Credit gap in agriculture seen to widen further this year

Despite efforts by government to support agricultural lending, the agriculture sector will continue to experience a credit gap of about P400 billion this year until 2005 as financial institutions shy away from extending loans to these high-risk sectors.

Data culled by the Agricultural Credit Policy Council (ACPC) show a wide difference between credit demand and loans granted by banks to farmers and fisherfolks groups and individuals.

The projected agricultural credit gap for 2003 is estimated at P366.4 billion, with banks providing only P163.9 billion of the total credit requirement of P530.3 billion. For this year, the credit gap is placed at P385.7 billion, with banks capable of providing only P178.1 billion out of the credit demand of P563.8 billion. In 2005, the gap will be even wider at P407.2 billion as banks are projected to provide only P193.614 billion of the credit demand of P600.855 billion.

For 2003, the estimated credit requirement for agricultural crop production such as cereals, major crops such as coconut, sugarcane and coffee as well as fruits, vegetables and rootcrops was P61.70 million, P63.9 million in 2004, and P66.5 million in 2005.

On the other hand, the estimated credit requirement for fishery, livestock and poultry sectors in 2003 was P468.5 million, P499.8 million in 2004 and P534.35 million in 2005.

In contrast, loans to the sector that are expected to be provided by government banks like, private banks and rural banks totaled just P163.9 billion in 2003, P178.1 billion in 2004 and P193.6 billion in 2005.

ACPC said the credit gap won’t ease up as lending institutions are still reluctant to expand lending to the agriculture and fishery sectors because of continued risks, the lack of collateral and low profitability because of declining productivity in these sectors.

The government is targeting to provide P24 billion in loans this year for lending to the sector and increase this to P28 billion in 2005. About 5.5 percent of these loans will come from the Agro-Industry Modernization Credit and Financing Program (AMCFP), while the rest will come from commitments of government financing institutions.

ACPC initiated the preparation of the plan and collaborated with the Land Bank of the Philippines, Quedan Rural Credit and Guarantee Corp., Philippine Crop Insurance Corp. and the Bangko Sentral ng Pilipinas.

ACPC said however, that these institutions alone cannot manage the magnitude of the projected credit gap and needs financing to come from private commercial banks.

Under the AMCFP, the ACPC recommended measures aimed at encouraging more participation from the private sector in lending to agriculture.

These include measures to bring down lending risks by directing focus of subsidies towards strategic support infrastructure and beefing up operations of government’s agricultural guarantee and insurance programs and developing products and programs to encourage farmers to secure insurance protection of their crops and livestock.