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Finance – the key to success
The challenges facing emerging black commercial farmers are numerous and known to all involved with the sector. The biggest challenge is, however, to source adequate and timeous finance. Because of the high risk associated with these farmers, most financial institutions are reluctant to finance them. ABSA AgriBusiness was willing to come to the party with a solution. They developed a financing package where they use good farming practices to mitigate the risk for them as financiers. This enables them to approve finance without the normal sufficient securities. This risk-mitigating ability of agri-businesses enabled insurers to increase the insurance that, in turn, provide more security for the financier. Without these interventions financing emerging farmers would have been close to impossible. Input insurance normally covers about 65% of the total input cost. But for the rest of the finance there is no cover and the financier or agribusiness normally carries the risk. The bigger the projects become the bigger the risk for the financier. This is a major challenge and definitely the biggest inhibitor for major growth in these projects. History of the Dryden project In 2005 the Omnia agronomist, Johan Roos approached ABSA AgriBusiness to become the financing partner for an upliftment project near Delmas they are involved in. The group of hard- working, passionate emerging farmers were sure to benefit from a partnership approach between themselves and some commercial input suppliers. ABSA, Omnia and Monsanto decided to join forces and help these farmers to grow to commercial status. In 2006, the first year of the partnership, only two farmers, Andries Nkosi and Toto Hewu took part. The partnership’s goal was not to chase hectares but to make sure that the project was implemented correctly to ensure success for all participants. Between the two of them, they planted about 260 hectares. Unfortunately, extreme drought during a critical time for the crop’s development resulted in very poor yields. A loss was made by both the farmers. The partnership stuck to their long-term approach for the project and wrote off the bad debt to enable them to start a fresh. The project grew to five farmers planting 1 000 hectares in 2007 and seven farmers planting maize and sunflowers on 1 600 hectares in 2008. Currently the farmers are set to generate meaningful profits from their crops. The farmers agreed to invest 50% of their profits to partially cover the input costs for the next season. This practice will decrease the unsecured portion of the input finance, previously a huge risk for the financier. In the 2008/09 season six farmers participated namely: A total of 390 ha maize and 320ha sunflower was planted. We’re still waiting for Absa Insurance to supply the yield estimate report, but so far this season looks promising. The future The partnership plans to expand the Dryden project to 14 farmers planting 3 800 hectares for the new summer season, totalling the finance requirement to R20 million. With the farmers becoming more profitable, it also increases their sustainability. Now crop rotation practices will be introduced and higher investment in better and adequate equipment will be done. There is also the challenge to increase the footprint of these farmers, so that they can operate on a more commercial scale, thus harvesting the opportunities economy of scale brings. All of the farmers in the Dryden project have the ability and makings of sustainable and profitable commercial farmers. They can now contribute to meaningful excess production enabling them to contribute to food security in South Africa. “I prefer to think of these farmers as en route commercial farmers. They graduated from being emerging farmers,” said Bankies Malan, ABSA Agribusiness manager. “We as a financial institution are committed to the project. There is no blue-print for developmental projects and I believe that the onus rests on private sector to take hands and support these farmers that are serious and passionate about agriculture.” |
“Finance is the key to our success. Without the timeous and adequate financing from ABSA, we would not have been able to show you our beautiful crops today.” Josias Masombuka proudly told NAFU Farmer.
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