Zimbabwe: agricultural finance must be a business transaction
Second Republic’s fiscal discipline is now on display in the critical and major area of farm finance, the determination to ensure that only those who can use the finance actually get the money in the first place, and the determination to pay it back.
In addition to the systems in place to ensure that inputs to government-sponsored programs are used properly by the farmers who receive those inputs, we have, as a parliamentary committee recently shown, a determination that even when things are not going well , farmers still have to repay debts.
For Command Agriculture, the program for serious commercial farmers with the largest farms, primarily A2 farmers, the government has matched up with CBZ, a large commercial bank. There was a government guarantee, but CBZ had to put in some of its own money.
To start with, using a commercial bank meant that the banker’s rules applied. That is, a bank manager had to review every request and make a thoughtful decision. This removed many chancers from the list, as well as those who had no record of using previous loans, who were essentially selling the inputs for instant cash, or who had not delivered their products to Grain Marketing. Board or other designated agencies.
Then last season we had a second consecutive year of drought. This was bad news for the farmers and many had drastically reduced yields and simply did not have enough grain to sell to repay their loans.
But CBZ has acted fairly and responsibly. Responsibly by refusing to write off debts and calling on the government to find liquidity in terms of collateral, and equitably giving farmers time to pay. Farmers now have three years, starting this season, to pay off last season’s loans, or at least the portion of the loan they still owe. So the debt is not canceled, but the farmers are not bankrupt and can still stay in business.
There may still be a strange farmer who can’t afford the payments, but any farmer who can’t make a decent profit this season must seriously consider their future. They shouldn’t be cultivating if they can’t get great yields during a near-perfect rainy season and it’s probably a good time to sell and try something else where they can be successful.
This Command Agriculture upgrade is significant. Obviously the government needs to budget for agriculture related items every year, but that should not include bad loans. The treasury should seek to find money every year to build infrastructure, build more dams for example, rather than providing guaranteed income for dead ends.
This is especially important because banks and government borrow short-term funds, as we saw in the report of last week’s meeting of the new monetary policy committee that approved the funding required for the harvest. winter wheat and CBZ evidence that its farm unit is overdrafting with the parent bank for its part of the Command Agriculture program.
This shouldn’t be a problem, because the money comes back when farmers deliver their crops and have their loans taken out through these shutdown mechanisms, and all the money the government and the banks have borrowed is then paid back.
In other words, no one prints money to finance farmers, but instead goes through trade deals where the main security is crops, which puts even more pressure on input suppliers to get their money’s worth. ensure they lend to farmers who can grow these crops.
Tobacco works in exactly the same way, although there is no money or government guarantees. We now know from a recent Reserve Bank directive to ensure the system is both simple and transparent that many traders need to arrange off-shore financing for at least some of the money. that they need to purchase the delivered sheet. by the farmers they have contracted, or to buy the small percentage of the crop still sold at auction.
The RBZ rules simply ensure that all the money, both the money traders have in their own nostro accounts and the money they borrow, is kept separate and is where any bank inspector can see the funds. .
Unless someone plans to make money out of the confusion and steps are taken to only allow honest traders, this is just an accounting procedure, not a taxation.
Traders repay their offshore lenders out of their own value-added profits. Even the requirement to give good details about the farmers they have hired and the cost of inputs and others wanted by the Reserve Bank should not be a problem, nothing more than a printout or even an electronic copy of it. ‘part of what each merchant should be kept, for business purposes, in their own financial systems.
Even the small producers, those in the Presidential Input Program, commonly referred to after the Pfumvudza-Intwasa upgrade, were checked first.
They had to undergo conservation agriculture training and be approved by Agritex, after their local Agritex agent had already certified that they physically existed and owned a farm. There are a few handfuls of people on remand after being caught cheating, another example of law enforcement, but basically the system was working fine.
The system has also carefully distributed the inputs among three plots with at least half of what is grown destined for sale to the GMB. This means that these farmers will have the money to repay their small loans. The government rightly takes the bill for all these Agritex services, but the farmers on communal land and A1 farms are drawn into the real business world and turned into businesses, small businesses, but real businesses.
And, as they now realize, this system will earn them money. They have kept proper records, and someone is checking to keep the sloths from pushing this away, and can now start calculating what they need to feed the farm family and what they can sell to earn money. , as well as the scowl of the standard commercial farmer. the debt that will be deducted.
This is something new, and there are bound to be start-up problems, and dead ends, but the transformation of hundreds of thousands of subsistence farmers into true business-oriented farmers is off to a good start.
And these newly empowered farmers will no doubt find out how they can increase production, try new crops, and generally turn their small businesses into better, bigger businesses.
Agricultural finance should be an automatic business transaction. Farmers borrow inputs, grow crops, sell crops, repay loans, and keep the rest in their bank accounts to start buying everything their farms and families need.
And the rest of the economy wins as those profits start to flow through the economy and others make money making and selling the things that farmers buy.
The government, the Reserve Bank, commercial banks and entrepreneurs must maintain a disciplined and commercial approach, but the farmers react and, as they get richer, will move the country forward, essentially by becoming wealth creators rather. than a drain for others. The bits are all in place and we just need to improve them.