RETHINKING AGRICULTURAL DEVELOPMENT FINANCE IN SA Options for Implementation

1. RETHINKING AGRICULTURAL DEVELOPMENT FINANCE IN SAOptions for Implementation Dr Moraka N MAKHURA Presidential Address The 45th Annual Conference of AEASA, Indaba Hotel, Fourways; 26-28 September 2007

2. Take Home Messages • Finance is still critical in agricultural development. • Effectiveness of financial intermediation constraint by lack of dedicated policy objective and complementary support services • Government involvement required, particularly to address the poor farmers • Agricultural economists can support generation of new ideas on financial services

3. OUTLINE • Why agricultural finance at this stage? • Policy environment affecting finance • Results of (not) implementing policy • Rethinking implementation imperatives • Take home messages

4. Why agricultural development finance? • Agricultural business has changed drastically • Government policies for transforming the agricultural sector • Land reform, Marketing, Empowerment, Natural resource use, Macro-economy • Growing number of new farmers and agricultural entrepreneurs who need support

5. Objectives • Purpose: to revive debate around financing agricultural development or agriculture • Finance is lubricant (enabler or disabler) for economic activity • Outreach and impact of agric financing not sufficiently realised • Objectives: • identify policy provisions and gaps iro agricultural finance, • Introduce principles towards implementation

6. Policy provisions • Pre 1994, agricultural financing applied dualistic • Commercial (white) farmers were financed by Commercial Banks and Land Bank • Homeland farmers were financed by Development Trust / DBSA through Development Corporations on project basis • Post 1994, there is no particular policy addressing agricultural finance. • Financial intermediation guided by a range of policies

7. Post 1994 Policy Reforms

8. Instruments: Government in Action!

10. General Results • Great hopes in agriculture (+) • Private sector financing agriculture (++) • Greater access to agriculture (+) • New agricultural entrepreneurs (+) • +- 40% survival • Outreach still not adequate (-) • No after-care (--) • Recipients experiencing distress (-) • Institutional sustainability problems (-)

11. Lessons from the past

12. Rethinking the Future for Implementation

13. Challenges Facing Agri Finance • Farmers financially distressed • Suppliers of finance not financially sustainable • Development impact not achieved; • Cannot isolate the positive effect of finance to the emerging successes • Farming not profitable?

14. Some reasons • Providers of finance as Banks rather than agri financiers • Credit products serving the Bank’s BS at the expense of the farmer’s income • Farmers not technically prepared • Primary agriculture focus rather than across the value chain • Institutional disintegration • Not every farmer is a farmer: farmer selection

15. Agri Dev Finance Framework • Financial Support & Services • Balance design of financial services to meet the needs of both lender and borrower. • Package financial services together with support services depending on level of operation / need (technical, management, information, infrastructure) • Timing and amount critical • The objectives restated • To maximize (accelerate) agricultural development using combination of financial & support services and research & innovation subject to funding constraint. • Agricultural development involved transformation of subsistence and emerging farmers to fully fledged agricultural entrepreneurs and supporting commercial operations • Research and Innovation • Expectation on agricultural economists’ contribution in agricultural financial services • Evaluate existing or past programmes / policies to draw lessons • Generate ideas for innovative financial solutions (policies, instruments and implementation). • Funding • Funding constraint covers the whole set of financial markets, number of institutions involved, and how they respond and prioritise services for impact on development • Private funding requires profitable ventures • Introduction of government grants expands funding line to accommodate subsistence farmers in the transformation Research & Innovation Funding constraint * Agric development * Financial & Support Services

16. Other issues for attention • Design of post finance support • Revive network of cooperatives and agencies for outreach • Connect/Linking farmer to markets: high value markets or high value commodities • Finance ownership of farmers or agri entrepreneurs to value adding activities • Risk management • Private and public funds mix

17. Options for the Future • Provide coherent policy to guide implementation of financial and support intermediation • Package bundles of support services required for different levels of financial services • Create active research programmes / projects to inform effectiveness of financial intermediation • There is scope for government involvement in supporting financial services for development • Make agricultural development profitable

18. Enjoy the conference Thank you Kgotso!