• Thursday, February 29, 2024
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Keeping farm records makes access to finance easier

Keeping farm records makes access to finance easier

Piet Jan Thibaudier, a small holder farmer in Lemmer, Netherlands handed out his farm’s financial statements for the last three years, during a visit last month, capturing pretty much everything from income, to expenses, and amount of money available in bank and privately.

Thaudier is a dairy farmer, who owns 180 cows, with a ranch occupying 100 hectares of land. 45 ha is owned by him, 25 ha is on long lease, while the remaining 30 ha is on short lease.

Skipping through all these details, and providing something more ‘wholesome’, he was asked how much his revenue was for last year, and the calculation was around 500,000 Euros (from milk), out of which profit came down to about 200,000 Euros (approximately N82 million). He still had other income such as sales of a pasture reading (technology) said to have been ‘invented’ by him.

The notable thing about Thaudier like other smallholder farmers in the Netherlands is that; their books are well kept. The average small holder farmer can produce records to show series of line items capturing specific expenses and incomes, and further breaking this down to estimate for instance, expense per cattle, likewise income.

This, from observations, goes beyond cattle to every other form of agricultural activity that has seen the small country, taking giant strides to feed the rest of the world. Smallholder farmers have developed a habit of proper record keeping, which makes it easier for them to get financial support especially from banks.

The reverse is however the case in a place like Nigeria, where the average farmer has next to nothing to show when records of his business (which the farm ought to be), is requested. When farm records are available, a bank is able to see at a glance, how well (or badly) run a business is, and its potentials for revenue to be able to service any loan being sought, if granted.

With Nigeria still having a huge gap to fill in food production, many agribusinesses are desirous of expansions, but more often than not, do not have good records to present to the bank. These records are however important, in determining if the business has been performing as required.

Read also: Canada partners Ogun on investment in agriculture, infrastructure, others

The management process itself would benefit from availability of proper records, as owners are able to plan and manage the farm efficiently. It will show where things may have been going wrong, leakages, ineffective expenses, and invariably making it possible to make decisions on what can be done to get things right. It will also act as a guideline in managing the farm budget.

The farm records form a crucial part of business data, and the lack of it, is a problem in Nigeria. A BusinessDay article on inadequate funding in agriculture, noted that, (operational) data is often overlooked and the lack of it appears to have been accepted as the norm. However, data is important for investors in decision making, whereas in Nigeria, many businesses, particularly in the agric sector, are unable to meet the due diligence requirements to be found attractive by Private Equity investors, added to this, poor governance structures by many agribusinesses.

Bank loans are often unattainable for many agribusinesses, as rates hovering around 25 percent make it nearly impossible for them to service it.

In an exclusive interview with Wiebe Draijer, chairman of the Executive Board, Rabo Bank, he was asked how low interest rates are, to perhaps, compare what Nigeria could learn from this.  In his response, he said, “Interest rate is calculated based on practices the farm employs, what the securities are against it, and whether or not he adopts sustainable practices. So, we can give discounts for farmers that are really sustainable, and get a better rate if there are certain securities behind the loan.”

The question then is; how can farmers who fail to keep records, demonstrate they have been upholding sustainable practices, much less being in a position to secure guarantees that make it easier for the bank to provide them with finance. The challenge remains the same even when attempting to explore opportunities in the private equity space.

Kazim Yusuf, CEO, Kord capital, an investment advisory firm in Lagos, previously told BusinessDay that “Private equity operates in a terrain where there is structure and process. And that is partly why private equity hasn’t grown in Nigeria and other unstructured markets in Africa.”

“Private equity functions where there is enough data to work on because private equity operators typically require data in order to deploy resources to invest in or manage businesses. They will look at credit ratings, audited accounts, corporate governance structure, among other criteria and all these will influence the investment decision,” Yusuf said.

Mezuo Nwuneli, managing partner, Sahel Capital Agribusiness Managers Ltd, also said, “If a company is interested in raising private equity capital, it is paramount for it to ensure it actively works to strengthen its corporate governance. A robust governance structure could even enable it to secure better valuation pricing during investment negotiations.”

Keeping adequate records is a good way to start ensuring corporate governance, subsequent to which it becomes easier for an agribusiness to seek funding from either commercial lenders, or perhaps even private equity capital.