Wednesday February 21 2018

Why trillions invested in agricultural transformation do not deliver

Farmers receive walking tractors. The

Farmers receive walking tractors. The agricultural credit facility programme reaches few farmers thus creating very limited impact. FILE PHOTO 

By Rainher Ojon

In the ambitious quest for economic recovery through growth from the agricultural sector, there is need for structural adjustments more so for agribusiness enterprises in order to make them more competitive for lending, a view held by many stakeholders.
This is barely helped by indicators in government’s own scorecard touching on this important sector as unveiled by Mr Matia Kasaija, the Minister for Finance, Planning and Economic Development during this year’s budget.

He indicated that growth in agricultural output slowed to 1.3 per cent compared to 2.8 per cent in the financial year 2016/17, due to drought.”
But such structural constraints aside, a critical one is that of access and cost of finance to millions of farmers more so those within the lower tier of the agricultural value chain. Delivering highlights of the government supported agricultural credit facility February 2018, Bank of Uganda’s outgoing executive director for finance David Kalyango, pointed out that the agricultural credit facility has since received 538 applications of which 416 were successful. But even then, these few beneficiaries qualified for between Shs5b and Shs100m.

Therein lies the problems, where the so-called agriculture financing reached very few farmers and thus has very limited impact at most.
There has been wide ranging misgivings from various farmer groups and associations across the country that the dwindling fortunes of agricultural sector, lies in the nature of financing that is presently available in the market which are to the benefit of mainly large players.
“Models that effectively reach out to smallholder farmers should be the most appropriate through Saccos and Micro finance institutions. Anything short of that would be a mismatch for millions of farmers eager for expansion, across the agricultural value chain,” argues Edward Katende, the executive director of Uganda Agribusiness Alliance.

Bank of Uganda
However, Bank of Uganda, asserts that such outcries are being taken care of.
“We are finalising a proposal of the agricultural credit facility, that now only requires the Ministry of Finance to endorse. Smallholder farmers will be able to borrow up to Shs5m without collateral. We believe that ultimately this will have a wider scope of producers at farm agate level,” reveals Mr David Kalyango, now the chief auditor at the Central Bank.
Mr Denis Beimana, a farmer in Kikumiro District, says he owns large tracts of land, but remains challenged by lack of financing to meet input requirements among many.

“I make sure I attend as many agricultural shows. There are many farming products that are displayed. But I know that with funds permitting only then can I make profitable production out of my land,” he says.
As a financial sector regulator, Bank of Uganda, which has since February 2018, published an update on the agricultural sector credit facility admits that there is a level of home work required,
“We shall only make meaningful impact if millions of smallholder farmers are able to access our credit. Together with commercial banks that are offering a matching fund, we are reviewing the delivery of the agricultural fund,” Mr Kalyango says.

But the reality of the challenges around the available credit from some institutions within Uganda is clearly evident.
The National Social Security Fund (NSSF) is participating in a Euro 12m (Shs9b) Agro Equity Impact Fund for Uganda championed by the European Union and the International Fund for Agricultural Development IFAD.

Bishop Nathan Ahimbisibwe(centre), Mbarara

Bishop Nathan Ahimbisibwe(centre), Mbarara Zonal Agriculture Development Officer Dr Charles Lagu (left), and other officials inspect pasture improvement project in Kyamate, Ntungamo District recently. FILE PHOTO


“NSSF, which has contributed Shs9b to the Agro Equity Impact Fund for Uganda but just half of that amount has now been drawn down. We expect small and medium enterprises that are eligible for this private equity fund, to bring forward more competitive enterprises,” says Richard Byarugaba, NSSF managing director.

Mr Byarugaba reasons that “ business owners need to operate around compliance with best practices in operations, managing finances, efficient production processes and governance. These enable very easy appraisals by the promoters of private equity to invest in SMEs.”
Nevertheless, even with modest financing available, it is a known fact that millions of entrepreneurs in Uganda, in particular startups stare at the collapse of their fledging businesses within just a year or so.
The Federation of Small and medium enterprises in Uganda (FSMEs-Uganda) confirms that the limited uptake of many agricultural related funding programs, has to do with the low levels of readiness;
“We are profiling our SMEs. We need to understand their different levels of growth, specific financing needs that lenders can appropriately tailor for them,” according to John Walugembe, the executive director of the federation.

The Euro12M (Shs9b) Agro Equity Impact Fund for Uganda, an inception in early 2017, targeted to reach of at least 37,000 farmers across the country touching on all value chains including supply of agricultural inputs, production and agro processing within all sub sectors, post harvest storage and distribution, but also peripheral activities such as certification, marketing and transportation.
In February 2017, Uganda was placed on the list of 11 African countries including Nigeria, Mali, Burkina Faso, Rwanda, Ghana, Ethiopia, Tanzania, Malawi and Mozambique, in which a staggering $280m is to be delivered from the the Alliance for Green Revolution in Africa (AGRA) aimed at catalyzing of agricultural activities.

“It is not just about such large amounts of money geared for interventions into agriculture across Africa. We have said it time and again, that we need to see reforms from governments that share in this critical vision with us of actualising agricultural transformation among their people through appropriate reforms and interventions on their part,” says Dr Agnes Kalibata, the president of AGRA, during an exclusive interview with this writer at a Lakeside Resort in Kampala (Munyonyo).

To derive meaningful output from this trillion shilling intervention by AGRA, Dr Kalibata, says there is need “ to ensure the sector is well coordinated so that the resources that we have in the sector are all coming together in the right way. Ensure that we are driving the right policies because policies evolve quickly and demands defer. And ensure better and faster private sector investments to grow and thrive.”
Mid last year, Uganda hosted the 13th Comprehensive Africa Agricultural Development Program, also known as CAADP, the Pan African vehicle for agricultural transformation, wealth creation, food security and nutrition as well as economic growth, which returned the verdict, that several member countries have not only fallen short on budgetary allocations for the sector; but that taming fake inputs reaching farmers, storage facilities and value addition has remained elusive.

In December 2017, the Uganda Development Bank, unveiled what it called the “I-Growth Accelerator Survey”, a new drive in which it is seeking to generate growth of SMEs, that it lends to by way of supporting innovative and market oriented business plans for agribusiness enterprises.
“Only if we support our Small and Medium Enterprises (SMEs) to clean up on their business vision and plans, understand their environment operation, pricing for their inputs and products. SMEs in agribusiness will continue to face sustainability issues and defaults,” argues UDBL’s chief executive officer, Patricia Ojangole.

Further still, last financial year 2016/2017, Uganda reaped $545m from export returns of 4.6 million bags of coffee. But as the country hosted the 16th African Fine Coffee conference and exhibition last week, it emerged that an ambitious 10-year target of ensuring a production growth of $25b in earnings form this cash crop was set.
It remains to be seen what sustained collective interventions would be deployed by leading coffee producers in the continent such as Uganda, in particular efficiently absorbing trillions of shillings combined off program funded kitties; to expand on output, processing and market derived demand.

KEY ISSUES

In February 2017, Uganda was placed on the list of 11 African countries including Nigeria, Mali, Burkina Faso, Rwanda, Ghana, Ethiopia, Tanzania, Malawi and Mozambique, in which a staggering $280m is to be delivered from the the Alliance for Green Revolution in Africa aimed at catalyzing of agricultural activities.
To derive meaningful output from this trillion shilling intervention by AGRA, Dr Agnes Kalibata, the president of AGRA, says there is need “ to ensure the sector is well coordinated so that the resources that we have in the sector are all coming together in the right way.
Ensure that we are driving the right policies because policies evolve quickly and demands defer. And ensure better and faster private sector investments to grow and thrive.”

Mid last year, Uganda hosted the 13th Comprehensive Africa Agricultural Development Program, also known as CAADP, the Pan African vehicle for agricultural transformation, wealth creation, food security and nutrition as well as economic growth, which returned the verdict, that several member countries have not only fallen short on budgetary allocations for the sector; but that taming fake inputs reaching farmers, storage facilities and value addition has remained elusive.
In December 2017, the Uganda Development Bank, unveiled what it called the “I-Growth Accelerator Survey”, a new drive in which it is seeking to generate growth of SMEs, that it lends to by way of supporting innovative and market oriented business plans for agribusiness enterprises.

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