Trends in the country’s farming sector over the past 20 years have made financial institutions reluctant to provide loans to farmers, leading to constrained production, especially among small and medium-scale farmers who can, as a result, only produce limited quantities of crops due to inadequate resources.
Yet there is a huge demand for food crops around the world and Malawi is not able to take advantage of the opportunity and meet the demand for agricultural commodities due to limited quantities produced in the country.
Unless the country finds a sustainable way of providing finance for agricultural production, the economy will continue to struggle as Malawi still remains dependent on agriculture for its economic growth and exports.
Although the arrangement is still daunted with many problems, the tobacco industry has found a way of supporting some of its growers under the contract or Integrated Production System (IPS) where buying companies guarantee loans to farmers with whom they have contracts for the production and selling of the leaf.
One of the benefits structured markets for commodities bring to a country like Malawi is the aspect of financing it provides for non-tobacco farmers as banks find comfort in dealing with farmers selling their produce through organised markets such as commodity exchanges.
Facilities that come available through existing structured commodity markets include forward contracts where a farmer signs a contract with a buyer for the future supply of a commodity at a pre-agreed price and the farmer then uses the contract to obtain financing either from a financial institution or the buyer for the production of the crop.
Another facility is the Warehouse Receipt Financing through which banks provide financing to farmers using commodity deposited in a bonded warehouse of an exchange as collateral until the farmer is able to sell the commodity at a good price.
While the facility is currently operating and being enjoyed by some farmers, the Malawi Government is currently in the process of drafting a Warehouse Receipt Financing Bill that will regulate the system to make sure that it is operated in an orderly manner and offers protection to both farmers and financial institutions.
It is only through such organised and structured ways of producing and marketing Malawi’s agricultural crops that can take Malawi’s farming to another level and ensure that our farmers and the country start to benefit from the agricultural revolution currently sweeping across the continent.
The old ways of doing things have definitely failed and it is therefore not surprising that financial institutions are no longer comfortable to provide loans to farmers as there has been no way of guaranteeing the security of their money once lent out to farmers.
Malawi is now moving forward and the government needs to move fast on these and other required reforms in the agricultural sector as the world will not wait for the country if it delays in taking necessary steps that can enable it to benefit from the trend.
As everybody is talking about Malawi venturing into the Green Belt Irrigation Scheme and other large-scale commercial farming projects, we have to think about how crops grown from the ventures will be marketed for the maximum benefit of the farmer and the country.
We also have to find ways of the supporting small-scale farmers with financing and extension service as there is a limit of what they can do on their own.
Agriculture will remain Malawi’s economic backbone for now and the foreseeable future and it is the kind of things that what we will do in its agriculture sector that will define and shape the future of our economy.
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