AGRICULTURAL CREDIT, AGRICULTURAL SUBSIDY AND INTEREST


MEANING OF AGRICULTURAL CREDIT, AGRICULTURAL SUBSIDY AND INTEREST

(a)

Agricultural credit

Agricultural credits are loans obtained by the farmers to start or to expand his farming business. It is repayable over a period of time with some interest as determined by the source of the credit.

(b)

Agricultural subsidy

Agricultural subsidy refers to a non-refundable aid granted to a farmer. Examples include reduction in the prices of inputs such as fertilizers, imp roved seeds and chemicals, free information such as weather forecast, new technology and market sources.

(c)

Agricultural Interest

Interest is the amount paid on borrowed capital or an amount earned above the cost of goods. Interest is usually paid on borrowed capital which usually comes along with loans for example, if a farmer borrows N500,000.00 from a bank and the interest on the loan is 10%, it means the amount he will pay as interest is 350,000.00 per annum, i.e.
10/100 X 500,000/1 = N50,000.00
When the farmer is paying back the loan with the interest, the total amount he will pay to the bank is N550, 000






DIFFERENCES BETWEEN SUBSIDY AND CREDIT

Credit

Subsidy

Credit is a repayable loan It is a non-repayable loan
Credit is always in cash land It may be in cash or in
It includes bank loans, schemes and cooperative It includes reduction in prices of input credit like chemicals, seeds and fertilizers
It has a time period for its return It is given and never to be returned
Government does not bear part of the burden of a loan Government bears part of the burden of a subsidy





PROBLEMS FARMERS MAY ENCOUNTER FROM SOME CREDIT SOURCES

(1) Commercial Banks
(i) They are usually biased in favour of large scale farmers only.
(ii) They demand collateral which farmers cannot provide.
(iii) There is the problem of relatively high interest rate.

(2) Community Banks
(i) The amount of credit is usually small and inadequate to meet the needs of farmers
(ii) They insist on a would be lender coming to open account with them before loans are given.

(3) Money Lenders
(i) They are usually biased towards enterprises that bring in quick return to repay the loan.
(ii) Their interest rates are too high to allow for an appreciable input from the farm business.

(4) Family Sources
(i) The use of loan is usually small and inadequate

(ii) They usually insist on short-term credit.





IMPLICATIONS OF FARM CREDITS OR PROBLEMS MILITATING AGAINST FARMERS IN SECURING LOANS

The procurement of loans or credits for farming activities is associated with some implications. In other words, farmers find it difficult to get loans from banks because of the following reasons:
(1)

Interest rates:

interest rate is the rate at which farmers can borrow money from bank, i.e the amount of interest a farmer will have to pay on the money borrowed. High interest rate discourages borrowing while low interest rate encourages borrowing. Therefore, a farmers cannot borrow when the interest rate is too high.
(2)

Collateral security:

This is what the banks and other financial institutions will want a borrower to present before a loan can be given. Such securities are landed property and buildings. Most farmers do not have these securities and therefore, cannot borrow money.
(3)

Long gestation period of some crops:

Some crops like rubber, cocoa and oil palm take a very long time to mature. Banks, therefore, find it very difficult to grant loan to farmers engaged in the cultivation of such crops.
(4)

Unpredictable climate which can lead to crop failure:

agricultural activities in Nigeria depend naturally on rainfall. A good rainfall encourages productivity but lack of rainfall is a doom to farming activities. Banks, therefore, are always afraid to lend money to farmers because unfavourable climate can lead to crop failure.
(5)

Lack of farm records:

Farmers lack good farm records of all their activities which can be used to assess their credit worthiness.
(6)

High level of loan defaulters:

Farmers may not be able to repay the principal, let alone the interest charged, in case of natural disaster.
(7)

Lack of insurance policy:

Farmers do not take insurance policy on their farms.
(8)

Lack of moratorium:

Banks do not give moratorium or deferent of payment of loans to farmers.
(9)

Land tenure system:

The prevalent land tenure system works against procurement of agricultural loans.
(10)

Small farm holdings:

Farm holdings are too small and uneconomical to operate for mechanization and profit.
(11)

Lack of awareness:

As a result of high level of illiteracy among farmers, they are hardly aware of the existence of loan facilities in banks.
(12)

Bureaucracy:

bureaucracy (red tapism) which is normally involved in the procurement of loan does lead to non-disbursement of loans to farmers.





PROBLEMS MILITATING AGAINST BANKS AND ORGANIZATIONS IN GRANTING LOANS TO FARMERS

i. Inadequate arm records and account: majority of the farmers do not keep accurate records and account of their farming business and this make it difficult for banks to ascertain the profitability of the farming business.
ii. Uncertainties in farming business: These are lots of uncertainties in the operation of agricultural business as profit may not be easily determine by the bankers.
iii. Unpredictable weather: The weather condition may be unpredictable as this may affect the outcome of harvest. Banks are always afraid to put their money in farming business.
iv. Problems of diseases and pests: Banks are always afraid to put their money in agriculture as pests and diseases may affect crops and livestock which may erode or reduce the harvest from such business.
v. Low level of education by farmers: Majority of the farmers are illiterate and this may result in farming failure due to the inability of the farmers to properly utilize the loan given to them by the bank.
vi. Diversion of loan for other purposes: Most farmers due divert their loans for other purposes because the banks may not be able to monitor the utilization of such loans.
vii. Inadequate technical know-how by the bankers: Majority of the bank of some farming business. The bank accountant for example know notting about poultry farming and may find it difficult to grant loan to farmers.
viii. Long gestation period of some crops: Some crops like cocoa and oil palm take a very long time to mature. Banks therefore find it very difficult to grant loan to farmers.


HERE YOU WILL FIND EVERY AVAILABLE TOPICS ABOUT AGRICULTURAL SCIENCE AND BIOLOGY. AND THE LINKS TO THEIR VARIOUS SOURCES.
1. DEVELOPMENT OF AGRICULTURE
2. IMPORTANCE OF AGRICULTURE
3. SUBSISTENCE AGRICULTURE
4. COMMERCIAL AGRICULTURE
5. PROBLEM OF AGRICULTURAL DEVELOPMENT
6. SOLUTIONS TO POOR AGRICULTURAL DEVELOPMENT
7. AGRICULTURAL LAWS AND REFORMS
8. ROLES OF GOVERNMENT IN AGRICULTURAL DEVELOPMENT
9. AGRICULTURAL POLICIES
10. PROGRAM PLANNING IN AGRICULTURE
34.
FORESTRY
35. WILDLIFE CONSERVATION
37. TOPOGRAPHY
38. SOIL
39. BIOLOGICAL FACTORS
42. CLIMATIC FACTORS AFFECTING AGRICULTURAL PRODUCTION
43. TEMPERATURE
44. RAINFALL
45. WIND
46. SUNLIGHT
47. SOLAR RADIATION
48. BIOTIC FACTOR AND AGRICULTURAL PRODUCTION
49. PESTS
50. BIRDS
51. DISEASES

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