Treasury abandons agric financing on defaults

The significant growth in agriculture Zimbabwe has recorded – reaching self-sufficiency in wheat and maize production and a record tobacco yield, has come at a huge cost to the fiscus — forcing Treasury to abandon some of the State funded schemes, according to Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube.

Presenting his 2024 National Budget Statement recently, Mthuli said agriculture funding has been revamped as some farmers funded under Government-sponsored programmes were diverting the produce to other markets, leaving him in a huge debt burden to banks as the guarantor.

Months-long investigations by Business Weekly also revealed that due to weak structures in banks managing the funding schemes, Treasury debt burden will continue to balloon as the money is unlikely to be recovered since some farmers reportedly used fictitious offer letters and in some cases national identification particulars of deceased persons.

So porous was the system in participating banks to the extent that some farmers who secured the inputs simply disposed of them for a song and bought properties including houses, housing stands, and luxurious vehicles among others as there were no follow-ups.

Noted Mthuli; “During the ongoing 2023/24 agriculture season, the government has only extended partial guarantees to AFC and NMB, while the rest of the financial institutions participating in the programme are using their financial resources.”

Government used to support commercial farmers under the National Enhanced Agriculture Productivity Scheme (NEAPS) also known as Command Agriculture, through extending guarantees to commercial banks.

However, due to high levels of defaulters and unwillingness by some farmers to deliver the produce to the Grain Marketing Board (GMB), the Government has reviewed this financing model to give room to a more commercialised approach led by private financial institutions.

This is part of the agriculture financing reforms to reduce the debt burden on the fiscus and let the financial sector play its role in working with customers who meet their selection criteria.

CBZ’s Agro-Yield for the 2020/21 agriculture summer season availed US$275 million to farmers and treasury guaranteed 80 percent of the debt with a 10 percent interest.

In his public debt report, Mthuli said; “Of the US$275 million disbursed, US$56,4 million has been recovered representing 20,5 percent recovery as at end of September 2022”.

“The Government Guarantee claim of US$188 million has since been called up. Treasury settled the guarantee through the issuance of a promissory note maturing quarterly up to June 30, 2025. To date Treasury has settled an amount of US$20 million for quarter ending April 30, 2023 and June 30, 2023.”

Also, CBZ Agro-Yield is following up on defaulting farmers to recover the outstanding balances and these farmers are not eligible to continue accessing agricultural facilities.

Wheat farmers in 2021 got US$66,6 million from CBZ Agro-Yield that matured in April 2022 with an interest rate of 17 percent per annum and 1,5 percent insurance fee and a 73 percent Government guarantee.

Said Mthuli; “Of the US$66,6 million disbursed, US $26,09 million has been recovered representing 40 percent recovery rate. The Government Guarantee claim of US$29 million has since been called up.

“Treasury settled the guarantee through the issuance of promissory note maturing quarterly up to June 30, 2025. Treasury has settled an amount of US$20 million quarter ending April 30, 2023 and June 30, 2023.”

Maize and soya farmers during the 2021/22 season got funds from CBZ Agro-Yield amounting to $15,43 billion which government guaranteed at 73 percent with an interest rate of 39 percent as it was in local currency and a 2 percent insurance fee.

“Of the $15,4 billion disbursed, $11,2 billion has been recovered representing 72,43 percent recovery rate. The Government Guarantee claim of $3,1 billion is outstanding,” Mthuli added.

NEAPS is a financing model created by the government in partnership with banks, but the scheme faced serious challenges. One of the biggest problems was that farmers have been reluctant to deliver their grain to GMB due to alleged low prices.

This meant that NEAPS was hit by low recovery rates.

Under this partnership, banks recover their money through government guarantees thereby putting pressure on the fiscus to repay banks that would have used their money to finance the farmers.

Some players in the agriculture sector said government should not just pay but should investigate the reckless manner in which officers in participating banks distributed the money that has since become tax paper’s burden.

“The low recovery rate has necessitated the government to explore options which ensure the sustainability of agriculture financing, including crowding in private sector investment in agriculture and adopting a competitive grain pricing and purchasing model,” Mthuli said.

He added; “Funding for commercial farmers under the NEAPS is being reviewed following the challenges experienced since the inception of the programme which includes side marketing by farmers, reluctance by farmers to deliver their produce to GMB citing low grain prices being offered by GMB and delivery of grain by farmers using different names making it difficult for the stop order system to recover loans.”

During the 2021/2022 season, the recovery rate was below 40 percent and this year the number is said to be much lower due to very low producer prices.

Contacted to comment on the matter, the Zimbabwe National Farmers Union chairman Stewart Mubonderi said; “There is a need for the government to relook at its pricing regime to help the farmers break even. As it stands the current prices do not allow the farmers to go back to the field, to repair implements they used, to feed the family and make profits.

“Without doing that, farmers will continue diverting the produce to ensure their families get something out of it. Apart from that productivity levels will remain low.”

Mubonderi said this has resulted in very few farmers partaking in the scheme as many still have debts.

“I am against the notion that the country will have a bumper harvest this year as very few farmers will access loans due to stringent conditions to access loans, high input prices, unpredictable weather patterns and low producer prices which don’t encourage farmers to grow,” Mubonderi said.-businessweekly