As highlighted last week, there are a few options available to farmers for access to financing for farming operations, businesses, or agricultural start-ups. One of the options highlighted was agricultural cooperatives, and this is what we will dwell on this week.
Agricultural cooperatives are specific organisations or associations founded and operated by their members. Small agricultural producers often have little to no capital to invest in their farms or new business ventures and have difficulty obtaining credit. With limited assets of their own and poor conditions for obtaining loans, the farmers’ operations tend to suffer. Moreover, the farmers’ unpredictable income, lack of collateral in most cases, climate change, and high transaction costs caused by information asymmetry make this worse.
When farmers apply for loans, high transaction costs may appear because a bank needs information about the farmers’ financial status, and the farmers are in most cases not able to provide such information. At times, access to finance is due to the lack of information on which institutions give credit to farmers and what the qualifying criteria are.
Improving credit availability for farmers is imperative to help alleviate poverty, especially in rural areas, and improve contribution to the economy, hence, the need to seek cooperative support in the form of agricultural cooperatives. Agricultural cooperatives help unite farmers to boost their business productivity, increase yields, provide technical training, training on best practices for farming, production, and technical guidance, and can provide access to loans depending on the cooperative mandate.
The social relations between members of a cooperative society imply that farmers gain a variety of social and socio-psychological benefits, such as a sense of community, safe marketing channels, fair pricing, and opportunities to exercise influence. Additionally, agricultural cooperatives support their members in relation to the provision of goods and services, the dissemination of market information, and the securing of reliable marketing channels.
Finally, agricultural cooperatives can be a valuable source of finance for farmers by pooling their resources and working together in raising funds. Agricultural cooperatives may provide loans to their members at lower interest rates than commercial lenders. This can be especially helpful for small-scale farmers who may not have collateral or credit history.
Agricultural cooperatives can also offer savings and credit services to their members. Members can save money with the cooperative and access credit when they need it. Perhaps, the banks can also learn about farmers through the cooperatives, which reduces banks’ need for surveillance and concerns about repayment capability.
It is said that the economic benefits that cooperatives provide to their members are conditional on the social relations that exist between members and leadership and the cooperative and other organisations.
* Mekupi Kambatuku: Managing Consultant at Simpli Business Advisory admin@simpliadvisory.com https://simpliadvisory.com/