Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Zimbabwe Launches of US$100 Million AGROBILLs

Zimbabwe Launches of US$100 Million AGROBILLs



Summary of Recommendations

Following extensive consultations with financial institutions, seed houses, 
fertilizer companies and millers, the Cabinet Inter-Ministerial Committee on 
the Commercial Financing of Agriculture proposed commercial investment of 
US$100 million of new money from Zimbabwean financial institutions into 
Agriculture for grain production, particularly maize in respect of the 
2011/2012 agricultural season. This scheme was adopted by Cabinet on the 
22nd of November 2011, and will provide funds to cover:

• US$21 million that GMB owes farmers
• US$18.6 million that Government owes seed houses and fertilizer companies
• US$4.5 million kick-start deposit that seed and fertilizer companies 
require in order to start delivering seed and fertilizer for 2011/2012
• US$56.2 million new commercial financing to all farmers (Communal, A1, 
Commercial, and A2).

This funding framework is achievable through Government approved issuance of 
270 to 360 days US$100 million Agricultural Marketing Authority (AMA) 
AGROBILLs through CBZ. In order to make the AGROBILLS attractive, Government 
has accorded the following special features to the AGROBILLS; prescribed 
asset status, liquid asset status, tax exemption, and 50% Government 
guarantee. As a broader enabling arrangement, the Committee recommended the 
establishment of an interbank market through the introduction of Treasury 
Bills. In addition to its traditional role of ensuring a strategic grain 
reserve, GMB must be transformed into a commercially viable entity that 
continuously buys (paying promptly) and sells grain at competitive market 


Recognizing the importance of food security, and that of agriculture as the 
mainstay of the Zimbabwean economy, Government wants to ensure that the 
2011/2012 agricultural season is a success by making inputs available to 
farmers (involved in grain production) at reasonable prices and in a timely 
manner. Furthermore, Government takes cognizance of the current liquidity 
constraints affecting the entire economy, in particular the insufficiency of 
both the state efforts (the US$30 million input/grain swap scheme, and the 
US$45 million subsidy scheme) and the intervention of the NGOs. 
Consequently, the Cabinet set up an Inter-Ministerial Committee with the 
following mandate:

Develop a scheme that provides affordable commercial financial resources for 
grain production in the 2011/12 Agricultural season, without further 
burdening the fiscus.


Government support for the current agricultural season is, so far, not 
enough to meet the requisite supply of inputs to farmers, especially with 
regard to inputs at subsidized prices. The Government’s pledge of $45 
million is inadequate to achieve the desirable levels of grain production. 
The US$30 million grain/input swap has had a slow uptake. There is need to 
supplement the Government effort with funds from commercial sources. A 
considerable percentage of farmers are unable to purchase inputs from 
reputable companies at commercial rates without Government assistance in the 
form of a subsidy.

If the current situation is not addressed, the result will be low 
agricultural production as well as a glut of seeds and fertilizers. Seed 
houses and fertilizer companies are at the same time heavily borrowed in 
preparation of the 2011/2012 agricultural season. These input suppliers are 
also still owed UD$18.6 million from the previous season’s programme. 
Furthermore, the input suppliers have not been paid the 10% deposit they 
would have needed in order to start implementing the Government’s planned 
US$45 million programme for the 2011/2012 season. Further complicating the 
issue is the fact that the fertilizer suppliers owe Sable Chemicals 
significant amounts for the supply of Ammonium Nitrate (AN). Sable Chemicals 
in turn owes ZESA for the supply of electricity, which has led ZESA to turn 
off electricity supply to Sable, halting production of AN.

This agricultural finance grid lock needs to be solved urgently to avert a 
potential disaster in agriculture production which might end up being very 
costly as the country would be forced to resort to food imports. GMB has 
been unable to pay for grain deliveries by farmers due to limited funding. 
GMB owes farmers US$21 million, money which would have enabled some farmers 
to finance their own input requirements and to effectively plan for the 
2011/2012 season.


To avert the problems associated with underfunding of the 2011/2012 
agricultural season, Government is implementing a Commercial Funding 
Programme for the season consisting of the following elements:

Issuaing of 270 to 360 days US$100 million Agricultural Marketing Authority 
(AMA) AGROBILLS through CBZ Bank. CBZ Bank is the current leading bank in 
agricultural finance.

Utilizing the proceeds from the AGROBILLS as follows:

Purpose Beneficiaries Amount (US$)
Paying off farmers for grains delivered to GMB depots GMB 21 000 000
Providing funding for the 2011/12 farming season Fertilizer companies and 
seed houses 56 200 000
Paying off outstanding amount from 2011/12 winter season Fertilizer 
Companies 8 200 000
Paying for the 10% deposit to kick-start the US$45 million facility 
Fertilizer & Seed Companies 4 500 000
Paying off debt outstanding from 2010/11 season Seed Houses 10 400 000
Total 100 000 000


The different uses of the US$100 million sourced through the AGRI BILLs 
complement each other.

The payment of the debt owed by GMB to farmers (US$21 million) will unlock 
cash into the Agricultural sector as farmers are able to utilize some of 
their cash in grain production related activities. The payment of farmers 
for grain delivered to GMB will also improve the reputation of GMB as a 
buyer of grain, thus attracting more grain, and enhancing GMB’s potential to 
play a meaningful role in the commercial funding being proposed in this 

Paying the fertilizer and seed companies what is owed to them by Government 
(US$18.6 million) and providing them with the 10% kick-start deposit of 
US$4.5 million, will provide them with the liquidity they need for their 
operations, in particular the immediate movement of grain and fertilizers to 
depots and farmers throughout the country. The Sable Chemicals ZESA bill 
which has led to Sables being switched off is around US$6.5 million. The 
fertilizer companies owe Sable, once they are paid what Government owes them 
they will be able to pay Sable, and Sable will be able to settle its debt 
with ZESA, and hence power will be restored. Sable will thus be operational.

Hence, the provision of commercial financing to cover the Government debt 
(US$44.1 million) to both input suppliers and farmers, partly unlocks 
liquidity for grain production for the 2011/2012 season. In fact, the 
injection of any new commercial finance into the procurement of inputs by 
farmers is inconceivable without addressing this debt.

The injection of US$56.2 million to finance the procurement of inputs by 
farmers for the season 2011/2012 is the new money being added directly into 
grain production by the Financial Institutions. This will then complement 
the efforts of the Government (the US$45 million subsidy facility, and the 
US$30 million swap scheme) and those of the NGOs.


In line with international pricing of Bonds in the region, the Bills are 
expected to be raised at a coupon rate of around 10%. The pricing will be on 
a tender basis. With an onward lending interest rate of 2%, the effective 
interest rate to the farmer will be 12%.

Facility Repayment by Farmers

Farmers will settle their obligations at maturity from sales proceeds of the 
financed produce. The Agricultural Marketing Authority (AMA) and the Grain 
Marketing Board (GMB) have agreed to work out the modalities that would 
ensure that all farmers who are funded under this programme will have a stop 
order facility which will be utilized to collect the financed amount from 
the proceeds from grains delivered to the GMB to settle loans with the 
funding banks.

It is critical that this stop order facility works, and collection for 
financing repayment is effective. In developing this instrument lessons must 
be learnt from cotton and tobacco experiences including regional best 
practice. The issue of side-marketing of grain must be addressed. Grain 
production is a viable business, the farmers will produce enough grain to 
pay their debt, and remain with extra grain for own use or trade. The 
challenge will be on effective collection for repayment. The ability to 
collect grain for repayment will define whether this commercial scheme 
succeeds or fails.

GMB; Facility Repayment & Role in Stop Order Execution

GMB should settle their obligation from sales proceeds of grain that it is 
currently holding. Government wiil be authorizing GMB to offload the grain 
at current import parity prices of around US$240 per tonne, which ultimately 
would imply a subsidy of US$45 per ton. At a price of US$240 per ton (which 
the millers are agreeable to), GMB will realize US$48 million if it sells 
200 000 tonnes. This revenue is adequate to (a) repay the US$21 million to 
be made available under this scheme, (b) provide liquidity for the 
transportation logistics of this proposed programme, and (c) the cash 
required to promptly pay for new grain deliveries.

Once GMB has demonstrated capacity to pay and has a record of timeous 
payments, more producers will willingly sell their grain to GMB. In fact, 
GMB will be the preferred buyer of grain. In this way the SGR will be 
maintained. As a general reform beyond the repayment, GMB must operate as a 
commercially viable and efficient institution.

Major reforms are required at GMB. While the SGR must be retained, grain 
must circulate. GMB must be able to continuously buy and sell grain. This 
will ensure that the SGR is maintained with fresh grain. GMB must also 
consider re-introducing maize grading. The GMB board must reflect all the 
key agriculture stakeholders; fertilizer companies, seed houses, millers, 
commercial banks, and other corporates.

The reformed GMB must be our millers’ preferred seller of grain and our 
farmers’ preferred buyer of grain.

If GMB cannot be quickly reformed, another commercial institution must be 
appointed or structured to develop and execute the farmer stop-order 
repayment system.

AGROBILLS Special Features

In order to make the AGROBILLS attractive to potential investors Government 
has accorded the Bills the following special features:

• Prescribed asset status
• Liquid asset status
• Tax exempt status
• 50% Government guarantee

The following documents have already been issued by Government and RBZ to 
operationalize the issuance of the AGROBILLS:

Prescribed Asset Status Certificate issued by the Commissioner of Insurance 
and Pension Funds

Liquid Asset Status Authority by the Reserve Bank of Zimbabwe

Tax Exemption Certificate by the Ministry of Finance

50% Government Guarantee by the Ministry of Finance.

Through consultations, it was agreed that there is a 50% Government 
guarantee over the entire $US100 million. This means for the purpose of the 
guarantee the $US100 million will be considered indivisible. The 50% 
guarantee is spread across the entire amount. This means the Government and 
Financial Institutions are equally sharing the risk, and should work closely 
together to ensure repayment of the finance. Thus, there will be no 
defaulting and the guarantee will not have to be exercised. In the worst 
case scenario, that none of the farmers pays back, the Government will have 
a debt of $US50 million, and the Financial Institutions will lose $USD50 
million. Of course this will not happen. As demonstrated in the Ministerial 
report, grain production is a very viable and highly profitable business. 
The key issue is for the Government and the Financial Institutions to work 
together in developing an efficient and effective stop order system to 
facilitate collection of repayments. If this is done the Government will not 
accrue any debt and the Financial Institutions will not lose any money. In 
fact they will make healthy profit, while as a country we achieve food 
security and inclusive economic growth.


There is need for a long term funding strategy for Agriculture, in order for 
us to avoid the fire-fighting and crisis management that led to the 
establishment of this Inter-Ministerial Committee. A process for the 
development of a long term and comprehensive agricultural policy, including 
the funding thereof, must be structured, discussed and adopted. Some of the 
ideas and concepts in this paper can form part of this long term strategic 
framework for Agriculture.

The issue of improved yields per hectare has to be addressed. The most 
important variable in grain production is productivity, i.e., yield per 
hectare. It is not enough to provide inputs for agriculture. The matters of 
yield management and innovation leading to higher productivity are critical. 
Agritex initiatives, use of high yield seeds, special fertilizers, and 
creative methods such as Farming God’s Way (FGW) are necessary but too late 
to affect this year’s yields. Programmes must be started nationwide for the 
remainder of the season and for all future seasons for all farmers in 
particular small scale farmers. Commercial funding of these yield management 
and innovation activities must be sought as part of the long term 
Agriculture policy and strategy.

Hon. Professor Arthur G.O. Mutambara, MP
Deputy Prime Minister, Republic of Zimbabawe
Chairman of the Inter-Ministerial Committee on Commercial Financing of 


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