Farming is considered a high-risk business, that's why
commercial banks restrain from lending to this sector, especially smallholders.
On the other hand, governments across the world finance agriculture through
subsidy kitties. Development organizations also play a very important role in
financing agriculture through donations and community work.
What is the current approach of the government in funding
agriculture?
In Kenya, the Agricultural Finance Corporation (AFC) is the sole
government agricultural bank mandated to finance various farming activities eg
purchase of machinery, rehabilitation of land, start-ups, processing plants,
etc through affordable loans. Aspiring beneficiaries are expected to proactively
present funding proposals or business plans for AFC to decide whether to
finance their project or not.
The other way the government finances agriculture is through
affirmative action funds, where youth groups or women present business
proposals for funding.
This approach of funding is dependent on the proactive nature of
agri-entrepreneurs to go out and seek funding from the government.
One major challenge with start-ups in all sectors is the lack of
capital. This impedes the capacity of start-ups to conduct a quality
feasibility study to substantiate the viability of a business. Most
agribusiness projects are based on a misinformed or incomplete feasibility
study which leads to a high failure rate.
My suggestion
In my view, the government has resources and the capacity to
conduct a comprehensive and robust feasibility study whose findings can offer
better guidance to aspiring agribusiness inventors on which projects are better
suited where. Certain studies such as soil mapping, underground water resources
assessment, rainfall patterns, disease cycles, market availability, etc are
complex and sometimes too expensive for farmers to conduct them effectively.
They would bear better results if conducted by the state.
Following the findings of such a study, the government can
recommend certain agribusiness projects in certain areas. To attract the
private sector to invest in the recommended projects, the government can introduce
a subsidy program as an incentive to encourage private investments in
agriculture.
This could be a perfect strategy to attract private investment in
agriculture and more so a smart strategy for the government to spend its
agricultural subsidies on low risk and research-proven high productive
agricultural projects.
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