A look at the proposed Agricultural Finance Corporation

A look at the proposed Agricultural Finance Corporation 

Rhodesian Farmer – March 27^th 1970 

Mr R S Truscott, Chairman of the RNFU’s Agricultural Finance, Taxation and Insurance Committee believes the Minister of Agriculture’s decision to accept the formation of an Agricultural Finance Corporation will be one of the highlight’s of agriculture’s future. In this article he sets out his views on the proposed corporation. 

For some time the RNFU has considered the desirability and necessity to rationalise the financial facilities offered to agriculture, particularly through Government sources. It is most gratifying to note that the Minister of Agriculture has announced his intention to set up an Agricultural Finance Corporation. 

The Agricultural Finance Committee of the RNFU has studied the implications of such a decision both from its effects upon the industry as a whole and upon the individual. Details of the exercise, legislation and policy naturally are finalised by the Minister and his Ministry, but close co-operation with the RNFU in the formative stages has taken place. The general principles and objectives of the rationalisation of Government sources of finance to agriculture, have been sub­mitted to the Ministry from the RNFU, with, I am pleased to say, a very con­siderable degree of acceptance on the majority of points. 

The effect upon the industry as a whole and its effect upon the economy in general is, of course, a subject dealt with by Government and considered by the RNFU Council. It is felt, however, that the individual farmer would like to know how the establishment of an Agricultural Finance Corporation will affect him per­sonally, so I offer the RNFU’s viewpoint and thoughts in this direction. 

It is a perfectly normal practice in any enterprise to partially finance that enter­prise by borrowing and capitalising through the channels of finance houses, commercial banks or specific lending establishments; there is no disgrace in this procedure. The object in borrowing is either to increase one’s income by direct application or by financing a de­velopment programme to increase returns. Agriculture is no exception to this and should not be considered an industry in which one applies “cap in hand” for its legitimate needs. Seasonal requirements should be treated in the same way as a commercial man needs to be financed for his stock requirements (agriculture is not sufficiently short-term to take ad­vantage of normal trade credit). 

Low profitability 

In view of its low profitability it is not visualised that agriculture will attract significant public sector monies for some time except where there is confidence in a particular sector of the industry such as cattle through the Cattle Co-op and through trade facilities, i.e. supplying the input items for production and the capital items such as machinery; therefore the main source of capital must accrue from Government sources. With this in mind the proposed Finance Corporation should at present be considered as a body only dealing with monies voted from Govern­ment. 

The RNFU firmly believes that the Finance Corporation should be in close association with the Agricultural Develop­ment Authority, in fact taking its policy from that Authority in order that correct priorities may be made, and thus not only able to achieve maximum results, but considerably reduce administrative costs and possibly allow finer rates of interest. 

It is felt that the Land Bank, which has a vast knowledge of the industry and an existing established administrative organ­isation, is the most appropriate vehicle through which to operate with amended legislation, enabling them to incorporate or act for all Government funds applied to agriculture. 

Misapplication 

In  the   past  there   is   little  doubt  that there has been a  considerable sum misapplied  to agriculture and that  the best j use of the available funds has not always been made—both to the detriment of the I general economy and the  individual. The lender has  had   insufficient  control   and knowledge of the individual’s capabilities and   management   ability,  and   frequently insufficient knowledge of his other financial   obligations;   whereas   the   borrower  has   frequently  had  to   be satisfied  with  less   than   his   requirements   to   operate  | efficiently   (partly   because   of  the   Land Bank’s ceiling) and has had to resort to more than one source for his financing.  Alternatively he has been satisfied partly to meet political demands, in other words to be “kept on the land” with little hope of achieving a reasonable income from his farming activities. The financing of agriculture must, I believe, be considered in the economic light only, and political considerations not confused with this. 

So many special funds have been set up that administrative costs must be high, and a tendency for little empires to be created. Laudable as the purpose of many of these funds may be, the maxi­mum benefit is not being achieved, since agricultural projects must be treated as a whole, not in piecemeal. Fragmentation must be avoided, not encouraged. 

It is interesting to note that the follow­ing funds have been established for agri­cultural uses: 

1. Land Bank.
2. Agricultural Diversification Scheme.
3. Farm Irrigation Fund.
4. Matabeleland Development Council.
5. Agricultural Assistance Board (in­cluding Farmers’ Assistance Com­mittee).
6. Cold Storage Commission.
7. Sabi-Limpopo Authority.
8. Drought   Relief.
9. Insiza Scheme.
10. Mkwasine Scheme.
11. Coffee Scheme.
12. Tenant Farming.
13. Tenant Farm Development.
14. Tenant Farm Contributory Purchase Scheme.
15. Contributory Purchase Scheme.
16. Deferred Purchase Scheme.
17. Ex-Servicemen’s Settlement Scheme.
    

The Agricultural Assistance Board was a very necessary establishment in view of the circumstances in which agricul­ture found itself. An earlier assessment of the position of some farmers would have made the task more easy tout we should not look upon the AAB as a permanent institution but rather as a necessity to be gradually phased out. The advent of the Agricultural Finance Corporation should assist this operation and also pre­vent the farmer from being a shuttlecock batted between various interests as has in some cases been experienced. 

Circumstances    are    such   that   some farmers find themselves in a position that they are unable to operate their existing units as a viable enterprise but that con­solidated with an adjacent farm the enterprise would be viable. It is con­sidered that further facilities should be made available to enable those who wish to be able more readily to consoli­date without burdening themselves for ever and a day with a high service charge and repayment commitments. 

Consolidation, of course, is closely tied up with the problem of rehabilitation. 

At the risk of offending some, there is little doubt that some farmers have been allowed to remain on the land too long—some would make good farmers but are bad managers of their own enter­prises, others are bad farmers. It would be to everyone’s benefit if these could be removed from the land in owner/ lessee capacity, and the good farmers employed where they in all probability would be better off than when self-employed. It cannot be ignored that in agriculture the tendency is for the big to become bigger, and generally the larger units are able to operate more effi­ciently. It is believed that the Agricultural Finance Corporation would be able to implement a policy effectively to meet these changing conditions. 

Insufficient capital 

Much has been said in recent years of the difficulty of settling young farmers because of their inability to generate sufficient capital of their own via employ­ment in farming in their early years. Many farmers in Rhodesia have found that they have been burdened with the purchase of their land for too long a period, thus restricting the capital to be employed for development. It is felt that the Agricultural Finance Corporation would be the best body to handle any settlement scheme/s ensuring that the young farmer was not required to take up his land for some years until he had proved himself and during this initial period of time to be under a degree of management control. 

It is becoming apparent in this country (it had been recognised in other coun­tries some time ago) the greater need for farm management advice and the benefits which can accrue from it. It is hoped that a far greater use of these services are envisaged by the Agricultural Finance Corporation as a necessity to the future of agriculture. Indeed, I would say in some cases compulsory with an ele­ment of subsidy applied, not be over­looked as a possibility. (There is a pre­cedent for this in   other countries.) 

Interest rate 

In most businesses the risk dictates the interest rate. There is merit in consider­ing this principle to be applied to agri­culture, which would to some degree eliminate the fact that the efficient and effective subsidise the less efficient and speculative farmer. 

Some farmers will, I know, feel that they can get more for themselves by applying for finance through various sources—in some cases hoping that the right hand will not know what the left hand is doing, but I am sure that the majority will benefit considerably by the one main source system where their total requirements and specific needs are pre­sented and examined—both short and long-term. Such financing as hire pur­chase for agriculture, should be unneces­sary—where high interest rates increase input costs and greater opportunity to purchase for cash, thus enabling the farmer to take advantage of discounts, must be a part of the policy of the Agricultural Finance Corporation. Fears that the advantages to be gained by, for example, participation in the Farm Irriga­tion Fund, are unfounded and it may well be that other incentive programmes such as that envisaged for fencing require­ments, could be established, since Gov­ernment may at any time consider it desirable to promote and subsidise any form or facet of agriculture—to be ad­ministered by the Agricultural Finance Corporation. 

All, of course, depends very largely upon the finance available, and we all know that short-term finance is more readily obtainable than medium and long-term. But a greater degree of medium and long-term monies are needed in agri­culture, and I believe via the Agricultural Development Authority (policy wise) and the Agricultural Finance Corporation as the single administrative body there are greater possibilities of achieving this aim. 

The Minister has obviously recognised the necessity to have an Agricultural Financial Policy with a ‘New Look’ and is well informed on the faults and fal­lacies of the past and is determined to see that those faults are not repeated in the future. I believe his decision to accept the formation of an Agricultural Finance Corporation to be one of the highlights of agriculture’s future, which will be re­flected in farmers acknowledging the benefits which will accrue by the estab­lishment of their own Finance House.