Home Sub-Saharan Africa Banking on the Emerging Farmer

Banking on the Emerging Farmer

250px-Mpumalanga_in_South_Africa.svgThe sun-drenched province of Mpumalanga in north-eastern South Africa is one of the country’s burgeoning agricultural hubs, and as thousands of emerging cattle, sugarcane, citrus and wheat farmers pop up across the region, an urgent need has emerged for viable financial structures to support them.

With the South African government punting the formation of co-operatives as a key strategy for economic growth, the African Farmers Association of South Africa (AFASA) have heeded the call. They have kick-started the development of a revolutionary co-operative bank which the association says will benefit more than 300 000 farmers operating in the small but fertile province.

Established in 2011 after a year-long consultation with developing farmers country-wide, AFASA now has over 11 000 members from all nine of South Africa’s provinces, and has placed the needs of emerging farmers on the top of their priority list.

mpumalanga-car-rentalOften struggling to establish themselves due to lack of funding and formal financing mechanisms, little access to market information and poor money-management skills, emerging farmers find themselves swimming in the deep end of South Africa’s agricultural pool. AFASA’s plans are to lift them out.

“The goal is to establish a bank which will be strong, sustainable, independent and supportive of farmers, enabling members to have easy access to affordable banking services,” says AFASA Mpumalanga President Dr Job Mthombeni, who is head of the bank’s newly formed 15 member board.

With support from the Cooperative Financial Institute of South Africa (COFISA) and the Mpumalanga Department of Agriculture, Rural Development and Land Administration (DARDLA), the operations of the bank are scheduled to begin by the end of October.

Discussions regarding the bank commenced in April and focused on mobilizing farmers and co-operatives to join hands in establishing the institution. In order to build the initial capital for establishment, prospective members have been encouraged to invest R600 ($59) each after which time they will have full access to the comprehensive range of services that the bank will offer.

“With an experienced board of directors and a well trained staff complement, the bank will have on tap a wealth of agricultural specific financial expertise for members to utilise. A thorough understanding of the challenges facing emerging farmers and how to solve them is what makes this bank unique,” Mthombeni explained.

AFASA have recognised the need for easily accessible branches for all members, the absence of which has historically been a major cause for the failure of numerous co-operative banks formed in South Africa.

“The bank will launch branches in all the districts of the province, depending on which area is more active as a matter of which one will start first.  It is expected that not less than 300 000 farmers will be able to benefit in the next five years within the province,” Mthombeni added.

Through proper organisation of co-operatives and holistic support of smallholder farmers, AFASA aims to follow the path of countries such as Kenya, Italy and Brazil, whose co-operative movements are widely recognised as the most successful in the world.

From a global perspective, the importance of co-operatives can be highlighted by figures from the International Co-operative Alliance which show that their combined turnover totals some US$2 trillion annually, and in August 2005 a new Cooperatives Act (No.14 of 2005), based on international cooperative principles, was signed into law by the South African government.

The Act sees a major role for co-operatives in promoting the economic and social development of South Africa, in particular by “creating employment, generating income, facilitating broad-based black economic empowerment and eradicating poverty”, a sentiment which is at the cornerstone of AFASA’s constitution.

History demonstrates that white co-operatives played a significant role in the South African agricultural sector during Apartheid- in 1993 there were about 250 of these cooperatives with total assets of R12,7 billion ($1.26bn) and a total turnover of R22,5 billion ($2.2bn).

“Black farmers did not receive the same form of support, and this has led to them not being able to meaningfully participate in the mainstream economy,” said AFASA Secretary-General Aggrey Mahanjana.

“Therefore servicing these people and co-operatives while equipping them with the financial support they need to make a living for themselves and meaningfully contribute to the economy is a top priority for AFASA and South Africa as a whole,” Mahanjana added.

Mahanjana believes that provision of finance should not be the only support mechanism for smallholder farmers and presents what he terms “the wagon holistic approach” to farmer support and development.

“The approach places land and infrastructure at the centre and lists other support mechanisms such as logistics, market intelligence, business knowledge and networking to maximize profit and growth,” he explains.

With the right support, a lucrative potential market lies in wait for the developing farmers of Mpumalanga, who are delighted at the concept of the new bank.

Johnson Mtshali, who owns eighteen cattle on a farm in the Western Mpumalanga town of Emalahleni, believes that the institution will give him the financial support he needs to get his cattle-farming venture off the ground, while giving him access to the market.

“I have been struggling here and don’t have the right business knowledge to make a success of my life. I need a place where I can go to for financial support and to learn from people who have been successful in the farming industry so that I can achieve my dream of becoming a prosperous farmer. It has been very difficult to understand everything I need to do to get to that dream,” Mtshali said.

Dennis Nkuna, a farmer from the Nkomazi Cotton Farmers Association in Steenbok, highlighted the independence of the new institution as a major advantage.

“This is a great idea. We will be able to have ownership, access finances and loans in our own co-operative bank; I believe this is a remarkable step to greater things in the agricultural industry,” Nkuna said.

With AFASA’s innovative concept of a bank fully dedicated to assisting co-operatives and facilitating the province-wide boom of developing farmers, they seem to have tapped into something truly special, and much more importantly, sorely needed.

As Mahanjana concludes: “We cannot remain subsistence farmers. To contribute to food security in this country, we will have to become commercial producers.”