What are the two sources through which small farmers meet their capital requirements? What is the major problems they face while getting capital through these sources?
Answers
Answer:
local moneylender and land lord
Explanation:
Farming as a business requires adequate capital. Capital is necessary to create, maintain, and expand a business, increase efficiency, and to meet seasonal operating cash needs. The lack of capital in general is a problem for development in sub-Saharan Africa. It is particularly acute in some sectors of the economy such as aquaculture.
Generally speaking, commercial farmers can get capital through own savings (own equity), borrowing or through a combination of both. In sub-Saharan Africa, annual per capita incomes are very low; in many instances, they are below US$300 (hereafter US$ is abbreviated to $). Such meagre revenues imply that most or all income earned is generally consumed. As much of the population lives below the poverty line in most countries, earnings are often insufficient to cover family needs, which limits the possibility of savings. Thus, it can be argued that, with few exceptions, the marginal propensity to save in sub-Saharan Africa is at best close to zero. The likelihood for potential investors to build their own equity is limited.
The lack of own equity suggests that most investors in sub-Saharan Africa will depend on external funding to start a commercial aquaculture business; the leverage[4] will be important. The most common external source of funding to provide capital for commercial ventures is borrowing, mainly from banks. Unfortunately, however, in the case of aquaculture, so far financial institutions play a minor role in the provision of loans for the procurement of investment capital. The lack of capital remains one of the biggest barriers to aquaculture development in sub-Saharan Africa. For this sector to develop, the issue of potential investors’ access to loans[5] needs to be addressed.
Loans can be vital for aquaculture farmers. Aquaculture farmers need loans to meet farm fixed financial obligations. Loans may be needed to purchase or rent land, machinery and equipment including boats, vehicles and aerators, to build ponds and/or cages as well as storage facilities, and for vertically integrated farms, hatcheries, feed mills and processing plants. These fixed costs, which are invariant of the level of production and the degree of use of the productive resources, can be important in the short run[6].
Loans are also necessary for farmers to meet variable costs. Money to cover expenses related to the purchase of items such as seed, feed, fertilizers, chemicals and fuel, or to pay labour, especially in the first production cycle, is not always at hand. Though they can be increased or decreased at the manager’s discretion, with the output level, these variable costs can nevertheless be an important part of farm expenses. An analysis of a sample of farms in sub-Saharan Africa indicated that variable costs could cover between 74 and 97 percent of total production costs in shrimp farming, and 51 to 98 percent in tilapia and catfish operations. Such large operating expenses typically require loans
In addition to anticipated needs for financing, there may be unexpected shocks that incur expenses. A cyclone hit can severely damage a shrimp hatchery in Madagascar. A flood in Mozambique can destroy pond dikes or wash fish away. An unexpected drought may put cage fish culture operations in Niger on a temporary halt. These examples demonstrate that farmers may need emergency loans to restore normal operations after a natural disaster such as flood or drought. Yet, access to loans by prospective commercial aquaculture farmers in sub-Saharan Africa remains a serious concern. Any effort that seeks to develop aquaculture as a business in sub-Saharan Africa has to understand and address the question of loans. The following two sections attempt to analyse the issue of loans in aquaculture in sub-Saharan Africa by discussing not only the types and sources of loans, but also the root causes of limited access to loans for the procurement of capital investment in commercial aquaculture in the region.