Various obstacles, including high interest rates, the absence of collateral, and concerns about the consequences of default, are preventing farmers from accessing credit, despite the potential of loans to enhance their agricultural yields.
According to the September 2023 Agriculture Sector Survey conducted by the Central Bank of Kenya, there has been a slight decrease in the number of farmers obtaining loans, with only 48.5% of them doing so, compared to the survey conducted in July 2023.
Commercial banks are the primary sources of loans in the agricultural sector, followed by friends and family, Saccos, and digital lenders like Mpesa, KCB Mpesa, and Mshwari, among others.
The Hustler Fund, introduced in 2022 to provide more affordable credit to individuals and businesses at the lower end of the economic spectrum, accounted for 10.3% and 7.5% of loans in July and September, respectively, highlighting its potential to support small-scale farmers in covering operational expenses, such as paying workers and buying inputs.
In terms of farm size, a higher percentage of large-scale farmers accessed loans compared to medium and small-scale farmers, possibly due to the economies of scale and greater capacity for absorption. Large-scale farmers received 51.2% of the loans, while medium and small-scale farmers received 47.8% and 45.2%, respectively.
Among the farmers surveyed in September, 36.8% used the borrowed funds to acquire farm equipment and machinery, a significant increase from the 8.7% reported in July. This can be explained by the need for machinery during harvest and land preparation for the new season. Other uses of credit included diversifying agricultural activities, purchasing farm inputs, and covering labor costs. However, accessing agricultural finance comes with its own set of challenges.
High interest rates were cited by 16% of the surveyed farmers as the primary barrier to obtaining agricultural finance, followed by 11.0% who chose not to seek credit voluntarily. Other obstacles included a lack of collateral, fear of crop failure, and concerns about the consequences of default.
The September 2023 Agriculture Sector Survey was conducted to gather information on recent trends in food commodity prices and production in select markets and farms, aiding in the analysis of inflation trends.
The survey was carried out between September 11 and 15, 2023, after the long rainy season, which improved food supply amid rising global and domestic energy prices. Results showed a decrease in the prices of key food items, particularly maize and wheat flour, due to improved weather conditions. The survey also revealed an increase in the use of government-subsidized fertilizer by 69% of the sampled farmers. Nevertheless, high transport costs and input prices continued to affect the output and prices of key food items negatively. Improved weather conditions supported increased production, but the marketing and sale of farm produce were significantly impacted by price-related issues and competition from imported and local goods.
Despite the optimistic outlook for a bumper harvest in the upcoming season, concerns about storage facilities for perishable crops, such as potatoes, persist. Many farmers resort to panic selling at low prices due to the fear of spoilage or price collapses caused by a flood of goods from other local suppliers and imports.
Interestingly, farmers tend to adopt similar farming practices and timings, leading to harvests happening simultaneously, which can be a disadvantage for them.
