Funding production.
WHAT THE PATTERN IS
Costs incurred at planting, revenue arriving at harvest.
WHAT THAT PRODUCES
A funding gap across the cycle.
WHAT SOURCES EXIST
Own savings Input dealer credit Cooperative and group lending Microfinance and commercial lending Agricultural finance schemes Buyer advances Outgrower arrangements
WHAT DEALER CREDIT PROVIDES
Inputs without immediate cash.
WHAT IT COSTS
A price premium, frequently substantial.
WHAT TO CALCULATE
The premium against the cash price, as a cost of borrowing.
WHY
It is frequently more expensive than it appears.
WHAT BUYER ADVANCES PROVIDE
Cash at planting.
WHAT THEY REQUIRE
Committing output at an agreed price.
WHAT THAT COSTS
The upside if prices rise.
WHAT IT PROVIDES
Certainty, which has value.
WHAT OUTGROWER ARRANGEMENTS INVOLVE
Producing for a specific buyer, frequently with inputs supplied.
WHAT TO ESTABLISH
The price mechanism What is deducted What quality standards apply What happens if they reject your output
WHY THAT LAST POINT
Rejection leaves you with produce and a debt.
WHAT TO VERIFY ABOUT ANY LENDER
That they are licensed The total cost What security is required
WHAT TO AVOID
Borrowing at a cost exceeding the enterprise's margin.
WHAT TO CALCULATE FIRST
Whether the enterprise can service the borrowing.
