Lack of finance critical constraint for young farmers

The lack of access to finance is still perceived as a critical constraint to the development or expansion of agricultural producers within the value chain, mostly at the smallholder level.
This was conveyed by Magale Mamahlodi, a scientist at the Department of Agriculture Fisheries and Forestry (Daff) at the Department of Agriculture’s annual provincial Youth Summit preceding the annual Young Aspirant Farmer of the Year Awards arranged by the Department of Agriculture held at Khoza farm near Radium on Wednesday.
He said Government has established several funding programmes towards supporting producers in the agricultural sector but the provision of development finance could make a significant contribution to increasing growth and income, create job opportunities and reduce the vulnerability of the producers to economic swings in the sector.
Mamahlodi said that, although appropriate finance has the potential to increase income and create employment opportunities, this requires the development of an effective and efficient development value chain funding system that will be able to reach large numbers of producers on a sustainable basis.
“Most of the formal private sector financial institutions do not serve the majority of smallholder producers because of perceived high risk, perceived low relative profitability and inability to provide the physical collateral usually required by such institutions,” he said.
Mamahlodi said no comprehensive agricultural development finance and implementation policy currently in place and no institutions were currently championing agricultural development finance.
“There is limited coordination and collaboration between key stakeholders like government departments, National Treasury and provincial Departments of Agriculture, the Land Bank and other development partners working in the same target areas and communities and initial development targets were not reached.
He ascribed it to “many and regular institutional failures at all levels of the development finance system, lack of shared management information systems and the various government departments and other organisations involved in the implementation process complicates the coordination task.”
He said there were also a limited number of experienced staff running some of the programmes and management systems are weak. Limited or no training are being provided to existing staff. “Most extension officers do not have any experience or background of running a farm or running a business, therefore there is poor decision-making in grant and loan allocations to farmers.”
The absence of standardised procedures in procurement and awarding of grant allocations is a problem as each province is doing it in a different way. Criteria of beneficiaries are not well developed and lack of communication to potential beneficiaries is a problem. Furthermore he stated that no standard selection process to choose the ‘right’ beneficiaries exists.
“The role of government should be to formulate development policies, review the policies from time to time, coordinate the development and implementation activities of partners, capacitate and train farmers and extension officers and monitor and evaluate the implementation process,” he said. “The roles and responsibilities are not always clear on for instance post-settlement support.”
Land tenure and rental systems such as the facts that beneficiaries do not have right to use land as collateral and that there was no rental system developed for community and state owned land contributed to lack of finance. He said that productivity could be enhanced if un-used and un-utilised land could be rented out.
Mamahlodi said the purpose of programmes was not communicated well, especially to beneficiaries and Extension Officers do not visit beneficiaries on a regular basis to provide advice. Skills transfer and capacity building of beneficiaries have been limited, and the need exists for land reform beneficiaries to be trained before and after settlement as there are low levels of financial literacy and business skills to run a small agri-business and farming operations. There is also a lack of private sector involvement in agricultural development finance and the possibility to create a public-private partnership.
He mentioned financial instruments that could be utilized to address the problems and concluded saying there was a need for government in collaboration with other stakeholders to develop an integrated development finance policy for the sector, to identify challenges in development finance and highlight innovative financial instruments that could address the needs of the producers.

Story and photo: NELIE ERASMUS
>>nelie.observer@gmail.com

Featured photo: Magale Mmamhlodi, a scientist at the Department of Agriculture Fisheries and Forestry addressed the Agricultural Youth Summit held near  Radium on Wednesday.