Source: Drought: Why Zim needs financial bailout for farmers | The Herald March 12, 2019
Emilia Zindi Correspondent
Zimbabwe is one of the many Southern African Development Community (SADC) countries that have been affected by droughts, which have left governments with no other option, but to source and procure food in order to avert famine.
In so doing governments have not only sourced and procured food for their citizens, but have also gone a step further by making sure local farming communities in their respective countries are protected, and supported, so as for them to be able to produce enough food to feed their respective peoples in times of droughts.
The national strategic reserves of each country differ according to population requirements, with Zimbabwe requiring about half a million tonnes in reserves.
Last year after a bumper harvest, the Grain Marketing Board (GMB) depots in some parts of the country were at some point turning away maize farmers due to lack of storage facilities.
While this development might sound strange, the truth of the matter is that other depots could only accept bulk grain in grain bags.
But the question that most bulk grain producers asked was whether GMB was not shooting itself in the foot, by turning away farmers, considering that the following year might turn out to be a drought year, as is the case now.
As a business, farming requires large sums of money, most of it borrowed from banks and other financial institutions. As such, farmers would be expecting good yields and markets to be able to offset their debts, without compromising their surety.
Droughts can impose severe hardships on farmers, who may not only lose out on harvests, but also their immovable properties surrendered to financial institutions as security. These institutions will still require their money in full notwithstanding natural disasters, which they may also be aware of, since they do not operate from Mars.
It is not easy to recover after losing family property to banks through auction. The loss may lead to suicide, dealing a double blow on the family.
While this scenario is peculiar to Zimbabwean farmers, governments in other countries the world over, even in the SADC region, have not only bailed their farmers out of debt, but continue to support them. They are aware that without farmers the future is ever bleak. The case is different in Zimbabwe where farmers are vilified for failing to pay their debts due to natural disasters such as droughts or floods.
A case in point is when Government provided a $25 million facility in 2013 for maize farmers, on condition that they provided security in the form of title deeds for immovable properties.
Unfortunately, the year did not bring joy to the country as drought ravaged the region, Zimbabwe included.
This prompted the Government to declare 2013 a national drought year as most crops wilted before maturity.
The $25 million facility was meant to be repaid on harvesting the maize crop that year, which, however, did not happen due to the drought.
The financial institution that rolled out this facility went on to charge exorbitant interest rates despite it being a Government programme. Most farmers tried in vain to approach the institution to explain why they could not settle their dues during the same year, but their pleas fell on deaf ears. They subsequently lost their sureties.
Federation of Farmers’ Unions president Mr Wonder Chabikwa said: “We lost several of our farmers through suicides, after they lost their houses to the bank. It still haunts us as a union each time we meet to discuss how best our farmers in debt can be assisted before they lose their properties.”
Mr Chabikwa said it was quite strange that despite such facilities being availed by Government through banks, these financial institutions act as if the funds channelled towards Government schemes belong to them.
The banks took it upon themselves to destroy the cordial relationship between farmers and Government. Now farmers are reluctant to participate in any Government-upported schemes like Command Agriculture.
Mr Chabikwa said the current state of affairs where farmers are battling a debt crisis was a serious threat to agricultural production.
He said Government should quickly intervene to save the situation.
He contends it was well documented that at the start of the multi-currency era banks, mainly CBZ and Agribank, provided loans to farmers for purposes of acquiring inputs and equipment through funds from the Government.
Other organisations such as Farmers’ World also provided equipment from China to farmers under a Government-guaranteed facility. Although Government later settled the debts, the company pursued court action against farmers who failed to settle their dues, due to drought.
The question is why would such action be taken when Government settled the dues on behalf of farmers?
Mr Chabikwa maintained that while such programmes may be well-meaning and laudable, unforeseen negativity may arise, such as high interest charges, which in some cases may be as high as 36 percent per annum. Other charges such as insurance and management fees may also accrue.
Generally, these loans are secured on non-farm immovable assets, mainly urban residential properties, as well as movable farm equipment on the basis of a forced sale valuation of 50 percent. The security becomes insignificant against ballooning loan values.
Furthermore, in most instances inputs are provided late in the season with inadequate working capital or not released at all with input costs also being higher than the market price.
Erratic rainfall patterns for consecutive six years, which saw Government declaring drought years was again a serious impediment on farming.
These factors served to decrease farm yields and compromised the ability of farmers to service their debts. In subsequent years compounding high interest charges, droughts and lack of working capital worsened farmers’ financial plight.
Banks, on the other hand, sought full payment for the loans by adding the original loan sum and the interest to arrive at a new principal sum for the loan. In some instances banks restructured the loans to give an impression that they were new ones. This restructuring of the loans was meant to avoid and subvert the effects of the in duplum rule, but no new money was ever advanced to farmers. One wonders in whose interests these banks were serving if not for the white former farmers on whose farms indigenous people have since been resettled.
The cumulatively ballooning debts not only threatening farmers’ productivity, but their lives as well.
Mr Chabikwa said if farming was being treated like any other business, company laws provide for such organisations with potential, but were faced with challenges in seeking and obtaining legal protection against creditors through court-sanctioned measures such as schemes of arrangement and judicial management.
These arrangements allow businesses to recover, borrow and use internally generated funds, which were not at risk from creditors’ actions
On the contrary farmers operate as individuals and as such do not enjoy such protection. They cannot rescue their businesses through these avenues thereby posing real challenges.
While the manufacturing industry has been assisted through the creation of Zimbabwe Asset Management Company (ZAMCO), which has taken over all non-performing loans, while giving the same organisations grace periods for repayment, not many farmers, if any at all, benefited under this initiative.
Those from the farming community, who benefited were either the big fish or the influential ones, while the ordinary farmer was excluded either by default or simply because of being in the periphery.
A CBZ senior manager who preferred anonymity said the bank could not take all farmers’ loans to ZAMCO because it was not profitable for it to do so.
“If we do that we will not make any profit because the bank will only be paid 75 percent of the money through Treasury bills which translate to a loss on our behalf. Again that money will be paid to us over a long period even after 10 years, so it is not every one whose loan was taken to ZAMCO for that reason,” he explained.