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Why we need incentives in agriculture

Why we need incentives in agriculture

In 2014, African countries met in Malabo, Equatorial Guinea to deliberate on the future of agriculture in the continent with a vast of arable land that is largely underutilised leaving a millions of its people starving while feeding the middle and upper class with imported food.

The most famous resolution that highlighted the whole occasion was commitment for African countries to set aside at least 10 per cent of annual budget for agriculture. According to reports, only Ethiopia, Nigeria, Malawi and Rwanda are reported to have attained that threshold, the rest, including Tanzania, are not in the class of “early adopters” and so many of them are nowhere near that mark of excellence.

An idea behind this declaration is to incentivise whoever is in the agriculture value chain. It can be in the form of subsidy or free distribution of seeds, fertilisers and farm implements to farmers or some form of subsidy provided to certain industries producing commodities that are of national interest.

Nonetheless, for years, concept behind incentives in the agrarian sector has been narrowed down to the above mentioned financial or material aspects. However, as the world economy develops and the players’ needs changes over time, the definition of incentives in the sector.

Generally speaking players of the agricultural economy are highly motivated or demoralized by presence or performance of economic institutions. Economic institutions are many and there might be no single definition that will include them all as they keeping on evolving depending on the creativity and innovation of those in the market.

For example, before years 1600s no one thought Patenting agencies were of any significance until many innovators like Thomas Edison started to register their Intellectual Properties that turned the world upside-down.

These agencies protected innovators and by so doing incentivised many of them to do stay in the line knowing that their technologies are protected by their governments. Another important institutions are financial institutions. These include commercial and development banks, SACCOS, VICOBA and the likes.

They play an important role in ensuring availability of capital and secured business transactions. Agribusiness sector tends to flourish when there is a free entrance and exit of these banks. Notwithstanding, contribution of commercial banks in Tanzanian agricultural sector is minimal, largely because of unfriendly conditions to farmers, thanks to high interest rates whose cap is mow not less than 17 per cent.

Experience shows that when these important institutions are many, competition has a tendency of lowering down their interest prices much to the benefit of the borrowers in the lower ladder of the agricultural pyramid. Monopolies of any form are antithetical to this narrative.

So it is either this situation is brought purely by private entities like it is in so many Western countries or you have a mixture of both public and private financial entities. The latter seems feasible in Tanzania as there are very few players who are ready to throw their weight behind this so called ‘risky’ investment in agriculture.

An idea is to pep up an economy while waiting for more private entities to come, but they also help to sanitize a situation during the market failure, most especially in economic crisis where profitability tends to dwindle at a time when investment in agriculture is highly wanted.

While so many pundits points out to China as an inspiring example of how public money can help giving an economy its shape, they forget so much to raise a South Korea as a student who has already graduated from this economic engineering. Last thing that is so often understated in its ability to create incentive in the agricultural sector is to avoid dis-incentivising the sector.

This might sound strange but its ability to sway the future is huge. There are regulations and measures that are brought mostly by local authorities with beautiful promises of revitalising the sector to protect the least cared-for individual in the value chain – the farmer – but its practice reveals a totally different thing.

I have been saying again and again on this platform, since its inception even before their effects became obvious, that the current auction system is totally disastrous. While it promise to emancipate the farmer by giving him the so called ‘better price’, the result from a number of venture shows totally different results.

Unfortunately, our earlier voices led to some people in the public sector ridiculed and gave us bad names like ‘agents of exploiters’ and those we should think on how to be more patriotic by helping this unprotected peasant.

Interestingly, almost everywhere in the country, after implementation have come to its full measure many cries are not coming from anyone but the same farmer laments of being exploited and demand a return to the old direct buying system.

Without getting deeper into how this system operates – as this have been repeatedly explain for long time here – peasants have been discouraged to even produce many of those crops after they were ‘robbed’ off the other time. With an exception to cashew, nearly all other crops have indicated a rather unresponsive result.

While it is understood that we are in a trial stage, where the system gets a real test from the very users, it was advised that instead of inflicting too much pain to those in the sector, it is good if we allow two systems to operate simultaneously, preferably auction and spot market systems.

Several countries that tried to introduce a system that was in likelihood to ours didn’t throw out other options; they kept the two wheels cycling at the same time—while, it gave players an opportunity to choose the better path. Incentives are so many and varied, making it impossible to finish them all in this little space, but the whole idea is to keep the sector running by greasing those who make it happen without causing so many damages in the process.

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