Subsidised loans in the form of blended finance is an important key in unblocking access to finance for agricultural development and establishing new commercial farmers in South Africa.
This is the view of Free State Agriculture (FSA) following the earlier launch of the joint Agri-Industrial Fund by the Industrial Development Corporation (IDC), and the department of agriculture, land reform and rural development.
Reggie Ngcobo, the spokesperson for minister Thoko Didiza, tells Food For Mzansi, “The Agri-Industrial Fund is active, and the IDC is assessing applications as we speak.”
The R1-billion fund was unveiled earlier this year. Ngcobo explains that applications can be made via the IDC website.
Failed land reform projects
Meanwhile, FSA tells Food For Mzansi it fully supports subsidised loans in the form of blended finance.
FSA operations manager Dr Jack Armour believes blended finance unblocks the access to finance barriers facing newly commercialising black farmer.
“Hundred percent grants only lend themselves to being distributed corruptly. Like, with anything, if it’s being handed out for free, everyone, whether they need it or not, is going to be standing in the queue,” Armour says.
According to Armour this could be one of the reasons behind so many failed land reform projects. Subsequently, this led to a dependency on the Comprehensive Agricultural Support Programme (CASP) and RECAP programmes.
“Hundred percent grant projects [are] doomed to fail because of improper beneficiary selection. [It] is tax payer money thrown down drain only to benefit the implementing middleman (agent or contractors) between government and the beneficiary.”
At least with a loan, Armour says, funds are repaid. This means that eventually others also get a chance at funding.
“And so, the cycle is an upward cycle and not the downward spiral as above. Our position stands that only funding those who are willing to puts some skin in the game and based on market principals, will cancel out a lot of the chancers.”
Land Bank’s financial woes
Meanwhile, Armour confirms that FSA had several meeting with the Land Bank. This was to discuss the banks’ current financial woes and its impact on the agricultural sector.
“FSA realises the need for a land and agricultural bank to serve the unique needs (long-term finance, disaster risk mechanisms, seasonal income and expenditure cycles) of the agricultural sector.”
“[ALSO,] a banker who knows and understand the nature of agriculture.”
Armour says, “The Land Bank admits that they do not have the scope to provide the support services required of a development finance institution and hence have approached their main current stakeholder (organisedd commercial agriculture).”
Land Bank’s plans for blended financing
According to Armour, proven development success comes from a partnership support approach whereby the agribusiness supplying the input also supplies support in how to use and administer that input.
This, he says goes together with management coaching to ensure it is done right and on time.
“FSA hopes and trusts that, with a very close watch … by treasury, the auditor-general and their funders, that all due processes will be in place to prevent them from getting into a sticky situation again.”