Stakeholders seek ways to improve agricultural financing in Uganda
Farmers at a function to receive tractors that have been donated to their association. With better access to financing, such farmers will be in position to acquire such equipment to improve their productivity. FILE PHOTO
Finance is a key enabler in developing profitable agriculture value chains and in addressing issues of community mobilisation, cooperatives development, production planning and management, harvesting, processing and storage, marketing and sourcing logistics, among others.
Improving financial systems can help improve the efficiency of Uganda’s agriculture value chains by lowering transaction costs.
Access to finance is critical to agricultural and rural transformation in the country. But agriculture financing is termed as a “policy orphan” given how rare a policy framework dedicated to it is and lack of coordination among stakeholders.
Enabling environment
As such, development partners namely Making Finance Work for Africa (MFW4A), which aims at coordinating interventions in development of the finance sector in Africa, together with CAADP is supporting New Partnership for Africa’s Development (NEPAD) in promoting financing of agricultural sector through financial institutions and private actors to help close the gap in African countries including Uganda.
Established in 2015, Agriculture Finance Platform is multi-stakeholder initiative, hosted by Uganda Agribusiness Alliance, which addresses issues in enabling the business environment to result in more finance sustainability for the agricultural sector in Uganda.
Heny Baguta, from the Ministry of Finance, while presenting a paper on the future of agriculture financing, at high-level policy conference in Kampala said there are many challenges facing agriculture financing in Uganda. For example there is inadequate support like harnessing a loan for sugarcane production, which takes five years for a farmer to attain profitability.
Action needed
Agribusiness dealers may get a loan to invest in agro-inputs during times of drought which becomes a problem because farmers will not be in position to purchase the inputs. There is also absence of capital for farmers to invest in large-scale farming therefore action is needed for new innovations and policies that support agricultural financing.
Lack of financial support to farmers also leads to failure to access quality seed, farm inputs yet if they had the opportunity to get agricultural financing, they would be in position to carry out farming activities using the appropriate technology.
Erick Sile, the NEPAD agriculture finance advisor, gave highlights of statistical information on agriculture financing in Africa. He explained that despite the growth of agricultural activities in the continent, the sector stood at 1.5 per cent in 2014 up from 1.3 per cent in 2013.
Bridge the gap
During the same period, the share of agricultural total domestic budget stood at 3.3 per cent in 2014 down from 3.8 per cent in 2013.
This could be attributed to poor agronomic practices by farmers, poor coordination among stakeholders and funding constraints that limit farmer ability to grow in their farming activities. Further statistics indicates that 17 per cent of rural farmers in Africa are served by commercial banks while 32 per cent rely on other forms of formal financial institutions.
Loans and advances by commercial banks to agriculture sector is estimated at 10 per cent of the total loan credit flows, which are unevenly distributed. Therefore, NEPAD and its support agency will help in bridging this gap.
Access
This will be done through providing financing for local small and medium enterprises and the private sector involved in agribusiness value chain.
Dr Sarah Sewanyana, the executive director, Economic Policy Research Centre (EPRC), while giving highlights from the Agricultural Finance Yearbook 2015, explained that the publication provides insight to challenges faced by farmers one of them being access to financial support to carry out farming activities.
She noted that smallholder farmers require sufficient finance to cater for labour, which in the end, will lead to sufficient increase in yields. Citing the case of northern Uganda, she stated that farmers in the region are faced with a constraint of access to finances and therefore shares of agriculture credit fund other farmers in the rest of the region are accessing be advanced to them as well.
This could be obtained by contract farmers dealing in growing Irish potatoes and involved in cage fishing enterprises.
It is noted that farmers, who are in a better place to access finances, are those dealing in contract farming, a case in point is sugar cane farmers who enter into an agreement with sugar manufacturing industries.
Dr Obrahim Mike Okumu from the School of Economics, Makerere University, presented a paper on contract farming in Uganda’s sugar industry.
He explained farmers engaged in sugarcane contract farming gain in terms of finances because the aided outgrowers receive credit in form of services. At the end of it all, the sugarcane is purchased by the sugar factory at an agreed price.
The farmers are able to gain profit and the quality of the sugarcane produced is controlled. The profitability gain is on both side of the farmer and the factory.
Former finance minister, Gerald Sendaula, echoed the importance of financing research in a bid for farmers to access improved varieties of crops, animal breed as well as other inputs required by farmers.
He pointed out that farmers have been hit by coffee wilt disease as a case in point. It took a number of years to come up with resistant varieties yet if research institutes were well funded, this would be the case. He urged that funds to be channelled through farmer groups, who will own it and be able to pay back as well as establishment of farmer markets where they can sell their produce through bulking to avoid middlemen from exploiting farmers.
Underfunding
The chairperson, Uganda Agribusiness Alliance, Victoria Sekitoleko, explained that agricultural financing platform will enable particular farmers, say, growing maize to be involved directly when it comes to accessing finances.
Farmers will also be encouraged to pitch for facilitation of their agribusiness as an initiative which is something different from accessing loans in banks, which has been a hurdle.
The team is determined to ensure that there is an agricultural bank, which should not be owned by a commercial bank.
The 2015 policy brief by EPRC on agricultural investment taxation states that that the sector is grossly underfunded receiving three per cent of the total national budget despite the fact that it employs over 70 per cent of the population.
However, the sector enjoys a number of tax exemptions including termination of tax exemption on interest earned from agricultural loans as well as removal of tax on agricultural machinery and inputs.
