Tuesday, August 10, 2010

New financing options for SSA farmers

The proposed solution in South Africa: make more middlemen.

The bank gives loans to a contractor instead of directly to the farmer. The contractor then subcontracts the farmer to grow food or raise cattle. The contractor takes on the risks both of farming and of default.
"What we have essentially done is to remove the risk from the farmer and we carry the risk ourselves. We lease the land from the farmer and he is then contracted to us to grow crops according to our agreement and gets paid," he said. "They do not even worry about prices because we never enter into a scheme without hedging the prices as we are not in the business of speculating on prices."

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