What role has the gov­ern­ment played?

Jamaica Gleaner - - ANNOUNCEMENTS -

The un­will­ing­ness to lend to the agri­cul­tural sec­tor has been due to lack of will­ing­ness rather than lack of avail­abil­ity of funds and liq­uid­ity in the bank­ing sec­tor. More­over, when funds are made avail­able to lend to the sec­tor, it is done on an in­for­mal or short-term ba­sis, which de­feats the long term aim of in­creas­ing pro­duc­tiv­ity grad­u­ally over time. Fi­nan­cial in­sti­tu­tions do out­line that they face three ma­jor chal­lenges when at­tempt­ing to in­vest in the agri­cul­ture in­dus­try:

1. They face a high trans­ac­tion cost when they at­tempt to en­ter ru­ral ar­eas.

2. There is higher per­cep­tion of non-pay­ment of loans due to higher per­cep­tion of risk in­clud­ing pro­duc­tion, price and mar­ket risk. Pro­duc­tion is nor­mally hin­dered by both in­ter­nal and ex­ter­nal shocks. For ex­am­ple, in Ja­maica, hur­ri­cane has been the ma­jor ex­ter­nal shock over a num­ber of years, even though Ja­maica has not seen a ma­jor hur­ri­cane within re­cent times. More re­cently, Ja­maican agri­cul­ture has been im­pacted neg­a­tively by in­ter­nal shocks; namely, fire has dam­aged out­put from the cof­fee in­dus­try over the last two years and drought in ru­ral ar­eas re­duced the farm­ing shares of GDP in 2014 and 2015.

3. Ac­cord­ing to the World Bank, fi­nan­cial in­sti­tu­tions lack knowl­edge of how to man­age th­ese agri­cul­ture-spe­cific risks, trans­ac­tion cost, and how to mar­ket fi­nan­cial ser­vices to agri­cul­tural clients.

The World Bank has found ev­i­dence which in­di­cate that gov­ern­ment poli­cies to help the in­dus­try al­ways prove to be in­ef­fi­cient and in­ef­fec­tive at achiev­ing in­crease pro­duc­tiv­ity in agri­cul­ture. Th­ese gov­ern­ment poli­cies have in most in­stance have im­peded fi­nanc­ing to the agri­cul­tural sec­tor rather than in­creas­ing them.

The small farmer and their fi­nan­cial needs should be clearly sep­a­rated and iden­ti­fied. Dif­fer­ent small farm­ers have dif­fer­ent needs. It is im­por­tant to iden­tify each small farmer’s needs and the role they play in the larger farm­ing puz­zle. This way they can re­ceive the tai­lored help nec­es­sary to move them and the in­dus­try col­lec­tively for­ward.

We must find ways to de-risk agri­cul­ture, by ad­dress­ing both the risks faced by in­di­vid­ual farmer and risk to dif­fer­ent subindus­tries. Iden­tify ap­pro­pri­ate in­sti­tu­tions and de­liv­ery chan­nels that would res­cue the cost to ser­vice agri­cul­ture clients. More re­cently, farm­ers and agro pro­ces­sors have com­plained about com­mer­cial bank be­ing an in­ter­me­di­ary to the gov­ern­ment banks for lend­ing to the pro­duc­tive sec­tor. The in­ter­est rates they re­ceive, though they have been re­duc­ing, re­main higher than ex­pected due to the mid­dle­man’s markup. Also, the high level of bu­reau­cracy as­so­ci­ated with ac­cess­ing th­ese fi­nances since very cum­ber­some and acts more like a de­ter­rent rather than a mo­ti­va­tion.

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