The Brett Chulu Column

THE series on the proposed land bank carried in this column has sparked a healthy debate among citizens. This week, the joint press statement by the ministers holding the agriculture and finance portfolios sent shock waves that reverberated through parliament to farmers who are on acquired farms on the basis of offer letters.

Even the attempt by government to explain that only farms under Bilateral Investment Treaties will be affected, the general sentiment is that this is a precursor to black farmers losing land they were offered following the fast track land redistribution exercise. My interest is not in the political dynamics and melodrama set up by the press statement. Of critical interest, is the role of institutional support to farmers whether they are emergent or experienced. It has become necessary to weigh in with further thoughts with regards to the proposed land bank.

Productivity non-racial
White farmers who benefitted from land confiscated from blacks in colonial Zimbabwe were subsequently subjected to competitive market selection. White farmers who struggled to farm profitably were cast out of commercial farming. The 3000 or so white commercial farmers who were served by the Agricultural Finance Corporation (parastatal wholly funded by government) between April 1, 1971 and April 18, 1980 were an elite team of farmers, who survived the rigours and a series of litmus tests in commercial farming.

The pre-Independence AFC funded highly selected farmers with solid business credentials. The loans were subsidised as they were cheaper than loans by commercial deposit-taking banks. These subsidised loans were given to competent farmers with transferrable land rights as the primary consideration for lending, not unproven start-ups. Those starting had to first prove themselves and were given financial assistance commensurate to their skill and business competence levels.

Emergent young farmers were first put on leasehold tenure and only after proving themselves did they qualify for a mortgage to purchase titled farm land.

Our fast-track land redistribution is no different from the starting point of commercial farming in colonial Zimbabwe. In both instances, land was confiscated.

Post fast-track land redistribution, the emergent farmers were supposed to have been exposed to both market forces and subsidised institutional support so that competent commercial farmers(A2) emerged.

Disruptive innovation
The mistake government policy made post-Independence was to make the AFC lump the business of lending to few tested commercial farmers with the business of lending to tens of thousands of emergent farmers (resettled and communal) under the same management. Let us lease the wisdom of late Clayton Christensen on disruptive innovation.

When a business model is crafted to bring in masses of previously excluded people, excluded from consumption or production by reason of cost or complexity of the product, it is called a disruptive innovation or an empowering or a market-creating innovation. In terms of disruptive innovation, the highly selected few commercial farmers the AFC traditionally served would be called a sustaining business. The attempt by the AFC to serve tens of thousands of resettled and communal farmers who had no transferrable land rights to secure loans constituted a disruptive innovation.

It is an established empirical fact, thoroughly tested, that a sustaining business and a disruptive business are not to be put under the same management team.

Incumbent firms that have sought to introduce disruptive innovation business models, created a separate organisation, completely decoupled from the incumbent business in terms of management. If that separation is not done, the disruptive model is always forced to mutate into the sustaining core business. Using hind-sight, the mistake the post-Independence AFC did was to mix a sustaining and disruptive business model together.

The DNA of a disruptive business model is totally different from that of the incumbent because the disruptive product focuses on a new market, who have been non-consumers. A disruptive business typically starts by earning relatively low profit margins that those earned by the sustaining business.

What Agribank did, in replacing the AFC was to cleverly discard the disruptive business segment and remain with the sustaining business model. Instead of decoupling the disruptive arm (communal and resettlement farmers) from the sustaining business (proven commercial farmers), the Agribank shed the disruptive segment.

The proposed land bank is a disruptive business model because it is aimed at trying to financially include farmers who are being excluded by commercial banking. Government wants Agribank to restore the disruptive business model and unwittingly forcing it to couple with a sustaining business model.

My recommendation, based on my understating of disruptive innovation as a researcher who has been published in international peer reviewed journal on the subject of disruptive innovation is that the proposed land bank must not put the disruptive and sustaining businesses under the same management and governance structures — it will be a disaster waiting if these were to be coupled. In simpler terms, a separate business, not a separate business unit, for communal, resettlement and A1, with a management and board completely independent from that of commercial farmers must be set up. Agribank does not need to be rewired.

Agribank must remain to serve the established commercial farmers. The land bank must solely serve the emergent and small scale farmers. It must be clear that a disruptive model cannot be expected to rake in big margins or to benchmark their profit margins against the sustaining lending business of incumbent commercial banks. The private investors who want to get a skin in the land bank game should do so in Agribank. As a product of further reflection on the initial idea of a land bank which was a central feature of the initial offer in the farmers compensation negotiations, it is this: a decoupled land bank must solely serve commercial farmers. Hopefully Agribank should be the one to issue the 25-30 year bond to fund farmers’ compensation.

Livestock banking
The proposal made in the column last week is not fertile imagination. This country has had a livestock bank operating almost 11 years on, operating well outside the glitter of the more glamorous banking counterparts. For the sake of building my argument more authoritatively, I contacted the founder of the livestock bank to confirm if the livestock bank was still operational and how it was faring. I can confirm that the livestock bank is operational. I am aware that farmers who deposit their cattle with the livestock bank get certificates that are investment paper accepted by a number of commercial banks as collateral.

The proposed land bank can accept these livestock deposit certificates from the livestock bank as collateral for loans. The risk will be shared between the land bank and the livestock bank. The livestock deposit certificates eliminate the risk of the land bank straying into an area it has no competence.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal.

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