Farmers’ needs examined

Farmers’ needs examined

Finding ways to help small scale farmers, who are at the forefront of providing nations with food for survival, were thrashed out in the second session of the Joint CEO Forum.

Finding ways to help small scale farmers, who are at the forefront of providing nations with food for survival, were thrashed out in the second session of the Joint CEO Forum.

November 16, 2012

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We keep paying more and more for food, while there is less and less to go around, yet small scale farmers do not see the benefits of this increase in demand for their product because of the skewed linkages in the agricultural value chain.

This anomaly was brought to light on the first day of the First Joint CEO Forum held at the Indaba Hotel and Conference Centre in Johannesburg. It looked at the opportunities and challenges faced by small farmers and micro, small and medium enterprises (MSMEs). The Forum, hosted by the Industrial Development Corporation and the Development Bank of Southern Africa in partnership with the African Development Bank, brings together CEOs and senior executives of the Association of African Development Finance Institutions (AADFI) and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP). It runs from 15 to 16 November.

Value chain financing

Value chain finance was the focus of the second session on the first day of the indaba. Panellists Manoj Sharma, the director of Asia MicroSave India, and Obiora Madu, the director-general of Supply Chain Africa, spoke about agriculture finance for sustainable development, expanding agriculture market opportunities and promoting disadvantaged small farmers and MSMEs.

Sharma said while food inflation was at an all-time high and the demand for food was also very high, small farmers were not seeing the benefits of these increases because of the skewed linkages in the agricultural value chain. “The farmers are not connected to the end user. While the consumer might pay R8.20 a kilogram of tomatoes, the farmer only gets R2 – a mere 24 percent of what the end user pays,” he said.

More effort needed to be put into identifying the role of small farmers, Sharma emphasised “We need to work on figuring out how they link in the value chain and insuring that they move up in the value chain.”

He said lack of access to credit by small businesses led to sub-optimal inputs and methods, and to lower productivity. “Aggregation is a solution which can provide a better bargaining power and access to credit and quality input. It’s important to find a way to make both types of businesses more attractive to the bank,” Sharma pointed out.

Banks had always funded agricultural projects, he explained. However, they had mainly focused on the upstream part of the value chain scale, concentrating on agricultural production. Resources financed production-related activities that included development of irrigation infrastructure, provision of agricultural inputs, research and extension services for crop and animal husbandry.

Weaknesses faced by small farmers and MSMEs led banks to avoid lending them money, Sharma said. MSMEs often had very little documentation, their accounts were often not properly audited, and a lack of basic business skills resulted in weak organisational capacity. He reviewed the agricultural sector from banks’ perspective and said farming was viewed as a low-margin business by financiers. The lack of a robust business model and flexible products made the farming industry too risky and unattractive to financiers.

Solutions from India

However, he shared some of the initiatives in India that had provided some solutions. A commercial bank in that country, through its rural finance division, was increasing its rural presence by introducing a system of integrating mobile money into the agriculture value chain. The system allowed farmers to make payments through mobile banking. Farmers could also do their transactions at a low cost, while insuring high security. It also allowed a seamless integration between buyers and sellers. It increased the frequency of transactions and allowed farmers to improve their financial score.

Another initiative was the Kisan credit card, Sharma said. It was an affordable and accessible agricultural finance product in India. The availability of credit on the card increased and decreased according to what the farmer could afford. The initiative was started by the government, the Reserve Bank of India and the National Bank for Agricultural and Rural Development in 1998 and 1999 so that farmers could get timely and adequate credit.

Lessons for Africa

Sharma said to help small farmers and MSMEs in Africa, governments, donors and investors should support promising value chains until they grew and were able to attract commercial banks and other entities.

Designing specific financial products that would cater for small farmers and MSMEs and help to grow the sectors was another crucial lesson he highlighted. Technical assistance and financial literacy for small farmers and MSMEs was also important as this would strengthen individual players, as it would the overall value chain.

Change of mind-set

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In his presentation, Supply Chain Africa’s Madu cautioned against a complete reliance on banks for finance. He said banks did not understand the agricultural value chain and therefore did not offer products that catered for small farmers and MSMEs.

“Banks need to re-engineer their credit analysis structure, to make some allowances for small farmers and MSMEs, but right now, that is not the case. It is important, however, to understand that banks are not insurance companies. They need a guarantee from the lender that they will get their money back, and they need to make profits.”

Madu said the government and the private sector should step in and help small farmers and MSMEs with education and financing. Small farmers and MSMEs needed to also show more initiative and greater responsibility when they did receive funding, by putting the funding to good use and reporting back to the funders. “Small farmers have gained a reputation for misusing the funding they receive at times. They need to ensure they are honest with the funding they receive and use it wisely for the purposes of their businesses, not personal expansions.”

The value chain had been completely broken, said Madu. For small scale farmers to see any benefits and move up in the value chain, it needed to be fixed. Small scale farmers were an important part of Africa’s agricultural production, he explained. “It is important to support and empower small farmers because they are an important part of agricultural production in Africa. The importance of smallholder farming in Africa is highlighted by the fact that 95 percent of agriculture production is from smallholder farming.”

Small scale farmers should be helped to gain advanced skills in the latest methods of farming and in ways to deal with the various challenges they faced, including disease, climate change, export quality and lack of access to finances. “You cannot do today’s job with yesterday’s methods and be in business tomorrow,” he said.


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