Farmers, both established and new, are faced with a challenge to raise funds to finance their crop after the Reserve Bank, which had become a perennial financer of agriculture, ceased quasi-fiscal operations to focus on its core business.
The central bank’s withdrawal created a huge void that could have been filled by financial institutions had it not been for the liquidity crunch, which has seen banks failing to raise the requisite funds to support agriculture.
In other cases there is government support for agriculture, though this is limited given the global moves against protectionist tendencies as fiscal support for the sector is seen as giving farmers unfair advantages.
This cropping season is coming at a time when farmers who had been receiving huge support would have to source own resources.
Apart from sourcing own resources, farmers should plan and critically analyse the pricing trends so that they make a profit from their farming ventures.
For Thomas Nherera, past president of the Zimbabwe Commercial Farmers’ Union and also an ex-trustee of the Tobacco Growers’ Trust, farming is all about planning.
“Farmers should plan realistically and in time if they are to get good returns on investment. There is no need why one would have 100 hectares under a crop when they do not have the capacity,” said Nherera. “It is better to plan for 10 hectares and be successful.”
This is the advice that comes from a farmer who has 880 hectares he has been farming in Shamva since 1986.
Nherera said preparations for the 2009-10 farming seasons were slightly better than last year in terms of availability of inputs, but it would be improper to expect banks to finance the entire crop.
These banks, he said, were coming from a situation where they have not been generating anything and at one time they “were worse than the man or woman in the streets”.
With proper planning, farmers would be able to finance their activities be it livestock or crops using their own resources.
There are farmers like Nherera who are into mixed farming and they make sure that one crop finances another, eliminating the need for taking up a loan.
This may be possible at mature farms where farming activities have been taking place for a long time to an extent that there is institutional memory and planning is more of recall from this repository.
There are cases where a farmer may grow maize and soya beans to be used as stock feeds and the proceeds from the sale of, say, pigs, would be used to finance the next crop.
This has been made much more realistic with the use of multiple currencies.
“One has to look at the annual cash flows before they make a decision on the enterprise mix, that is having both livestock and crops,” said Nherera. “Crops are generally seasonal and they are affected by many operational factors such as input prices, commodity prices or availability of labour and they are also more sensitive to power shortages than is the case with livestock.”
On the other hand livestock give a steady inflow of cash throughout the year and this keeps the business going as it takes care of all recurrent expenditure.
If a farmer has cattle, then they would use these when they want to raise cash for other activities.
It takes a lot of planning and time for a farmer to have the right enterprise mix, thus they have to be very patient before they come up with the right combination of crops and schedules of cropping.
“Farming is not a short term investment option as you make more tangible assets than liquidity,” said Nherera. “It is an investment area where you should be prepared to bury your investment underground so that it grows. Generally, it is an investment option where faith plays a greater part than the usual business mathematics.”
Unlike with other investment options where one can make projections as to the returns for each dollar that is ploughed in, a farmers’ return on investment is dependent on a number of factors.
Climatic factors may also wreak havoc on the investment that is made and at the same time policy changes may result in the farmer incurring huge losses. In agriculture, a policy pronouncement today may have an impact on a crop that was planted nine months ago, thus there is huge risk if there are inconsistencies.
Nherera said the enterprise growth patterns in agriculture depended on the crop or the livestock.
It takes three years before real returns start showing for a pig venture while for tobacco it takes up to five years before the farmer starts realising real returns.
Horticulture takes far less, at most two years, though the margins are also lower compared to other ventures.
While it may be easy to finance a crop or livestock for Nherera, who has been on the farm for 23 years, there are many new farmers who are struggling to get going.
Many have been shocked by the withdrawal of the central bank and without a comprehensive financing plan in place for the 2009-10 season, they would be forced to either quit farming or put very small pieces of land under crops.
This has a bearing on the economy which is agro-based.
A poor agriculture season may see the country importing food and exporting less which will have a serious effect on the country’s currency reserves which are currently low with less than three months import cover.
What is certain is that there is a gulf of difference between investing in a farming venture and buying stocks in anticipation of a bull run because one promises quick returns while the other requires patience with the investment at the mercy of the vagaries of the weather.
Apart from the effects of the unpredictable weather patterns, faming entails planning well in advance, commitment and massive support from central government as well as financial institutions.