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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. |
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