Workers harvest wheat on a farm. About 23.67 percent of Sh109 billion loans advanced to the agricultural sector were not being serviced as of the end of March 2021. FILE PHOTO | NMG Farmers overtook property developers and traders in loan defaults in the first year of Covid-19 shutdowns and restrictions, highlighting the struggle players in the key agricultural sector endured in sustaining the market for fresh produce.
About 23.67 percent of outstanding Sh109 billion loans advanced to the sector were not being serviced as of the end of March compared to 16.03 percent a year earlier, making it the sector with the highest non-performing loans (NPL) ratio.
Agriculture’s NPL ratio — the amount defaulted over outstanding loan portfolio to the sector — marginally zoomed past building and construction (23.52 percent) and trade (19.14 percent) sectors, latest Central Bank of Kenya industry statistics shows.
Borrowers in the sector endured a torrid year at a time farming was the notable bright spot at the height of pandemic knocks on economic activity in the second quarter (April-June) of 2020, growing 7.3 percent on the back of favourable weather.
This was when economic activity slumped into a trough with the gross domestic product (GDP) — a measure of economic output — shrinking 5.7 percent, and more than 1.7 million workers losing jobs, according to the Kenya National Bureau of Statistics (KNBS) data.
Analysts attribute the elevated defaults on loan repayments in agriculture to depressed demand from sectors such as hospitality, which was hardest hit by the restrictions and shutdowns imposed to stem the spread of the pandemic.
Samuel Tiriongo, head of research at the Kenya Bankers Association, says reduced demand for farm produce likely forced some farmers to look for alternative markets, which offered relatively lower prices while others struggled to find buyers.
“We appreciate that as much as agriculture was doing much better, the food that is produced has to be demanded by hotels. The produce has to be absorbed in other sectors for complete value chain,” Dr Tiriongo said.
“In the event that one sector that absorbs the produce from another sector is hit, you can see there is a backlash in terms of challenges with servicing of loans.”
Kenya’s public health authorities initially shut down hotels and restaurants during the first wave of the pandemic before allowing them to re-open under social distancing rules, including intermittent directives to restrict service to take-way orders amid scaled-down hours of operation.
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