HomeBusiness DigestUS$1bn agric funding: Reality or fantasy?

US$1bn agric funding: Reality or fantasy?

Preparations for the 2013/14 summer cropping season have already begun.

Victor Makanda

This is the first planting season since dollarisation under a single party government. In the last four seasons since 2009, the sector was under the coalition government. This, according to some players, led to disruptive debates particularly on how to support the sector.

Lately, it has been alleged that in the public domain the new government will mobilise a total US$1 billion for the agricultural sector this season in the form of loans for inputs. In its manifesto Zanu PF pledged to mobilise at least US$8 billion for the full resuscitation of the sector over the next five years.

These statements raise a lot of questions. Firstly, will this be new money coming into the sector? Whether or not it is, how will the government be able to raise money locally in an illiquid environment?

Are banks now willing to offer loans to farmers? Assuming the money comes through, will it put to rest the challenges haunting the sector? Or are there still other barriers to production aside funding that need to be removed?

The US$1 billion pledge consists of a US$161 million fund recently launched by government. In addition, the Bankers Association of Zimbabwe (Baz) pledged a US$620 million loan facility and the government is also reported to be working on a US$98 million farming mechanisation loan facility from Brazil.

Negotiations are also going on with China for another US$300 million loan. The Brazil and China facilities are still being negotiated and may not yield fruit in the current season.

Such facilities have in the past been delayed. A case in point was the US$70 million Botswana facility signed in 2011 which has not yet been accessed due to lack of property rights in the economy. It is against this background that the possibility of new money being pumped into the economy may be more wishful thinking than reality owing to the deteriorating country risk profile.
It appears there is also a lot of hype on the loans that Baz pledged to roll out to the sector.

So far the only facility that has been mentioned pertains to the US$100 million from CBZ through AfreximBank. It appears the facility is a roll-over of a loan that was already disbursed and does not necessarily mean new money coming in. In addition, several banks are incapable of giving out loans due to the liquidity crisis and pressure to meet steep capital requirements. Again, most banks are finding it difficult to secure foreign lines of credit due to unfriendly investment policies in the country.

The situation is also made worse by the fact that most farmers do not have collateral security for them to access funding. The 99-year leases given to new farmers are not bankable.

Due to the high loan default rate, most banks have tightened their risk management systems, leading to stringent loan access requirements. Recent reports of farmers lobbying government to compel banks to write off their debts, like the scenario on council bills, may also discourage banking institutions from lending more to this sector.

Thus the only way bankers are likely to increase their loans to farmers will be through coercion from policy-makers as cautious bankers in the current set- up may prefer to reduce their exposure to the sector.

Funding is not the only requirement needed to resuscitate the sector. Shortcomings in other factors of production also need to be addressed if output is to return to levels prior to the year 2000. There is need to invest in research and extension services so as to improve yields per hectare that remain low when compared to other countries in the region.

Tobacco production in the country has improved as small scale farmers switch from maize and cotton. However, if output is to exceed the peak of 236 million kilogrammes, yields per hectare need to go up, farmers need access to better inputs and investments need to be made in leaf curing processes.

Also, a transition to agri-business policies and attitudes is necessary.

Production costs for all sectors in Zimbabwe remain high, the agricultural sector included. The high cost and erratic supply of utilities is one of the chief reasons for the decline in wheat production. Irrigation equipment is also expensive and few farmers have access to it. Policymakers may need to consider subsidising the purchase of irrigation equipment as well as ensuring the continued supply of electricity for farmers.

Subsidising farming inputs may be another way as it lowers the overall cost of production to farmers. This may be a better option compared to dishing out loans to struggling farmers. However, the government has to be financially sound to be able to do this.

Regulation is another area that may need to be addressed so as to encourage corporates to fund agriculture. This is one area where policymakers have lagged behind and has adversely affected confidence levels in the sector. A case in point relates to the ever present side-marketing issue in cotton farming.

In addition to poor rainfall and low lint prices, the 59% decline in cotton output at 143 000 tonnes in 2013 compared to 350 000 tonnes in 2012 is also attributable to side-marketing as merchants withdrew their funding for the crop. As long as policymakers do not enforce strict regulation, cotton production may be subdued for a while as ginners will reduce their support to contract growers.

Low cotton production will mean low export earnings. Furthermore, the absence of a land market has also deprived other serious players the opportunity to purchase land and use it productively. Again, continuous land invasions should also be stopped.

Overall, agriculture is the backbone of Zimbabwe’s economic growth hence there is need to come up with solutions that correctly address the challenges being faced.

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