Government must act
...before bankers starve the nationSunday, January 09, 2022
After reading the Wednesday, December 29, 2021 Jamaica Observer article 'Nothing but lip service!', and the follow-up editorial the next day, 'Banks need to rethink support for agriculture', I have decided to lend my support to those making the clarion call that if banks do not change their attitude to agriculture, the nation could starve.
I was shocked to learn that a distinguished businessman of the calibre of Gassan Azan had not been able to get one bank to buy into his $11-billion high tech vision to modernise agriculture in Jamaica. If they can do that to him, what chance does the average farmer have? Needless to say, the little farmer who rides his donkey to tend to his hillside plot is hopeless.
Banks need to realise that money “cyaan nyam”, and it is time that they understand that the food they need to eat must be financed by the institutions with the money. If they fail to do so it will not be long before they become starving billionaires.
We have got caught up in the weird philosophy to believe that all that matters is money, and once you have money you are good. We should take sleep and mark death.
The novel coronavirus pandemic has revealed certain truths. At the height of the outbreak in 2021, certain nations banned the export of oxygen to other countries. Jamaica became a victim of that policy and found it very difficult to source oxygen. It was not that Jamaica did not have the money to buy oxygen, Jamaica could not get oxygen to buy because the suppliers of oxygen needed it for their people. The same thing can happen to food.
The climate is changing and floods and droughts can destroy crops and livestock leading to food shortages. It has happened before, where countries have banned the export of grains because of poor yields leading to shortages at home. It can, and will happen again! The most secure food is the one we grow. We should not be relying on others to feed us.
But how did these countries get into the position where they can feed themselves and the world? The United States of America is considered to have one of the best farming systems in the world. Do you know how that system was built? It was financed by the life insurance industry in America. Yes, a finance industry acting with enlightened self-interest did things which benefited others as it benefited themselves. Life insurance companies realised that people who are well fed live longer and that was good for their business.
As a spin-off of the abundant food supplied by the farms, the canning industry in America came into its own. Lehman Brothers was the pioneers who financed the canning industry. It had lost its way and believed that all it needed to do was to make money. It overexposed itself to mortgage-backed securities, and the rest as they say is history. The moral of the story is that any institution which feels that all it needs to do is to make money will soon get its comeuppance. As Henry Ford said: “A business that makes nothing but money is a poor business.”
The economy is a cycle, and if you do not contribute to the continuation of that circular flow from where you stand then you will cause the economy to collapse, and the falling timbers won't miss you! If consumers believe that they can cleverly refuse to spend, and by so doing they can become rich, they will cause an economic collapse that would wipe them out too. The same thing is true for banks. If banks believe that all they need to do is to make money, and do not contribute to the circular flow of the economy, their day of reckoning will come. They will create conditions that will cause people to rise up! People will not die quietly. A hungry man is an angry man.
The banks' failure to finance food production is especially absurd because even billionaires have to eat. They say agriculture is risky business, but everything in life has risk. The greatest risk to agriculture is not flood, not drought, not predial larceny. With money, irrigation systems can be put in place to militate against drought. Israel does farming in the desert. Agricultural crops and livestock can be elevated to guard against flooding. Flood-prone areas of India and Bangladesh still do livestock farming. The new trend in crop production is to grow in containers and to grow vertically. With sufficient capital, farmers can make their fields secure to ward off the predial thieves.
The greatest risk to agriculture is undercapitalisation. As a result of undercapitalisation farming in Jamaica is mostly at the subsistence level that has existed since Emancipation in 1834. I was shocked to learn that banks only have 1.5 per cent of their portfolio in agriculture. The joke of that allocation comes laughing through when it is realised that the average family allocates about 25 per cent of the family's income for food. Banks need to realise that their role is not only to make money in the economy, but it is their fundamental function to let the economy make money. They must realise that food is the staff of life and that the institutions with the nation's capital must be the ones to finance this essential commodity.
Until the banks — which are clearly out to lunch — can find their way, then the Government must act. The Government has established a worthwhile facility through the Jamaica Development Bank (JDB). Under this arrangement JDB will guarantee up to 80 per cent of substantial loans for certain businesses at reasonable interest rates. The problem with this is that individuals who want to access this facility will have to do so applying to one of the private financial institutions — banks or credit unions. These institutions show little or no interest in enabling this facility. I have knowledge of a situation in which JDB would have guaranteed up to $50 million, but a certain bank was not prepared to lend more than $10 million. Government should allow JDB to do direct lending or establish a bank for that purpose. Government should not shy away from economic involvement of this sought, especially when private banks have been given all the opportunity to act and they have failed miserably to do so. Government must use tax incentives or disincentives to encourage certain behaviour by banks and other financial institutions.
As Government gives thought to establishing Real Estate Investment Trust (REITs), it should also give thought to establishing Agricultural Investment Trusts (AIT). The draconian requirements to set up financial entities in Jamaica should be relaxed especially for the agricultural trusts as the agricultural sector is so badly deprived of capital.
We have seen many die as a result of need during this ongoing pandemic. Under climate change, people could die for want of food. We must act to ensure our food security. Agriculture needs much more than the pittance the banks are offering.
Dorlan H Francis is the Jamaica Labour Party caretaker for St Andrew Western. He is also a personal financial adviser and author. Among his books is The Economic and Financial Crisis of 2007 - What Caused it, How to Avoid a Repeat. Send comments to the Jamaica Observer or firstname.lastname@example.org.