soul by the while farmers, although attracted more votes from skilled and semi-skilled white workers and small business people, all terrified of competition, ensured that decent prices were paid. In any case the pricing was worked out on the world cotton prices for fibre and seed.

Privatisation allowed other companies to enter the cotton markets, some honest and some seeing no need to prevent side-marketing of other companies’ contracted farmers. There was no referee to stop this. We know the result.

For larger scale farmers, mostly these days the A2 farmers who benefited from land reform although with a healthy sprinkling of farmers who have title deeds to their land, a different inputs scheme was put in place, bank loans basically from CBZ, although others are showing interest and the relaunch of the Agriculture Finance Corporation, another privatisation that did not really work, is starting to pump in more money. Here the Government put in guarantees, necessary for the A2 farmers as most use offer letters, rather than bankable leases.

Sometimes it works, sometimes it does not although we do not know at this stage how many Government guarantees have been called in, and perhaps more importantly how many should have been called in. In theory the farmers repay when they deliver their crop, but side marketing has been a problem, not as bad as cotton at its worst, but still there.

In time the agro-industrial base can, and must, take greater effort to finance farmers using contracts. This is starting to happen, and works because the Government is willing to enforce bans on side-marketing although more needs to be done.

The tobacco industry probably provides a worthwhile model. This amazing industry receives no Government money or guarantees, the main merchants contracting more than 95 percent of the crop using their own cash.

But where tobacco wins is the fact that there is a good referee, the Tobacco Industry Marketing Board, which is continually tightening up on minimum contract standards and most importantly registers everyone, from the smallest grower to the largest merchant. And only the registered can participate. This works rather well.

For other crops the first step can now probably be taken with wheat. This is a crop largely grown by larger farmers, since it requires investment into irrigation and that in turn needs power. But the fact that it is a near risk-free crop, thanks to that irrigation, means that direct contracting could be extended considerably, although millers are already becoming involved. The main risk, fire, can be covered by some very cheap insurance since we are talking about a tiny percentage of fields being wiped out.

The fact that millers cannot finance the whole crop means, that we may well need to start activating our mercantile exchanges and starting to create the futures contracts that can be traded, or which can be held by banks as security. Such contracts finance a lot of the wheat production in other countries and there is no reason therefore they cannot work in Zimbabwe.

We need to remember the TIMB in tobacco, and some regulator representing both farmers and buyers will be needed as we move forward. The Government can still be in the midst of the financing, but more and more having this financial role formalised as the financier.

Other crops, and especially the cash crops, can then be moved into the contract system, again with an independent but representative regulator, and again with the banking and merchant sectors working out how to raise the finance that the farmers need.


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