Minister of Finance Patrick Chinamasa

Peter Gambara

THE Minister of Finance Patrick Chinamasa recently announced, in his 2015 Mid Term Fiscal Policy, that the country will need US$1,7 billion for the 2015/16 summer season. This money is expected to come from different sources that include loans from banks, contract farming arrangements, as well as self financing by farmers from sales of their produce.The total requirement is approximately US$1,7 billion, but Chinamasa might have used different figures.
The question that therefore arises is will this funding materialise?
As for loans from banks, the banking sector recently indicated that about 19 percent of their total loans are in agriculture.
It is a known fact that prior to the land reform programme (LRP), the majority of the commercial farmers got their funding from banks using their title deeds as collateral.
However, since the advent of the LRP, the bone of contention between banks and government has been the fact that the Bankers Association of Zimbabwe has indicated to government that the current offer letters and permits are not transferable in the event that a farmer has defaulted on a loan repayment.
The offer letters and permits can therefore not be used as collateral by A1 and A2 farmers.
Instead, banks have had to demand that farmers who want to borrow produce title deeds of urban properties.
However, not all farmers have houses in urban areas and even then some are reluctant to use them as collateral security and therefore the level of borrowing by the new farmers remains subdued.
This is therefore unlikely to be a major source of funding for the next season.
Most banks prefer to provide funds to contractors in the tobacco and cotton industries for their contract schemes.
This places the burden of collection on the contractors rather than the bank.
However, a few farmers will still benefit from bank loans.
Reserve Bank of Zimbabwe governor, John Mangudya recently brought some relief to those who borrow from banks to finance agriculture, among other things.
He capped the interest rate at 18 percent and even suggested lower rates for more reliable clients.
The high interest rates were being blamed for causing the ballooning of loans at banks and this should come as a major relief for farmers.
Another important source of funding is contract farming.
More than 60 percent of the tobacco crop is now grown under contract farming. Therefore we can deduce that of the tobacco requirement, about US$336 million will come from contract farming arrangements.
Some soyabean merchants have also indicated that they are interested in contracting farmers for next year’s crop so another significant amount of the US$30 million required for the soyabean crop will come from contractors.
About 90 percent of the cotton crop is usually funded by the cotton merchants, however, therefore about US$90 million of the cotton requirements will come from contract farming.
A few farmers are normally contracted to grow maize. All in all, I would say approximately US$450 million of next year’s requirements will come from contract farming.
However, there are some challenges with contract farming.
The issue of side marketing still exists.
The cotton industry tried to tie down all farmers through a centrally controlled system run by the Cotton Ginners Association, so that no farmer could sell a contracted crop to a rival, but still farmers managed to find ways around it.
This is what contributed to the downfall of Cottco and Cargil.
Cottco was severely affected because they were the biggest contractor and the small guys always enticed the farmers to sell to them by offering higher producer prices, come marketing time.
Cottco has since reduced the number of contracted farmers by half from 150 000 to 75 000 due to persistent defaulting by contracted farmers and over the weekend government indicated that they have plans to take Cottco back and reposition it as a major cotton buyer like it was the years of Cotton Marketing Board.
The issue of side marketing is also the reason why the Grain Millers Association of Zimbabwe (GMAZ) has always been reluctant to contract maize and wheat farmers.
Some two seasons ago, government, under pressure from GMAZ, tried to plug the holes by gazetting Statutory Instrument (SI) 122 of 2014 (also known as the The Agricultural Marketing Authority (Minimum Grain Producer Prices) Regulations, 2014).
The SI made it a punishable offence for a farmer to side market a contracted crop, but GMAZ indicated that the penalties were too lenient and therefore not likely to act as deterrents for farmers who side market.
Eventually government last year withdrew the SI altogether and the challenge therefore still remains.
Those who have contracted soyabeans have had to make sure the crop is combine-harvested in the presence of their representatives to avoid side marketing of the crop.
Contract farming therefore has a big potential in agriculture, but farmers’ unions need to play their part by organising their farmers and making sure that they honour their obligations under contract farming arrangements.
One way would be to put them in groups and make them all equally liable for the debt so that they monitor each other. This has worked with the previous group lending schemes that were run by the Agriculture Finance Corporation in the early 80s.
Farmers have also often complained that contractors inflate the prices of inputs, thereby compromising their profitability.
This is because contractors have to borrow the funds from banks and they are charged interest and therefore they have to add it to the cost of inputs.
A few farmers have had problems clearing their loans under contract farming and ended up having their assets being auctioned by the contractors to recover the outstanding debt.
Some tobacco contractors have ended up demanding to farm on the farmer’s field themselves or place their own farmers on that land in an effort to recover outstanding debts, but some farmers have resisted such moves for several reasons.
The third source of funding will be the farmers’ own resources.
Most farmers fund the next season’s requirements from proceeds from the previous crop.
However, there have been problems with proceeds from this season.
Firstly, the tobacco prices were unusually low and most farmers will not realise profits from last season’s crop.
Secondly, there have been problems with payments for maize delivered to the Grain Marketing Board.
The delays in receiving payments have meant that farmers have tried to find alternative markets, however the cash markets are paying as little as US$220 per tonne and again, the profitability of growing maize will, therefore, be compromised.
Some farmers get support to purchase inputs from their siblings and relatives who are formally employed; however, the recent Supreme Court judgement that has seen over 20 000 workers being fired on three months’ notice, means a lot of bread winners will not be able to support their parents or relatives in the communal areas.
The economy is also generally not performing well and disposal incomes have become squeezed.
Government has in the past few years provided funding to small scale farmers for maize and small grains production and starting last season, cotton production as well.
While last year Chinamasa provided about US$250 million for this purpose, this year, the Minister provided only a tenth of that as government is short of funds.
Government usually provides a very basic package on its Presidential Input Scheme of just a bag of compound D (us$32), a bag of ammonium nitrate (US$35) and a 10kg pack of seed (us$30), which costs a total of approximately US$100 and nowhere near the US$500 that I used to budget above.
The distribution mechanisms for these inputs have proved to be problematic in the past as the inputs often reach the intended beneficiaries late.
There are therefore likely to be several challenges to mobilise funding for the 2015/16 summer season thereby compromising the intended areas to be put under crops as well as for livestock requirements.

Peter Gambara is an agricultural economist