One of the major challenges that the Zambian agriculture sector faces especially for the medium agri-enterprises is access to finance. While some may argue that this challenge is across the whole sector, this article will focus on the medium sized agri-businesses because they form a critical link between smallholder farmers and large-scale processors or customers in Zambia.
Difficult conditions for Agri-SMEs
Zambia has in the past 20 years come up with financing that has focused on subsidizing smallholder farmers across the country. The Farmer Input Support Programme (FISP) has been investing over a billion kwacha every year over the past 10 years. The success of the FISP investment is not the issue in this article but it is mentioned in order to highlight the sums that have gone to helping smallholder farmers as compared to what has been made available to medium sized agri-businesses. Apart from government subsidies, most NGOs in Zambia have also focused on helping smallholder farmers through direct support and others through making micro finance available. However, despite all these efforts most Zambian smallholder farmers still remain unintegrated in any viable value chains and this has contributed to their stagnation. Lack of stable and sustainable markets for most crops means smallholder farmers are paid minimum prices for their produce. Commodity prices fluctuate from low to high year after year and between seasons. This is not good for all the players in the value chains but especially smallholder farmers who largely depend on agriculture for their livelihoods. The major reason for price fluctuations is the lack of processing and holding capacity in the agriculture sector.
Incentivising the medium sized agri-businesses in the Zambian agriculture sector is key to developing the overall agriculture sector as they form the critical middle link between smallholder farmers and the big processors and customers. While there are businesses with innovative ideas of how they can integrate smallholders into commercially sustainable value chains, accessing finance for such ventures has been a major challenge for SMEs. The high interest rates charged by financial institutions make it difficult for many SMEs with innovative ideas to access funding and work with thousands of smallholder farmers as customers or suppliers. Interest rates charged by commercial banks averages 30% per year while micro finance institutions charge as high as 70% per year. These prohibitive interest rates make it almost impossible for most entrepreneurs to invest in the agricultural sector. This has left the Zambian medium sized agribusinesses stuck and more likely to fail instead of growing. As a result, smallholder farmers have also remained stuck as they are unable to bulk their produce and access better markets. Low supply of agricultural commodities in the country means big processors depend on imports even for products that are being produced in Zambia. For example, onions, milk, cooking oil, and rice are some of the products that the country can easily produce locally but currently import substantial quantities. Investing in bulking, sorting, processing and packaging facilities can go a long way in ensuring that most commodities produced by smallholder farmers reach the market in good condition and at prices that incentivise farmers to produce more.
With funding from the European Union, Enterprise Zambia Challenge Fund aims to provide grants and technical assistance to small and medium-sized agri-businesses in Zambia to enable them to integrate at least 150,000 smallholder farmers into viable and sustainable value chains as customers and suppliers.
By Ngolwe Sikazwe, Portfolio Manager.