East Africa Post Harvest Struggle
As maize harvests go full steam, the eternal struggle continues. There’s a bumper harvest and maize prices drop. Farmers decry unscrupulous traders and demand the government help them. The government puts together a program to support prices which ends with huge deficits, farmers unpaid, and money missing. (Probably tone this down) But who can blame them? What other options have they been offered?
Price controls and guaranteed government buyers may seem like a good idea, but history, and especially recent history, has demonstrated that they do not always work out for the better. The recent problems demonstrate that it is time for farmers to take their futures into their own hands. Exclusive reliance on a centralized government will keep farmers impoverished.
Farmers should be forming cooperatives to increase purchasing power, market crops together, and invest in proper cleaning and storage facilities. Increasing yields and keeping more of those yields should always be the farmers first concerns.
Governments should be helping farmers with education on how to increase production. Low prices should not be viewed as a problem if yields are improved to global equivalent levels. Lower prices help all citizens not in the agricultural value chain, and higher yields offset lower prices for farmers.
Two areas where financial institutions could take lead is with the farmer financing and deleveraging contract risk.
In addition to governments taking months, sometimes years, to pay farmers, the issue of delayed payments is also common among other market participants. Millers and traders can take weeks or months to pay farmers, and sometimes the farmers must track down the buyer to collect payment. Farmers are offered steep discounts for buying cash on delivery. If banks or other financial institutions offer trade financing to pay farmers upon delivery of the product and collect from the buyer upon the agreed upon payment terms, whether that is payment after 14 days, or 30 days, or two months. Even at current interest rates, the interest charged on the loans would be lower than the discount demanded by traders for immediate cash payment.
For farmers to be able to effectively negotiate, they must know market prices, and this is where market linkages and transparency comes into play. PanXchange Africa Limited, offer an open, online marketplace for players of all size to level the playing field. Farmers can easily offer their product, and traders and millers can easily see products that farmers are offering.
Finally, the market needs a strong trade association to set trading rules and create an arbitrage committee in case of trade disputes. Courts take entirely too long and are too costly. Transparency is the key to helping farmers with markets. But actual transparency on executable contracts. If either side has the potential to no fulfill a contract, that’s not transparency.