Financing is a major challenge for farmers. They cannot get loans to improve yields, protect soil resources and expand their businesses. To stakeholders, the way out is for farmers’ organisations, financial institutions, government bodies and other institutions to explore new possibilities to promote a paradigm shift in agricultural finance. DANIEL ESSIET writes.
DO farmers have the capacity to produce food in abundance?Yes,they do,say experts,who argue that the agricultural sector has vast untapped potential which can satisfy the country’food requirement.
There will also be sufficient to export.
Though farming is considered a stable source of income that can be managed by small and large scale farmers, many do not consider the practice as a business entity.
Many of those involved in small and large scale farming are not utilising the potential to achieve maximum profits that can transform their lives. The farmers face diverse challenges which hamper their ability to produce more from their land.
Lack of access to credit has been identified as the major constraint. Worst hit by this challenge are small owners and poor farmers who find it hard to buy fertiliser and input to improve their yields.
To them, farming is a risky business. In most states, small farmers do not have access to modern agricultural machinery that can help increase their productivity and improve food security and incomes. Many farmers cannot afford new tractors and there are few rental opportunities. This is linked to lack of access to credit. Because of this, they have no choice but to continue farming without the benefit of modern equipment.
In cases where the loans are available, its cost is too expensive for rural small owners to take advantage of. They rarely can meet the rigid collateral requirements or pay back the loan within the typical short-term lending periods.
A consultant to the World Bank, Prof Peter Bola Okuneye, said the agric sector has not received enough financial support from the banking sector.
He, however, attributed this to the failure of the Federal Government to increase investments in agriculture to 10 per cent of its national budget.
He explained that Nigeria and other African countries, in 2003, committed themselves to the African Union Maputo Declaration on Agriculture and Food Security to set aside 10 per cent of their national budgets for agricultural development. But, nine years on, just eight countries have fulfilled their promise. Nigeria is not among them.
On the average, Okuneye noted that public agriculture expenditures have not risen to over 2.5 per cent per year, signalling less recognition of the sector as an engine of growth and poverty reduction.
Added to this is high interest rate which is the biggest risk for farmers where they have little access to loans. This is because a simple change in interest rates can wipe out their profit margins.
Where the small farmers have access to loans, they do not have the collateral required to take advantage of it without using land or other assets.
Nationwide, Okuneye said farmers lack access to financial services, many of them live in rural areas. In other climes, such access help them get better input, better farming, higher yields and better returns. But this has not been possible here. This leaves them in a poverty trap which they struggled to escape from.
An expert said one way out is by participating in out growers schemes. It is one of the most common ways farmers get access to credit. Under out grower programmes, firms provided seeds and input on loans, together with extension services to improve productivity. Generally, credit for input is tied to commodity sales at harvest. Prices paid for the harvest supposedly reflected international prices. However, it is only viable for a few selected cash crops. As a result, many farmers are left out.
As a developing economy, Okuneye said government must spend increasingly more on agriculture if it is to take the sector out of the woods. Such investment, he said, has the potential to create jobs and raise rural incomes, particularly by promoting uptake of improved production techniques and greater use of inputs.
Chief Operating Officer, Centre for Cocoa Development Initiative, and spokesperson for the Cocoa Association of Nigeria, Mr Robo Adhuze, said not much has been done to better the lot of rural farmers. He sees how farmers suffer during harvest. In some rural areas, harvest times, are both days of plenitude and peril for poor farmers. The products are weighed and paid for in cash or cheque. In most of the rural areas, there are no banks. Farmers have to travel far on dusty, unpaved roads to cash checks or deposit cash in town. That makes them targets for robbers.
Adhuze does not appreciate it. He therefore canvassed the need for mobile finance providers to break into rural areas to expand market share and achieve nationwide presence.
For him, the agricultural sector is entry point into these communities, given the keenness of commodity buyers to move away from inefficient and more expensive cash payments to producers. With cash transactions comes the increased risk of theft and violence, high transportation costs and greater possibility for corruption. Adhuze urged the government to embed mobile finance services into the agricultural supply chain. The key to this is leveraging the corporate procurement policies of large buyers.
To enable rural farmers benefit from such arrangements , he urged the government to look at diverse ways of integrating mobile finance solutions into the agricultural supply chains.
With more and more entrants into the mobile finance market, the choice for rural customers looks set to grow.
According to him, emerging innovations in mobile finance are revolutionising the agricultural value chain, will give farmers greater access to a range of financial services.
It encompasses not only mobile money and mobile banking but other alternative delivery channels such as e-vouchers, debit cards, smart cards, branchless banking, ATMs and point-of-sale devices.
With mobile banking service, he said buyers are allowed to transfer payments to growers’ bank accounts via text messages on their mobile phones, while funds can be withdrawn using a bank card at electronic funds transfer machines, at automated teller machines (ATMs), bank branches, or at local shops that operate as agents for the bank.
To make it work, there should be a network of agents offering the service in rural areas close to where the cocoa growers live and work.
This saves farmers time and money, enabling them to focus on tending their land, raising productivity, rather than worry about transporting money.
Without the presence of a financial institution, Adhuze believes such innovations may be the way forward for rural finance, at least for small farmers.
The number of Nigerians suggesting that mobile financial tools be used to facilitate more agricultural credit, savings, insurance, transfers or payments increases daily.
Minister of Agriculture and Rural Development, Dr Akinwunmi Adesina, agrees. According to him, by deploying mobile finance represents a paradigm shift for agricultural value chain finance. He said the government is doing a lot to improve the lot of local farmers.
Addressing the global forum on “Revolutionising finance for agricultural value chains in Africa’’ at the Kenya School of Monetary Studies in Nairobi, Kenya, Adesina cited the use of the electronic wallets through which farmers pay subsidised amount of money to banks to get coupons to buy fertiliser and other inputs from accredited agro-dealers.
Since the agro-dealers get their full pay from the subsidy from the government and what farmers pay, they have been committed to helping farmers grow their businesses, even offering extension services.
Nigeria is the first in Africa, and in the world, to develop the electronic wallet system for reaching farmers with subsidised farm inputs on mobile phones, he said.
He said: “The impact is reaching well beyond Nigeria. Several African countries, as well as others in emerging markets like India, Brazil and China have expressed interest in adopting the electronic wallet system in their own countries. Nigeria, which used to have a terribly corrupt fertiliser system, is now exporting transparency.”
Adesina, however, explained that lending is skewed to larger agribusinesses, while smallholder farmers, commercial farmers and other small and medium size enterprises are unable to access affordable financing.
He added that Nigeria’s bank lending to the sector was expected to hit 7.5 per cent by next year and 10 per cent by 2015. With banks’ yeraly total lending portfolio standing at over N8 trillion, he said the agric sector is expected to get N600 billion this year and N800 billion next year.
He said financial institutions would not lend to businesses they do not find viable.
“Therefore there is a greater need to ensure that, through strategic reforms, agribusinesses become wealth creator.
“This is a good way to tackle some of the major impediments that create both real and perceived risks which deter greater financing to agriculture,” he said.
