Command Agriculture, turning into a ‘debt sink-hole’

Eddie Cross
Spread the love

State-supported agriculture programmes widely known as Command Agriculture, have morphed into a “debt sink-hole”, with the bulk of farmers receiving inputs assistance to boost production for national food security, largely defaulting.

The Government of Zimbabwe has since 2015 been running State-assisted agricultural schemes to drive output among farmers through guarantees to input suppliers and financiers, but has failed to recoup the investment and sustain the desired output.

Rightly, the Command Agriculture programmes were a way to improve agricultural production following the land reform programme because banks were reluctant to lend money to farmers who had no title to their land.

As such, the Government started funding agriculture by providing the farmers with inputs, for which the farmers would reimburse the Government after they had harvested and marketed their produce.

According to legal think-tank, Veritas Zimbabwe, which provides information on the work of the Parliament and the Laws of Zimbabwe and makes public domain information widely available, inputs were initially provided by way of loans to the farmers with their debts being guaranteed by the State.

However, there was a high default rate on the loans – 85 per cent – so the State as guarantor of the loans has had to bear most of the cost of the programme.

Notably though, reasons for failure to repay agricultural loans guaranteed by the State vary from one farmer to another but include reluctance to honour debts due to greed, inadequate inputs received, which affects yield and regular droughts.

Economist Eddie Cross, however, said the Command agriculture was initially successful, but only briefly given Zimbabwe almost came to self-sufficiency after 2017 before it took a                                           tailspin.

“It’s been a bit of history now because the Command Agriculture was launched about four years ago and basically ran for about three years and many billions of dollars were committed to it.

“It did have a dramatic impact on agriculture in the first year, but in fact defaults on repayment were huge, more than 80 percent of the loans were not repaid. Because of that, it became unsustainable for the Government, which basically abandoned it.

“It is now looking at alternative ways of funding agriculture . . . but (under Command Agric), we came close to being self-sufficient for a very brief time, for 18 months or so. But it was unsustainable, now we are looking at other creative ways and a more sustainable system going forward,” he said.

Cross said in terms of the new financing model, it would become increasingly difficult for farmers who do not honour obligations from resources availed under State assisted programmes.

“I think, increasingly, if farmers do not repay they will not get new facilities.

“I think discipline is being restored, I think farmers going forward are going to find it very very difficult to get credit. They are going to have to repay. If you see the new 99 years leases, you see quite clearly that banks are being given authority to reclaim properties and sell them,” Cross pointed out.

While many of the farmers that have benefited have not repaid, leaving the State the burden to carry the liabilities from farmers, the country has regularly resorted to importing grain and other key commodities to secure its food position.

Observers contend that financing Command Agriculture, which was last year renamed National Enhance Agriculture Productivity Scheme (NEAPS), has disproportionately bled Zimbabwe’s finances with little commensurate benefit to the public.

Command Agriculture, they argue, should be reviewed and infused with stringent conditions and penalties with the aim of making individual farmers responsible for their debts.

They say that if it means giving farmers bankable title to their land, to improve their credit worthiness, this should be done.  Analysts also agree that funding agriculture is desirable and even necessary so long as it does not become a perpetual burden on taxpayers.

“Between 2015 and 2018 the programme was funded outside the national budget, and an amount of US$3 billion in unbudgeted funds was expended on the programme during this period.

The US$3 billion ploughed into the Command farming programme was authenticated by the Auditor-General, Mildred Chiri, who revealed it as unappropriated expenditure when she appeared before the Public Accounts Committee.

She said the country had paid a number of companies for inputs. Two of the companies appeared before Parliament’s Public Accounts Committee where they accepted that they received the money for the inputs but said they were not responsible for distributing them or collecting repayments from the farmers.

Veritas said for the 2020/21 agriculture season the Government contracted CBZ Bank as its agent for the Command Agriculture programme.  “Farmers had to apply for loans or inputs to a division of the bank called CBZ Agro Yield (Pvt) Ltd, and would repay the loans to the bank after harvesting.  The farmers’ debts to the bank were guaranteed up to 80 per cent by the Government.”

In 2020, Veritas Zimbabwe said, according to paragraph 33 of the statement of public debt issued by Treasury in September last year, the Government issued domestic guarantees to CBZ Agro Yield to cover a number of farming programme.

A total of $1,5 billion was guaranteed by the State to finance the winter wheat crop.  An amount of $1,21 billion has since been recovered, representing a 77 percent recovery rate.

Also, about $76,8 million was issued to finance the winter maize crop.  Out of that amount only $440 000 has been recovered, representing a 0,6 percent recovery rate.

Further, 21,7 billion was extended to farmers to finance the summer maize crop.  Out of that only $4,8 billion has been recovered, which represents a 22 per cent recovery rate.

Similarly, a total of $1,5 billion was outlayed to support the summer soya crop and only $199 000 000 has been recovered, which is equivalent to a 13,29 per cent of the recoverable amount.

In 2021, according to paragraph 31 of the statement of public debt, the Government issued guarantees for $100 million to finance horticulture and oil seed production, $20 billion for the purchase of grain, US$750 000 for working capital for a company engaged in exporting roses.

It is too early, Veritas said, to determine what the Government’s ultimate liability will be on these guarantees.

Due to the debt default by farmers the government faces a huge bill that has to be paid or refinanced in 2022, Veritas said, the Minister of Finance and Economic Development confirmed the seriousness of the debt default in paragraph 33 of the statement of public debt:

“Guarantees issued [in 2020] to Agricultural Finance Corporation (AFC), formerly Agribank, Silo Food Industries, Infrastructure Development Bank of Zimbabwe and CBZ Agroyield (winter wheat) are on track, while guarantees issued to CBZ Agroyield for the winter maize and summer maize/soyabean cropping season are facing challenges of timely recoveries of the loans from the beneficiaries, which indicates a relatively high probability of being called-up in 2022,” Minister Ncube said.

In the current financial year, the Treasury will have to pay $37 billion to service the matured Treasury Bills that were used to fund agriculture in the 2020/21 farming season.

The Treasury has no capacity to repay this loan and it is expected the debt will have to be rolled over and new Treasury bills issued.

“The domestic debt maturity profile reflects the short-term nature of the domestic debt securities/TBs [Treasury Bills], as investors of government securities have a preference for short term instruments to hedge against inflationary pressures.

“The maturity profile reflects Government’s refinancing risk, as $31,3 billion (81 per cent) of outstanding domestic debt securities is maturing in 2022, with a corresponding interest bill of $5,1 billion.”

“The government has put billions of dollars into resuscitating agriculture production, but statistics in the statement of public debt confirm that this has not helped Zimbabwe, as over the years it has continued to import maize, wheat and soya at a great cost to the taxpayer.

“Private debt by farmers is being guaranteed by the State, and if farmers default, as most of them seem to do, the public has to pay their debts. In simple terms, some people (farmers) are using public finances for personal profit,” Veritas said. – Business Weekly