Government financing of the development of small farm agriculture in the Center-South Province of Cameroon

Abstract

The development of small farm agriculture has become an increasingly important issue for the economic development of the less developed coun- tries. Economists and the agricultural economists in particular have been trying to understand the complex environment of the small farmer. This understanding is of critical importance as it must precede any economic development program in which the small farmer will play an important role. The development of small farm agriculture is of special concern to Cameroon for two main reasons: (a) Cameroon economy is largely agricultural, and (b) nearly all farms are small farms. development of these small farms. Numerous factors constrain the Some of those factors include: inadequate technology and markets, unavailability of purchased farm inputs, and under­ developed physical infrastructure. It is plausible to assume that all these factors carry equal weight in furthering the solution to the small farmers’ numerous problems. This study assumes that all other constraints on the development of the small farm are removed in order to focus sharply on one of them, namely, the financial environment of the small farmer. Constrained capital has been shown to limit farmers’ use of purchase inputs, and by extension limits their output and income. In order to reduce the effects of this capital constraint on farmers’ production, the government intervenes in the supply of off-farm inputs. This service is supplied at minimal fees in spite of the very high returns the farmers enjoy. The loans are disbursed in kind in order to assure their use for a specific purpose (increase in the agri­ cultural output). An economic evaluation of such a credit program, "Operation Ceinture Verte," in the Center-South province of Cameroon, reveals very high returns for the whole economy. A financial evaluation of the same program reveals even higher returns for the participating farmers, but the project agency incurs considerable financial losses. In addition to the cost-benefit- analysis used to determine the three returns enumerated above, a linear programming model is used to determine the effects of, (a) interest rate, (b) size of loans, (c) restrictions on the use of loan proceeds, and (d) the liquidity management needs of the producers, on the farm organiza- tion. The analysis leads to the following major followings. 1. The small farmer is not as sensitive on the level of interest rate as the agricultural credit policy makers believe he is. In other words, a substantial increase in the interest rate he is charged does not affect his production organization. Indeed, should an interest be charged that is high enough to make the credit program more secure, the farmer may be led to ascribe greater permanence to the program. would likely follow: One consequence he would then consider program credit in reserve to be valuable to him and thus be a substitute for cash in meeting his liquidity requirements. The liquidity needs of the smaller farmer are real needs as shown by the large amount of cash he holds in reserve in order to counter various contingencies. A more permanent source of cash leads him to commit more of his reserved cash to his production process. 2. The size of the loans the small farmer obtains is more power­ ful in affecting farm organization than the interest rate he has to pay. This particular finding reinforces the point that limited capital supply is more limiting on the growth of the small farmer’s income than is the cost of capital, provided of course that these costs are kept within "reasonable" limits. 3. The relaxation on the use of government loan proceeds does not have a negative effect on farm output, as often believed by the policy makers. The study shows a considerable increase in the farmer’s net cash flow when loans are disbursed in cash. This restriction implicitly assumes that the small farmer’s household expenses can be clearly distinguished from his production or investment expenses; but this assumption does not reflect the well known interrelationship between the small farmer’s consump­ tion and his production expenses. 4. Though not substantiated by any empirical evidence, it is logi­ cally demonstrated that the policy of subsidized rate of interest worsens the income distribution. It is extremely important to emphasize that the findings above are derived from an optimal farm organization and should not be expected to be found in any particular farm. They are derived under the various and rather strict assumptions of the mathematical model which was used. Finally, the implementation of any policy suggestion derived from the findings is to be attempted in an integral process, taking into consideration all other limiting factors.