‘Financing, borrowing rates farmers’ biggest challenge’

Source: ‘Financing, borrowing rates farmers’ biggest challenge’ – NewsDay Zimbabwe September 29, 2017

GOVERNMENT has been boasting about this year’s bumper harvest amid claims that the financial sector is now dedicating more of its loan book to the agricultural sector.

The banking sector claims to have committed $1 billion of its loan book to farmers, yet, farmers complain of hardly seeing any of it.

Federation of Farmers’ Union (FoFU) chairman, Wonder Chabikwa (WC) spoke to NewsDay business reporter, Tatira Zwinoira (ND) recently at the launch of FoFU about how farmers are frustrated with banks.

FoFU is an amalgamation of the National Farmers’

Union, Zimbabwe Farmers’

Union, Commercial Farmers’ Union and Zimbabwe Commercial Farmers’ Union.

Below are excerpts of that discussion.

ND: Farmers have been struggling to access funds from banks, but the Bankers’ Association of Zimbabwe is saying the financial sector has set aside 20% of its loan book for farmers. What is the correct position?

WC: The truth is, yes, while bankers have been talking about contributing $1 billion to agriculture every year, what we have seen is that it was not directly to farmers. It was mostly to contractors.

In terms of collateral, banks do not have any confidence in farmers. We are not getting that money from the banks, but through these contractors.

ND: Why is it going to contractors and not directly to farmers?

WC: It looks like our colleagues from the financial services sector are more comfortable dealing with contractors that have got big collateral and they (banks) believe the contractors can do a better job making sure that they (banks) get paid (loan repayments).

ND: How do you intend to tackle this problem?

WC: We will start off by carrying on with our lobbying for low and affordable interest rates.

Once we achieve this, we will go a gear up and say let us have funding directly to farmers basing on the viability of projects, enterprises.

For example, we went into command agriculture and there was no issue of collateral there. It was an issue of your cropping programme. Your land is there and the success we are seeing it for ourselves.

We want the same thing to happen with banks where we have affordable interest rates, competitive interest rates.

Let us look at Sadc rates and those loans being given to farmers directly. When they go via contractors, what we are seeing on the ground is that when they purchase inputs and put a mark-up, it is getting more expensive for us.

The contractors, because they have got the muscle and huge amounts of money, negotiate for discounts from input suppliers, which is not passed onto the farmer. Instead, they actually put a mark-up, hence, it is affecting farmer viability for those who get into contracts.

Normally, they (farmers) fail to pay back because of what I mentioned.

So, if the farmer accesses (finance) directly (from banks) we know it will be cheaper for the farmer and we will be going back to a normal situation.

ND: What kind of mark-ups are they putting and what kind of interest rates are you looking at?

WC: We are looking at not more than 4% interest rates. Mark-ups are varying. I will give you an example. Some tobacco farmers were telling us that they were charged $40 for compound seed, but when you go to the shop you can buy it for $35, but if is via a contractor you pay $40 or $45. There is some mark-up and that is affecting the viability of the farmer.

ND: There is legislation on contract term employment between farmers and workers governing their wages of $75 a month, which some employees saying it’s minuscule. What’s your comment?

WC: What I know is that annually, the employers and employees meet under the auspices of the National Employment Council of Agriculture to negotiate wages and services.

For this year, it was done and the minimum wage agreed upon was $75. When we discuss these things the farmers’ ability is also assessed and employees are also made to see and we believe that given the viability the farmer has at the moment the agreed wage level makes sense.

ND: But, if you look at the good rains, is there no room to try and get the employees’ salaries up?

WC: $75 is a minimum, a statutory minimum. What we encourage our farmers is if your affordability improves please give incentives, pay more.

A lot of farmers are paying more because that $75 is money only, but others are giving rations as well to try and improve the pack so we are encouraging farmers to pay packs.

It is difficult to say that this year my yield is good I am paying $100, next year my yield is low I am back to $75, that would be a distortion.

When the season is good, I know farmers have a human face they want a happy labour force, which they know is productive.

So, the encouragement is minimum, yes under very difficult conditions, but if you can do more, please let us give more, which is what is already happening.

ND: Coming back to this issue of finance, which crops do you think need more finance?

WC: Financing for agriculture is nothing new. If we put them (costs) into two groups, there is what we call variable or direct costs, that is your fertiliser, seed, labour, electricity, machinery hire and so on.

Then, it must also include your overheads; it must include me, the farmer, I must get money, school fees for my children, a living allowance, and a holiday allowance.

Normally, the farmer is supposed to be financed totally so that I am not going to wake up and scratch my head that I am not going to get school fees for my child because I know I am going to go into the field to work.

My needs are to concentrate on production, increase my yields and profitability then I am happy.

ND: Finally, what challenges are you facing as a sector?

WC: Number one is the suitable financing models and borrowing rates — that is our number one challenge. When I say suitable financing, there is no medium to long term. We need to regularly replace machinery. Not only to replace, but to modernise as well, there is no facility in place and that is a big challenge.

For the crop farmer, you need that kind of funding so that you have got proper machinery so that you can do your farming on time, if you do not, you will not do it on time and will not do it well.

Yields are as a result of precision, you have planted the right seed and applied the right amount fertiliser, which you cannot do by hand when going into massive production, so financial services are a major stumbling block and that is where we are locked.

If that can be opened, we can go back to the past of medium to long-term loans to buy a tractor with a better facility of five to 10 years or at least five years and above, irrigation 15 to 25 years then we will be back to farming. As it is now, it is very difficult.