Access to $1000 credit: would this help unleash agricultural commercialisation in Zimbabwe?

One of the repeated complaints of farmers on the new resettlements is the lack of access to finance. This is holding back commercialisation, particularly for A2 farmers with bigger plots but also for those on A1 farms eager to expand, intensify or diversify. All of this needs money, and it is in short supply.

In our studies of farmers’ fortunes in Masvingo, and more recently in the tobacco growing areas of Mazowe, as part of the Space, Markets, Employment and Agricultural Development project, we identify three standard pathways of agricultural commercialisation, each associated with different sources of finance. All are limiting, and available only to a few, or relate only to particular commodities.

The first route is through regular accumulation, investment and saving. This is tough, given all the other demands on funds, and requires real tenacity. Each year profits have to be sunk back into the farm, and new equipment purchased. This is a route we see in the vegetable farmers of Masvingo who by making use of water resources, investing initially in a small pump, have expanded their production and marketing significantly, and after a few years are able to upgrade, with new irrigation equipment, the purchase of pick-up trucks and so on. The regularity and reliability of income from horticulture (if the water is available and the pests can be kept at bay) helps drive this pathway to commercialisation. Some farmers have been very successful, now with turnovers of tens of thousands of dollars, employing large numbers of people and with transport businesses on the side. And all from an initial outlay of a few hundred dollars.

The second route is investment from external income sources. Getting going in farming is often the hardest part, like many businesses. Basic up-front investment is necessary. For A2 farmers with quite large plots – up to 100 or 200 ha – making productive use of this land really requires substantial capital investment. Most such farms were formerly ranches in our study areas in Masvingo, and had limited infrastructure. Those farmers that inherited dams and irrigation equipment were lucky, but most did not. A2 farmers tended to have jobs in town, or at least good connections. These were crucial in getting going. But in the economic crisis period, standard government jobs were not enough to live on let alone provide additional income for investing in farming. Those who were able to get going usually had NGO jobs paying on foreign exchange, or had connections overseas. This diaspora and employment money was recycled and invested in farms. Such farmers, unlike their neighbours, were able to rebuild or rehabilitate irrigation schemes, build dairies and farm sheds, as well as purchasing transport – the ubiquitous 1 tonne truck – to facilitate marketing.

The third route we have identified is of course via contract farming. This is important for crops such as tobacco, but also cotton, and through a different arrangement, sugar. This means the farmer does not have to pay for inputs up front, and the contracting company will supply seed, fertiliser, pesticides and other inputs and also take care of the marketing. Increasingly cash-strapped farmers are hooking up with contractors for other crops, including maize. I have been amazed how many readers of this blog get in touch, and ask to be put in touch with a contractor for selling their crop. There is clearly a massive demand for this intermediary function, where those with cash and capital can invest in farming without taking on the burden of actually owning or holding land or producing. Former white farmers are heavily involved, as well as the new black business elite, alongside the standard cotton and tobacco companies, and of course the estates. The terms of the contract may be one-sided, with the risk pushed towards the producer, as discussed in earlier blogs, but contract farming does release cash, in the absence of any other source.

It is this absence of any other source of finance that is striking across our case studies. Rural financial institutions simply are unable to respond. Some say this is due to the lack of collateral due to the land tenure system, but this is red herring in my view, given the possibility of loaning with all sorts of other security beyond freehold tenure. Surely the new farmers who are desperate for finance would open up commercial possibilities for banks and other finance providers. But the financial sector is very conservative in Zimbabwe, being used to a very different structure of agriculture and form of finance. They do not know their new client base and have few incentives to offer new financial products.

Rural finance in Zimbabwe thus has a massive missing middle ground – between the miniscule forms of finance offered by savings clubs and rotating loans schemes promoted by church groups and NGOs and the large lumpy finance offered through the conventional routes. While there have been some state-backed attempts at improving the situation, they have often foundered due to complex bureaucracy, absurd conditions and lack of outreach. The type of finance offered by banks is largely irrelevant to most new farmers (see Tables 4 and 7 in this Finmark report from 2012)

While I have little knowledge the type of business models that would work, my bet is that a company, perhaps initially supported by a development organisation, that could offer a US$1000 loan on flexible terms would have massive uptake and success. This is the sort of amount that is needed, sufficient to buy a decent pump and irrigation kit, sufficient for a down-payment on a second-hand pick up, sufficient to get going on a commercial chicken project, sufficient to buy a beast or two, or some basic farm equipment. This would make all the difference (and there are now some examples supported by USAID and others). It is standard in Asia for example, so why not in Zimbabwe?

While the three pathways to commercialisation noted above are great if your crop is contracted, if you have close ties to someone with a well-paid job, or if you farm a commodity that gives quick, reliable returns, and you can manage to save. But this is not everyone, or every type of agriculture. Today commercial agriculture in Zimbabwe is being held back, and rural finance is probably the biggest blockage.

 This post was written by Ian Scoones and originally appeared on Zimbabweland



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5 responses to “Access to $1000 credit: would this help unleash agricultural commercialisation in Zimbabwe?

  1. ND Motsoane

    I find it interesting that such opportunities exist in Zimbabwe as suggested by Scoones. I am not an investor but, from where I am in South Africa, I hardly hear or read about positive developments in Zimbabwe, so much that one would assume the country is dying a slow and quiet death.
    My question is why is it that such cases seem not to be elevated to the right level of attention by potential investors outside Zimbabwe?

    I think more needs to be said about such positive developments and the potential in the country so as to attract the right sort of investment.

  2. Great analysis!

    Joseph L M Mugore

    188 Anderson Avenue, Closter NJ 07624 USA Tel. 201 297 7907

  3. am

    $1000 is a good place to start with certain limitations.
    I would not give a $1000 loan to an A2 farmer who has not achieved substantial farm improvements in what is now a long time since land reform began. I would move the failed A2 farmer off and put on successful A1 farmers. The irony is that some A1 famers are generating more cash frOm 10 hectares than some are from 100 to 200 hectares.
    So I would move on successful A1 giving them substantial loans released gradually on achieved targets. Their original A1 plot I would leave under their control.
    Proven producers on A1 should be granted the $1000 loan. It should be a development loan for increase of revenue. Credit worthiness would be established by current proven production. That could be successful tobacco grower; proven large maize grower; whatever. Plot inspection should also be taken into consideration. If not meaningfully improved then no loan.
    This would allow, what would be a limited budget, to be targeted at the people who would make the best use of it.
    The idea of loans should be sold or advertised on the basis of credit worthiness by proven production and meaningful improvements to existing plots and a bond as percentage of guarantee of loan. This will allow those who have not moved so fast to focus on increase of production and meaningful improvements. Seeing the successful person – and they all live in the same community or village – get a loan may spur them on to greater things themselves.

  4. am

    On the road today, bumped into the biggest communal farmer and the biggest fast track farmer in the area. The former has 50 scotch carts home and the latter 26. Both still have more to come. The communal farmer has much larger fields and generally more advantages than the fast track farmer. Still, both are outstanding and there were broad smiles all round.

  5. am

    Yesterday, I noticed in the press some agriculture related statements. One was on GM and is still seed non grata. The other was related to the subject of this post: credit. 800,000 farmers are to receive $3000 of credit. The journalism may have contributed to the confusion but that is $2,4 billion. The credit did seem to be cash and inputs but I found it difficult to decipher.

    But it is a major announcement and I am sure you will take notice of it. If you do not know of it you will find it in the Chronicle.

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