Rural communities and emerging farmers simply cannot be looked at through the same lens as you would a commercial farmer. Ask me. I’ll know. As agripreneurs, we have invested quite a bit of a time over the last two years to assist private organisations and primary cooperatives in developing business plans and trying to secure funding for their brave ventures.
With a list of organisations that resembles a packet of alphabet soup, we have approached just about everyone. We’ve literally knocked on everyone’s doors, including the Small Enterprise Development Agency (SEDA), the Small Enterprise Finance Agency (SEFA), the Industrial Development Corporation (IDC), Industrial Development Trust (IDT), Department of Trade and Industry (DTI), Eastern Cape Development Corporation (ECDC), Eastern Cape Rural Development Agency (ECRDA), the Sarah Baartman District Municipality, Land Bank and various private investors.
As the Willowmore Agricultural and Economic Forum, our focus is on agriculture as we are far from any major industrial centre. Manufacturing therefore is not a reality. While we have faced a number of obstacles locally, we have come up against the following realities:
Limited focus of AgriParks: National Government and all its departments have committed themselves to the development of the AgriPark concept. What this means for any agricultural venture is that more often than not, when you speak to government officials nationally and provincially, you are referred to the individual or committee that is responsible for the implantation of the AgriPark. The reality is that the AgriPark has a limited focus, is not geared towards rural areas and due to limited funding cannot expand beyond the focus identified in the business plan.
Reliant on bank loans: Provincial agricultural departments, especially in the Eastern Cape, has a limited budget and they work in a budget cycle that is not linked to the market. Applications get caught up in the red tape of bureaucracy. For example, the CASP (Comprehensive Agricultural Support Project) funding cycle is not communicated well by the local extension officer and the new funding cycle only allows for applications for 2020/2021. What this means is that any business or cooperative that applies for infrastructure funding has to rely on applying for a loan from a private institution rather then apply for a grant.
Funding barriers: IDC, ECRDA and several other organisations require collateral from applicants (between 10% and 15% of the total applied for) to be even considered for funding. Our communities are faced with high unemployment rates and all the social ills that are associated with that. It is a hand-to mouth existence with the highest employer being the Extended Public Works Program as well the Community Works programme. Even if you are applying for a loan of R50 000, the reality is that most of the applicants cannot meet the R5 000 collateral required. The houses that they live in are what we call RDP houses, state-sponsored housing that cannot be used for collateral.
Support for primary producers: Government also needs to move away from the key focus of agro-processing. There is no point in having a vibrant agro-processing sector while you do not grow and support the primary producers. What will happen is that the current primary producers will end up being the big winners as they will be able to charge processors any price as they will be able to sell their products to the highest bidder.
Access to land: The issue of access to land needs to be addressed. The struggle in our neck of the woods is that the Dr. Beyers Naude Local Municipality in the Karoo, the third largest local municipality in the country, does not even have a commonage policy in place and therefore cannot allocate land to any business or cooperative.
Limited support for agricultural initiatives: The Local Economic Development unit for the Dr. Beyers Naudé Local Municipality does not have the capacity nor is it equipped to focus on agricultural initiatives. From my discussions with other emerging farmers it has occurred that this is sadly not limited to our municipality.
In reality, you are actually lucky if you get to deal with these issues. What happens is that we are visited by a representative of the organisations maybe once a quarter where they come and take names and make promises of follow-up visits. These visits never materialise and when you call, more often than not your call is not answered or you are informed that they will get back to you with answers.
Primary agricultural production offers an ideal entry point for emerging farmers and individuals.
There will always be a demand for food and these producers can supply a wide variety of markets. If government moves away from its silo mentality of development, it can play a major role in providing markets for primary producers. For example, the National School Nutrition Programme has a good mix of processed and primary products that it requires to be delivered to each school.
If government (both national and provincial) commits itself, they can ringfence the supply of vegetables to a specific radius from the school.This will obviously take time but in the process of developing these producers a range of interventions (trainings, audits and financial checks) can be implemented to help the business grow. This would require that the departments of health, education, social development and agriculture work together.
The issue of collateral also needs to be reviewed. As mentioned already, our community does not have the means to provide collateral. One institution indicated that an off-take agreement might be considered in lieu of collateral, but no guarantee can be given on that as it will be on a case by case basis. The problem is that commercial buyers are hesitant to provide an off-take agreement if you have no product to show or if you cannot indicate that you are able to meet their quantity and quality.
To mitigate risk funding, agencies are willing to extend a loan at a higher interest rate, the impact of this on a R5 million loan taken over a five year period is as follows:
- Monthly repayment on loan at 10,25%: R106 851,32
- Monthly repayment on loan at 12%: R111 222,24
- Monthly repayment on loan at 15%: R118 949,65
The additional R12 098,33 that has to be repaid monthly eats into profit margins on an emerging enterprise which obviously has an impact on its assessment as a viable entity.
While we understand that all lending institutions are limited by FICA as to what they can do and how they can go about funding individuals and organisations, it does not mean that a new approach cannot be developed and followed. A new financing model therefore needs to be developed because rural communities and emerging farmers cannot be looked at through the same lens as you would a commercial farmer.