WINDHOEK – Developing a culture of saving is the single most effective way for local farmers to create a buffer against adversity, says Standard Bank Namibia in a statement issued this week.
The business banking agriculture division of the bank is advising local farmers to get into the habit of saving now in order to mitigate farming risks. “The risk of farming is not just a business one, it is highly personal. More to the point and in most cases it is just one farmer and his or her family standing against an extraordinary array of local and global risks,” says Standard Bank Namibia’s agricultural advisor Gerhard Mukuahima. “The question always is: ‘If I’m already in debt, how do I get to the point of saving money?’ Our advice is to structure your intention to save around the life cycle of your farm. Each farm goes through three phases. The first kicks in when new owners take over a farm, according to Mukuahima. “In many cases, the next generation will take over production from their parents,” he added. “For entirely new owners, of course, there is the need to invest in new technology or machinery. All of which costs money. So, it is difficult to think about postponing spending, which is the definition of saving.”
According to Mukuahima, postponing spending has a curious effect. “By the time you have saved the money for that very expensive harvester, you’ve probably found another way to bring in the harvest – that technology has improved and you can find better value for money.” Phase two of a farm’s life cycle is growth or expansion through the acquisition of additional land, the addition of new crops, or the addition of value to your existing products. This phase invariably involves obtaining finance, which comes at the cost of high interest. “There’s no sense in putting money into a savings account at the same time as you’re trying to pay off your debt,” Mukuahima says. “The interest on your debt will be much higher than you can earn on savings. So, in this case, using surplus cash to pay off your debt as quickly as possible actually constitutes savings.” Local farmers are recommended not use all their financial facilities when funding operations. “Leave something in your overdraft for instance or for whatever emergency might crop up,” Mukuahima advises.
Insurance can also be turned into another form of saving – if you can get to the point of not needing it. In the set-up phase of the farming life cycle, not having insurance can be financial suicide. “But, once your savings build up to the point where you could get through one crop failure without insurance, then rather pay what you’d have spent on premiums into your savings account,” he says. The third life cycle phase is consolidation and transition, which is usually when the farmer wants to retire and either pass the farm to the next generation or sell it to new owners. If there are no savings to fall back on, then the farm must be sold to provide funds for what, with advances in medical science, can be many long years of increasing frailty. “It could happen that you are in need of funds and considering to sell your property. However, the market conditions might not be optimal at that stage, which can influence your returns if you are forced to sell your assets due to insufficient reserves being in place,” adds Mukuahima. “If the farm is to be passed on to sons and daughters, then it is unfair to pass an enormous debt burden on with it or expect them to cover estate duty.”
By Staff Reporter