The government’s bold move taken in the past five years of slashing off some fees in agriculture which have been impeding the sector’s growth and role in poverty reduction, is creating an enabling environment for commercialising agriculture sector.
For example, the Agriculture Minister Japhet Hasunga said while tabling the 2020/21 budget in Dodoma recently that in 2015/16, the government scratched 105 fees on crops, farm inputs and cooperatives societies
He said all these efforts attracted more financing with the private investing 3.7tri/- into the agriculture value chain particularly in tea, coffee, sisal, barley, and rice.
The number of jobs created due to the increase of investment flow into the agriculture sector value chain rose to 5,204,607 in 2018/19 compared to 3,880,262 in 2015/16.
The increased financing to agriculture is one of the positive results of the government efforts to make the sector, once considered by most lenders as risky business, attractive to investors.
Although the financial institutions are major contributors to the development of agricultural, livestock and fisheries sectors, there is still a need for lenders to increase their loans’ issuance to agricultural stakeholders, as currently only 9 per cent of loans released by the institutions go to the agricultural sector.
Most of the financial institutions are reluctant to accept the risks prevalent in the agricultural sector, such as droughts, floods, pests and diseases, or the transaction costs of covering large geographical distances.
Minister Hasunga said that his ministry has introduced a new farmers’ registration programme that would enable the government to have data on all important information about farmers, including types of crops they produce, rate of their production and kind of support they need from the State.
The global agri-business has reached 1 trillion US dollars with 50 per cent of the food supply is expected to come from Africa. This is huge opportunity for the private sector to increase investment and take advantage of the growing global demand.
Operating in an economy where 70 per cent of the people engage in agriculture activities, it shows also how important the sector is to the banking industry.
While some of the financial lenders are considering agriculture sector as the most risky business to lend, NMB bank has been capitalising on this as an opportunity to expand its business banking.
The NMB bank Eastern Zone Acting Manager, Harold Haule Lambileki said recently that his financial institution is always working hand in hand with the government to support the growth of agriculture sector in general.
For example, he said since 2016 to current, NMB bank has released over 800bn/- to assist farmers countrywide in the agricultural value chain, which in turn has been timely in helping their farm activities.
The Manager noted that the amount has been helping them right from clearing farms, fertilizers inputs, harvesting and storage as well as transportation to the markets, adding that those are the major areas, where they require support.
“The implication is that in every region, and every district farmers have got our assistance especially in Morogoro and Eastern Zone, where for example they grow sugarcane, sisal and those who engage in fish farms. The list also includes poultry keepers in Coast Region among others,” said Mr Lambileki.
NMB bank has also set aside over 1.9bn/- to fund a local granary that would help mostly those in groups and Corporative Societies including AMCOS as well as individual peasants.
The NMB agri-loans are designed for normally short, medium and long term investment in agriculture production, agriculture mechanization equipment purchase and storage facilities construction.
Also for irrigation systems, processing units and other agribusiness related investments. The lender said the benefit of the loan is its tenure and provides flexibility for farmers to plan and develop their farming enterprise.
Other benefits it provides ample possibilities for farmers to graduate from smallholder level to emerging, commercial and large scale farmer.
NMB despite providing agri-loans also has food and agribusiness research and advisory services.
The food manufacturing market is likely to witness a stable growth rate driven by growing demand from emerging markets.
There is an ever increasing need to invest in agriculture due to a drastic rise in global population and changing dietary preferences of the growing middle class in emerging markets towards higher value agricultural products.
Also, climate risks increase the need for investments to make agriculture more resilient to such risks. Estimates suggest that demand for food will increase by 70 per cent by 2050 and at least 80 billion US dollars annual investments will be needed to meet this demand, most of which needs to come from the private sector.
Financial sector institutions in developing countries lend a disproportionately lower share of their loan portfolios to agriculture compared to the agriculture sector’s share of GDP.
Access to finance is critical for the growth of the agriculture sector. The shift from subsistence to commercial agricultural production requires funds.
In developing countries, where agriculture is a source of livelihood for 86 per cent of rural people, thus investment in agriculture is critical particularly for large investors.