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A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO PowerPoint PPT Presentation


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FOOD AND AGRI FINANCING. A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO. Fringilla Lodge, October 2009. Contents. Introduction Financial Sector and Agriculture Zanaco Overview Zanaco and Agriculture Recommendation Conclusion. Introduction. Food and Agriculture.

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A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO

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Food and agri financing

FOOD AND AGRI FINANCING

A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO

Fringilla Lodge, October 2009


Contents

Contents

  • Introduction

  • Financial Sector and Agriculture

  • Zanaco Overview

  • Zanaco and Agriculture

  • Recommendation

  • Conclusion


Introduction

Introduction


Food and agriculture

Food and Agriculture

  • Key economic sector

  • Under performed in the last 3 years; sector contracted by an average of 1.2% p.a. between 2006-2008; 4% contraction in 2008 alone due to a 7% reduction in crop production

  • Crop production reduction was mainly due to;

    • Extreme whether patterns; floods, drought etc

    • High cost of inputs

    • Limitation to credit facilities, inputs, and extension services

    • Inadequate infrastructure

    • Poor livestock management

    • Weaknesses in the FSP and;

    • Failure to attract private investment in the sector

  • This is despite MACO having a medium term target of attaining 30% GDP contribution by 2015

MACO NAP 2004-15

4


Food and agriculture cont d

Food and Agriculture (cont’d)

  • Good water availability but untapped; over 1.7 trillion cubic meters of under ground water resources, and about 40% of surface water resources in the SADC region

  • Ineffective water rights and regulatory/demand management mechanisms

  • Inadequate attention to research and extension needs of the irrigation sector

  • Estimated 10.5 million hectares of land currently being used for agri production, despite 42 million hectares of land classified medium to high potential for agro production (14% utilisation)

MACO NIP 2006-11

5


Financial sector and agriculture

Financial sector and Agriculture


Banking sector overview

Banking Sector Overview

  • Low banking penetration with a ratio of deposits to GDP of approximately 20-25%

  • High historic growth rates of deposits (25-30% p.a.) and loans & advances (30-35% p.a.)

  • Focus on primary agriculture

  • 20% loan assets to agriculture sector

  • 50% of provisions to agriculture sector; root causes;

    • Tenor of financing does not match investments/capex need

    • Currency mismatch

    • Short term views by banks on agriculture borrowers and assimilated at normal corporate borrowers

    • Lack of long term view to address cyclicality issues

7


Challenges of financing food and agric

Challenges of financing food and Agric

  • Inconsistency and/or lack of continuity in policies (volatility in government policies)

  • Distorting subsidies and spur of the moment import/export bans that decimate farmers and that discourages banks from lending to the sector due to resulting price volatilities

  • Lack of value chain infrastructure support i.e. feeder road network, land tenure and administration, energy, communication etc, which creates linkages between supply side and demand side of the sector

  • Lack of warehouse financing legislation

  • Lack of silos in the country forcing crops to be sold after harvest; too much power with millers/traders

  • Weak commodities market to provide risk management solutions (hedging)

  • High energy costs

  • Lack of long term funds for irrigation

  • Outsourcing mechanization with risk of non-availability of harvesters etc versus underutilized assets if owned by farmers

8


Challenges of financing food and agric cont d

Challenges of financing food and Agric (cont’d)

  • Some banks exiting the business, leaving farmers in a lurch for their seasonal requirements;

  • Limited availability of long term funding; need to explore other long term funding options i.e. bond issuance, Notes etc

  • Privatize extension services; improve efficiency and investment availability

  • Opportunity for guarantee schemes (CEEC, DBZ etc)

  • Insufficient skills and information resources for the successful development and operation of irrigation system

9


Zanaco and agriculture

Zanaco and Agriculture


Zanaco and agriculture1

Zanaco and Agriculture

  • Strategic relationship with ZNFU (4% shareholding, 1 Director on the Board)

  • Dedicated Agri business team

  • On-going initiatives;

    • Facilities for Commercial farmers

    • IFC; Emerging farmers

    • ZNFU; Lima scheme

    • NAPSSF; Munda Scheme

    • ADB; Zampip

  • Relationships with and funds distributed to 5,900 small scale, subsistence and emerging farmers

  • Between 20% and 30% of the loans and advances portfolio is in Agriculture loans (depending on seasonality)

  • Improved credit turnaround times

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Recommendation

Recommendation


Food and agriculture sector sustainability

Food and Agriculture sector sustainability

  • Top 6 issues from Zanaco’s perspective;

    • refurbish or build silos/warehouses

    • Enact warehousing finance legislation

    • Need for consistent and predictable government policies (no policy shifts); no spur of the moment import/export bans

    • Professionalize/privatize extension services

    • Focus on yields!!!

    • Strengthen Regional Commodity markets

  • Strengthen value chain support infrastructure; land tenure and administration, road network, energy, etc

  • Incentivize creation of long term funding mechanism for the agric sector (fiscal and/or monetary)

  • Minimize distorting subsidies and spur of the moment import/export bans

  • Financial institutions initiatives to create hedging solutions for farmers

  • Finalize CEEC, DBZ guarantee schemes

  • Promote bilateral long term funding for irrigation

  • Work closely with Banks on managing the FSP program


Conclusion

Conclusion


Zambia should be a bread basket

Zambia should be a bread basket

  • Lots of land

  • Fertile Soils

  • Good water resources and availability if irrigated

  • Reasonable rains nation wide

  • Good banks

  • Good farmers

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