THE agricultural sector is perceived as a highly risky one. The effect of climate change which results in erratic rainfall, improper record keeping by farmers, among many other things, are all but a few of the reasons why funding to the sector by banks is often not attractive.
There is also the lack of market access, especially for perishable goods, and poor infrastructure, such as warehousing and feeder roads to facilitate market access, causing farmers to make losses from production, hence their inability to repay loans.
The agricultural policy of government of also envisages substantial credit flow to increase agricultural production and productivity. Banks provide agricultural term loans to players in the sector for investment purposes and short-term loans for production purposes.
Also, finance come from some commercial banks, agricultural development banks, non-governmental organisations (NGOs), cooperatives or investors, in the case of equity finance.
Recipients of these instruments can also benefit from support from the government or international development banks, such as the World Bank and the International Fund for Agricultural Development (IFAD), a specialised agency of the United Nations.
How much credit to the sector?
In an interview with the Graphic Business, the Chief Executive Officer of the Chamber of Agribusiness Ghana (CAG), Mr Anthony Morrison, noted that no amount of funds could transform the sector instantly.
Instead, it will require a continuous overly investment of GH¢5 billion investment every year into the sector, judging from the fact that the level of agribusiness investment directly to the sector was nothing to write home about.
He said that currently, “what goes into agric financing is not more than GH¢200million, whereas over GH¢7 to GH¢8 billion worth of food items such as rice, frozen chicken, fish, meat, oil and sugar are imported”.
“We also import the tractors, seed, fertilisers, and so on. How can you be manufacturing cars and importing your engine from another country? The investment required is nothing less than a continuous GH¢5 billion investment into the industry if we are to make it successful,” he said.
“Just rice alone is GH¢2billion, sugar we import more than necessary, fish we import over GH¢200 million dollars and frozen chicken over GH¢2billion. We need GH¢5b to have a sustained growth n be able to have a food sovereign country called Ghana.’
Local content policy
According to Mr Morrison, any kind of investment into the agribusiness and agriculture systems without a corresponding change in aggressive local content and market research driven policies, Ghana would still be in the same position.
“We must be able to mitigate all these with a robust and very aggressive policy regime. The narrative must change with the politician understanding the need to scrap all forms of political party manifestos and come to a perfect understanding that as a country we have reached a stage where we must be responsible for feeding ourselves.”
“Otherwise our so-called independence without us being food sovereign is meaningless,” he added.
Financing needs of agric
Mr Morrison said there was the need to invest in skills, technology, agric machinery, irrigation and agric land banks.
“The land banks are important because a lot of investors have come and gone and this can be done by the government in partnership with the private sector. As we seek to increase productivity, we also need to look at how we can invest in high technology value addition that is sustainable and we should be able to export anything we add value to but not just adding,” he said.
He added that all these must be backed by what he termed an ‘agribusiness public private partnership local content policy.
“The only way all these can be realised is for the government to make available prevailing conducive environment that will engage the private sector to move in to the financing regime.”
The Dean of Business School at the University of Cape Coast (UCC), Prof. John Gatsi, noted that less than 10 per cent of the portfolio of financial institutions was channeled to the agric sector directly, and about 80 per cent of that money was used on agric export crops like cocoa, coffee and in recent times, on shea nut.
Therefore, he said a chunk of agric produce that was actually related to consumption by people on a daily basis not attended to in terms of credit facilities.
He said this was so because the infrastructure for marketing was not robust for the other food crops, especially within the country.
Prof Gatsi explained that the risk that financial institutions identified when they wanted to lend to the agric sector had to do with the lack of proper and sustainable market structure that would ensure the repayment of loans.
“It is not because farmers, for instance, may not have the ability to repay, but because they don’t have the robust market system that will help them to generate the revenue to repay with time,” he said.
He cited the cocoa sector where financial institutions were engaged internationally, who actually engaged COCOBOD to structure a syndicated loan.
“We need to actually adopt such a scheme within out agric sector so that when the farmer is producing there is a ready off taker and that agreement between an off-taker and especially a person involved in commercial agric can use that off-taker agreement to financial institutions and raise money.
“In so doing, you are reducing the risk that the financial institutions see about agric,” he added.
The ADB Bank
Available statistics show that the ADB Bank is the leader in agric financing in Ghana as of now. Last year, it gave out an amount of GHc489,186,792.00 to the agricultural sector of a total credit of GHC1,790,445,869.90.
The amount represents a market share of 30.99 per cent.
Société General and the National Investment Bank had 17.74 per cent (GHC2,459,813,863.23) and 15.20 per cent (GHC280,081,629.13) of agric finance market share respectively.
The Managing Director of the ADB, Dr John Kofi Mensah, on May 20, 2020 announced a planned investment of GH¢500 million to support the entire value chain along the local poultry industry through soft loans.
He said the initiative was in line with the bank’s strategic plan for 2020 to 2022, with a projection to dedicate 50 per cent of the bank’s loan portfolio to the agric sector.
He said beneficiary companies would receive between GH1.5 million and GH9 million at an interest rate at below 10 per cent.
Mr Morrison, while lauding the ADB initiative, encouraged other banks to emulate the example, but said the modus operandi must change.
“We are all living witnesses of some gracious wastage of funds both from development partners and government that have gone unaccounted for.”
“It's time as a country we start using agriculture and agribusiness management companies as a special purpose vehicle with the right expertise and management skills to be the one leading the narrative,” he stated.
Difficulties in agric financing
Although the banks insist on providing lending to the agriculture sector, a bulk of the loans go to support the importation of agriculture products, including poultry but they do little or nothing when it comes to crop production. The banks aim at profits; hence they will invest in areas with low risk.