By K. C. Soares, Contributor
LAST WEEK I mentioned that there were three basic things that must be done for there to be any progress in the agriculture sector. I recommended that there should be a complete restructuring of the bodies (boards) governing the different crops, easy access to credit at low interest rates and with an informed selection of crops to be grown. I dealt at length with the governing bodies then and today I will address the aspect of credit.
For there to be any growth in our economy the agriculture sector is one of two sectors that has to play a pivotal role.
One of the main factors limiting progress in this sector is the inaccessibility of credit at reasonable interest rates. The Agricultural Credit Bank (ACB), which was set up primarily to service the sector, was a few years ago merged with the National Development Bank to form the Development Bank of Jamaica (DBJ).
The DBJ has continued the policy of the ACB and has made funds available to the sector. However, these funds are granted indirectly through what are termed Affiliated Financial Institutions (AFI), which are essentially commercial banks, merchant banks, credit unions etc.
These AFI's are however, very reluctant to access credit from the DBJ to on-lend to farmers as they get only three per cent on the interest (13 per cent) charged on these loans. The AFI's argue that for carrying the risk and for the administrative work involved the spread of three per cent is not at all attractive.
In light of this they discourage farmers from accessing these relatively cheap funds and insist that farmers use the institutions' high cost funds, which is anywhere between 25 per cent and 40 per cent, depending on the institution.
Can farmers produce profitably at such rates? No. If farmers do not accept the high cost funds they are forced to use their own resources, which in many cases do not add up to much. The end result here is that crop husbandry (care of the crop) and animal husbandry suffers. At the same time without funds there can scarcely be any expansion of the enterprise.
HAEMORRHAGE
The overall resultant effect of all this is a contraction in the production of crops and animals. This is the stage the sector has now reached. If we do not find a way to channel cheap funds to the sector the present haemorrhage, in my view, will eventually result in serious socio-economic consequences. Space does not allow me to elaborate on this point but these consequences have been a long time coming.
Many credit institutions are unable to assess an agricultural credit request as their managers/loan officers are not trained in this regard. Because of this they tend to shy
away from agricultural loans.
Some of the larger banks in the 1970's established an agricultural department which appraised and monitored agricultural loans. One bank for instance had one agricultural officer who had to supervise all agricultural loans around the island.
This was not practical and it was no wonder that most of these loans went bad. When this occurred the bank turned its back on agricultural loans mistakenly stating that such loans were not profitable.
LOANS GOING BAD
The bank did not look at the real reasons for the loans going bad, which were in fact due to the inadequate staffing of the department and a lack of training of the agricultural officer. They just decided that agricultural loans were no good. Another bank had a fairly well staffed agricultural department but recently closed this aspect of its operations - a move I consider to be a retrograde step.
What should have been done at this bank is to have an agriculturist with banking experience to manage the department. All loan decisions would then be made at the agricultural department without depending on the final decision of a branch manager.
SOME POTENTIAL
One may argue that there are not many agriculturist/bankers around. I do agree, but investment should be made in an agriculturist or a banker who shows some potential.
Whatever is done, credit should be readily available to farmers at reasonable interest rates. This is the only way farmers will be able to purchase the required amounts of fertiliser, the required amounts of pesticides and weedicides, the required high yielding and disease resistant varieties, the required amounts of quality feedstuffs and therefore properly dispense good husbandry in all aspects of agriculture. If farmers are denied the opportunity to effect the above then there can be no progress.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com.
