Types of Agricultural Financing in Zimbabwe

There is a US$223 million agricultural funding shortfall in Zimbabwe affecting thousands of farmers. This week I want to briefly look at the different types of agricultural finance in Zimbabwe and how they compare to the YouFarm Crowd Farming Platform

There are thousands of financially disenfranchised farmers in Zimbabwe. The table below shows the results from a study by Mapfidza et al (2010) showing the percentage of farmers who were interested in seeking funding if it was available

Farm Type Interested in seeking finance if available (%) Not interested due to fear of defaulting (%)
A1  (small holder) 45% 35%
A2 (small scale) 65% 25%
A2 (medium scale) 80%

Bank Finance

For most A2 farmers, bank finance is essential but has been largely unavailable due to many factors. The most important factor is the fact that the farmers do not have collateral and that the 99 year leases are not yet bankable because they are State property hence, can not be sold or sub-let. It is therefore, not clear how the land could be foreclosed to recover unpaid loans. This has made it impossible for banks to lend farmers money for farming activities. Even if government makes the leases bankable, it is still a political hot potato as no bank will want to be seen to be foreclosing and taking land from beneficiaries of the land reform program.

Resultanly, farmers have had to put up other assets in order to get loans. Once the bank provides the loan, it is up to the farmer to use the money for farming operations. The bank does not care if the farmer succeeds or not as long as they get their money back. I came across an interesting statistic, 90-95% of farming loans are repaid by farmers if they are given by the bank directly. Less than 50% of loans that are associated with government programs are paid back. It makes sense. Take a loan and just survive long enough for government to write it off at the next election.

At YouFarm we do not ask the farmer for collateral because we work with the farmer by providing them with technology like drone and satellite data plus expert agronomists so that they can reduce wastage and increase yields by practicing precision farming. We are interested in seeing the farmer succeed because we have to protect the investors money. We also share the profits so we monitor everything from the moment we reach the funding goal for the crop, till the crops get to market.

bank-finance.jpeg

Contract Farming

Contract farming has become very popular in Zimbabwe. Tobacco contract farming was vital to the growth of tobacco production in Zimbabwe post land reform. In fact this year, has seen record sales in large part due to contract farming that has provided both large scale and small scale farmers with the means to become tobacco farmers.

There are other crops that are covered by contract farming. These include cotton and sugar cane. One of the biggest complaints by farmers is the lopsided nature of the contracts they end up getting into. In some cases the farmers are paid as little as 8% of the profits. Most farmers sign because they are desperate, other out of ignorance. The other issue is that some of the companies that provide the contracts are run by unscrupulous individuals who fleece farmers by way of giving crops lower grades or in some cases not paying farmers after they have produced. In other cases they over charge farmers for the inputs. One example was given by one of my listeners who called into the agribusiness radio segment that I used to present on Capitalk FM saying that he was doing tobacco contract farming and the company he was contract farming for, was charging him more than double the market price for fertilizer, but he had no choice.

At YouFarm we believe that the farmer is the most important member of the team. That is why the farmer retains the lions share of the profits. We also do not over charge for inputs. In fact we have partnered up with a few companies so that we can get discounts on inputs. Our farmers can also get discounts for inputs beyond YouFarm funded projects. We involve the investor and farmer in all aspects including input purchase so that there is transparency.

Command Agriculture

Command agriculture was a political masterstroke that was accompanied by good rains. It captured the imagination of Zimbabwean farmers. Free inputs and free tillage. All you needed was land. Zimbabweans like free things and better yet free money. It was so successful that command has become a buzzword and now there is talk of command fisheries, command dairy, command beef and command horticulture.

Theoretically command maize should work if managed properly and if farmers receive inputs early. There is no point in providing compound D fertilizer 2 weeks after the farmer has planted. Like YouFarm command agriculture does not ask farmers for collateral. They do provide farmers with agritex officers to monitor the crop production and to insure that the inputs are used correctly and there is no crop insurance. In exchange, depending on the area, government wants 5 tonnes per hectare in return. The rest belongs to the farmer. 2 seasons ago a young farmer did 21 tonnes per hectare. If i recall correctly he planted 120 hectares for command. 120x16x$360=$691,200 not bad considering that the inputs were free. You can see why its popular.

There has been talk about command horticulture for export purposes but that’s a pipe dream. First of all getting the farms Global Gap certification would be too expensive. Secondly finding farms that are not under dispute would prove to be difficult. Lastly we no longer have direct flights to the markets like Amsterdam. It is not impossible but it would take a lot of work to train the farmer in order to get them to produce and meet the standards required for export.

YouFarm ensures that all crops are insured against force majeur and political risk. We are able to provide financing for a variety of crops as long as they have a market. We are not limited to maize or tobacco. While command may provide you with an over worked agritex officer who has to monitor all the farms in a district, YouFarm provides you with a dedicated expert agronomist who’s sole mandate is the success of your crop.

The YouFarm Crowd Farming Platform provides a superior, alternative and disruptive form of collateral free funding for farmers.

Follow us on Facebook http://www.facebook.com/youfarmzw or on twitter @YouFarmZim. To register as a farmer or investor log onto the website http://www.youfarm.co.zw and fill out the registration forms.

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