Government regulations refer to interventions by the government in the agricultural sector to ensure sustainability and fair practices. Many believe that the government’s relationship with agricultural markets is defined by laws directly addressing agricultural products and their handling.
While this narrative holds some truth, agricultural marketing encompasses a broader perspective, requiring stakeholders to address fundamental issues. Key areas of focus include:
1. Maintaining and Policing Competition or Preventing Monopoly: Ensuring fair competition and preventing monopolistic practices in the agricultural market.
2. Facilitating Trade and Providing Services: Supporting trade by maintaining uniformity in standards and offering essential services.
3. Formulating Regulations to Protect Consumers: Implementing laws to protect consumers from adulterated or misbranded products.
For instance, laws preventing the shipment of adulterated or misbranded foods, drugs, and cosmetics fall under the jurisdiction of federal agencies such as the Nigerian Standards Organization and NAFDAC.
Subsidies in Agriculture
A subsidy is financial aid provided to farmers to reduce the price of commodities. One common form of subsidy is the reduction or elimination of import duties on farm inputs and implements.
Another method is price support, where the government purchases surplus produce during periods of bumper harvest. This practice helps stabilize prices and ensures farmers receive fair compensation. Government agencies often buy grains for strategic reserves, further guaranteeing price stability for farmers.
Sources of Credit for Farmers
Credit sources for farmers can be categorized into institutional (formal) and non-institutional (informal) sources.
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1. Non-Institutional Sources of Credit
Non-institutional or informal sources lack uniformity in lending practices, interest rates, and collateral requirements. Loans from these sources are typically direct transactions between lenders and borrowers, often based on mutual trust and familiarity.
The ease of access, absence of administrative delays, and flexible repayment terms make these sources popular among farmers. However, limitations include small loan amounts and high interest rates. Notable examples include:
i. The Esusu: A communal fund where members contribute a fixed amount, and each member receives the pooled sum in turn. Loans from this fund are interest-free.
ii. Ajo: A daily savings scheme where contributors deposit a fixed amount. At the end of the cycle, contributors receive their total savings minus a small fee for the collector.
iii. Money Lenders: Individuals who lend money at exorbitant interest rates, often secured against the borrower’s land, crops, or property.
iv. Friends and Relations: Loans provided by prosperous relatives or friends, often without the expectation of repayment.
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2. Institutional Sources of Credit
Institutional sources are formal channels that follow standardized lending procedures, offer regulated interest rates, and typically require collateral. Loans from these sources are generally larger than those from non-institutional sources. Examples include commercial banks, cooperative banks, and government organizations.
i. The Agricultural Credit Guarantee Scheme Fund (ACGSF): To encourage banks to meet agricultural lending targets, the Central Bank of Nigeria (CBN) and the Federal Government established the ACGSF in 1977. With an initial fund of N100 million, the scheme guarantees up to 75% of loans extended to agriculture. This initiative aims to mitigate the high risks associated with agricultural lending and reduce loan defaults.
The scheme has significantly increased agricultural lending. For example, in 1978, 341 loan applications were received, and by 1988, this number rose to 24,538. The ACGSF simplifies the loan process, requiring potential beneficiaries to approach a participating bank or CBN branch.
For loans above N20,000, collateral in the form of 25% cash security is required. Once the bank verifies the necessary information and collateral, the farmer can access the credit.
ii. Commercial Banks: Commercial banks are financial intermediaries that raise funds through deposits and provide loans to businesses and consumers. They offer long-term, intermediate, and short-term loans, as well as lines of credit. Examples in Nigeria include United Bank for Africa (UBA) Plc, First Bank of Nigeria, and Zenith Bank Plc.
iii. Cooperative Banks: Cooperative banks are owned by their members and provide savings and borrowing facilities at relatively lower costs than traditional banks. Unlike commercial banks, which are profit-driven, cooperative banks prioritize service to their members. They operate on a smaller scale, often in rural areas, and maintain a personal relationship with their customers.
iv. Community Banks: Community banks are self-sustaining financial institutions owned and managed by local communities. They provide credit, accept deposits, and offer banking services to members based on self-recognition and creditworthiness. These banks aim to mobilize rural savings, promote rural development, and stimulate productive activities to alleviate poverty.
v. Insurance Companies: Insurance companies invest funds collected from policyholders into businesses. They typically prefer intermediate and long-term loans secured against fixed assets such as land and equipment.
Farmers with insurance policies can often access loans equivalent to the cash value of their policies at attractive interest rates. Examples include the Nigerian Agricultural Insurance Corporation (NAIC), Industrial and General Insurance Company Ltd (IGI), and Leadway Assurance.
This article highlights the critical role of government regulations, subsidies, and credit schemes in supporting the agricultural sector, ensuring sustainability, and improving the livelihoods of farmers.
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