Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Catalysing agriculture value chain

Catalysing agriculture value chain | The Herald


Dr Sanderson Abel
Zimbabwe is an agricultural based economy and hence support to the sector is of paramount importance. Financial support to agriculture is very important given the unique role of Zimbabwean agriculture in the macroeconomic framework and its role in poverty alleviation.

The challenge of agricultural financing in the country should be viewed in the context of the broader economic situation prevailing in the country which is currently characterised by the liquidity challenges. This liquidity problem is permeating through all the sector of the economy including the mining, manufacturing, distribution, financial and others. This hence requires that the little cake available be shared equally among all stakeholders while looking for alternative sources of liquidity externally.

To resolve the problem of limited credit to the agricultural sector calls for concerted efforts by the various stakeholders including the farmers, bankers, government, non-banking financial institutions to augment so as to chat the way forward in augmenting the flow of credit to agriculture. One of the best mechanisms for overcoming the financing agriculture is through agricultural value chains. Agricultural value chain financing is broad terminology that includes flows of funds and financial services to and among various links in an agricultural value chain.

It encompasses internal chain finance occurring between parties in the chain – examples include credit extended by input suppliers to farmers; advances from traders to farmers and trade credit provided by producers to traders and from small to medium-scale traders to large-scale traders and processors.

Agriculture value chain financing requires that the various stakeholders should explore new innovations in product design and methods of delivery, through better use of technology and related processes.

Facilitating credit through processors, input dealers, NGOs, etc., that are vertically integrated with the farmers, including through contract farming, for providing them critical inputs or processing their produce, could increase the credit flow to agriculture significantly. Through financing the agriculture value chain by considering the different actors from small farmers to corporate agribusinesses it is possible to overcome the challenges of agriculture in the country.

This can only be possible through innovative approaches to serve the different segments by considering their differences in their activities, finance requirements, understanding of farming business and management of loans. Value chain finance offers an opportunity to expand financing for agriculture, improve efficiency and repayments in financing, and strengthen or consolidate linkages among participants in value chains. It can improve quality and efficiency in financing agricultural chains by:

  • Identifying the financing needed to strengthen the chain;
  • Tailoring financial products to suit the needs of the participants in the chain;
  • Reducing financial transaction costs through the direct discounting of loan payments at the time of product sale;
  • Using value chain linkages and knowledge of the chain to mitigate risks to the chain and its partners.

The Government has a role in catalysing the agricultural value chain. There is need for the government to put in pace “financing friendly” legislation which will both boost agricultural productivity and financing. This legislation should make sure that there is no loopholes in the financing system and the borrowers from the system honour their commitments. These pieces of legislation required should ensure:

  • Enforcing the repayment of loans and advances availed to the farmers by the financial system and other financiers.
  • An effective stop order system to ensure creditors are paid upfront when the farmers are paid and any loophole around side marketing are eliminated
  • Creation of agricultural revolving loan and savings fund to address various challenges that face agriculture. This would act as a buffer for the farmers where they can borrow if they cannot get assistance from the banks or the government. The banks could be the custodian of the funds though managed through a committee system.
  • Strengthening the marketing structures of the agricultural sector. This would ensure that there is a well-functioning pricing framework for the agricultural commodities. More importantly would be the need for the determination of producer prices before the farming season begins so that decisions are made whether to venture into those products or not
  • Strengthening the agricultural value chain so that financial and technical support assists all agents involved in agricultural production. Also associated with this is the need to strengthen agro-dealer networks throughout the country
    Strengthening the security of tenure on agricultural land so that the component of bankability of leases is resolved and all title holders can easily approach financial institutions for assistance.
  • In line with the Zim-Asset there is need to fast track the Warehouse Receipt Act and Warehouse Receipt System to be operationalised to ensure that the farmers are able to use the receipts for securing the loans from the banks.

Dr Sanderson Abel is an Economist and Researcher. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] / [email protected] or on numbers 04-744686 and 0772463008.


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