HATTON NATIONAL BANK LTD COLOMBO AGRICULTURE OPERATIONAL MANUAL (VOLUME II) TECHNO-ECONOMIC ASPECTS March 2013 Hatton National Bank Ltd – Colombo Index Chapter Title Page No. T 1 Crop Loans 3 Plantation and Horticulture T 2 23 Development loans T 3 Coconut Cultivation 33 T 4 Farm mechanization loans 69 T 5 Financing allied activities 97 T 6 Poultry Development Loans 108 T 7 Loans For Minor Irrigation 155 T 8 Fishery development loans 168 Page|2 Agriculture Operational Manual - Techno-Economic Aspects March 2013 Hatton National Bank Ltd – Colombo Chapter – T 1 CROP LOANS 1.0 Introduction: The term 'crop loan' is commonly used for loans given to farmers for Seasonal Agricultural Operations (SAO). It covers all expenses right from preparatory activities necessary for raising various crops till their harvesting. These activities include, ploughing, preparing land for sowing, weeding, transplantation, purchasing and supply of inputs like fertilizer, pesticides and seeds and labour for all the operations in the field for raising and harvesting crops. Thus the credit required to meet all the expenditure for raising crops till the crops are harvested is considered as “production credit” and is commonly known as “crop loan”. Since cultivation of crops is seasonally recurring in nature, it is referred to as “Seasonal Agricultural Operations”. The period of such a loan is generally one crop season. In most of the regions of the country there are basically two crop seasons: ♦ Yala – Starting from May to August e.g., paddy, onion, vegetables (beans, carrots, cabbages beet-root leeks etc.) ♦ Maha – from October to late January e.g., Paddy Maize, Greengram, Kurakkan,Thus, crop loan is required for four to six months in most of the regions of the country, but the loan period often gets extended for early requirement of cash for storing seeds and other inputs and in the post harvest period for sale of the produce. In general, the time provided is at least two months over the period that the crop takes from sowing to harvesting. For some crops like banana, pineapple, sugarcane, which take longer time, crop loan is provided for over a year up to 18 months. Thus the maximum period under crop loan for such crops is generally upto18-20months. 2.0 Techno economic aspects of crops: There are a number of techno- economic aspects of crops which are relevant in the context of providing bank loans to intending borrowers. The following are the important aspects discussed in the crop wise list given in the table at the end of this chapter. 2.1 Crop season: The planting and harvesting seasons vary with crops and locations. The planting season from the point of view of financing banks is important for planning the peak lending in tune with demand for loans. It is the planting season and the period Page|3 Agriculture Operational Manual - Techno-Economic Aspects March 2013 Hatton National Bank Ltd – Colombo immediately thereafter the bulk of the disbursements to input suppliers take place. Branches therefore have to plan well ahead of the planting season to maximize the credit off take. Noting the harvesting season is a part of loan follow- up and recovery processes. The harvesting season, followed by on farm processing and time required for marketing would decide the fixation of repayment schedules. 2.2 Crop duration: The crop duration, generally classified as short (0-6 months), medium (6-12 months) and long duration (>12 months) is an important aspect in agricultural advances. While crop duration is relevant in case of seasonal / annual crops, the number of crops per year is important in case of perennial crops. The crop duration and number of crops per year is important for cash flow calculations and should be considered carefully depending upon the crop being financed on a case to case basis. 2.3 Planting material: The planting material could be seeds or seedlings as in case of many seasonal and annual crops. In case of perennial crops the planting material may be seedlings, rooted cuttings, grafts, budded plants or tissue cultured plants. If the planting used is seeds, the ‘seed rate’, meaning the seed required per acre/ hectare becomes the basis for costing. In case of seedlings and other plant material based on the spacing the plant density is worked out to arrive at costing. The sourcing of plant material is important both from qualitative and costing angle. 2.4 Gestation period: In case of perennial crops the pre–bearing period or the time taken for commencement of yielding is referred to as gestation period. In estimating the development cost of horticulture and plantation crops the gestation period is to be considered carefully as applicable to the specific crops being financed. The development cost of plantation and horticulture crops expressed on a per acre/ per hectare basis generally takes into account the first year planting cost plus the cost of maintenance during the gestation period. 3.0 Seasonality in crop loans: Credit delayed is credit denied. The crop loans should be made available in time to meet the crop production requirements at various stages. Proper planning should be done to collect and process the loan applications. A definite calendar of operations should be prepared in respect of crop loans. Branches should identify the major crops grown in their operating areas, ascertain the major cultivation seasons and the sowing/transplanting periods and chalk out a calendar of operations well in advance of each season. Based on the cropping pattern and calendar of operations, branches should plan in such a way that loan applications are entertained well ahead of the season, so that the loans can be disbursed, on getting sanction from the sanctioning authority, coinciding with the sowing/transplanting period. 3.1 Crop could be classified broadly under three categories: Page|4 Agriculture Operational Manual - Techno-Economic Aspects March 2013 Hatton National Bank Ltd – Colombo Annual Crops: Cereals : Paddy, Maize, Jowar, Wheat etc. Pulses : Black Gram, Green Gram, Red Gram etc. Oil Seed Crops : Ground Nut, Sunflower etc. Fiber Crops : Cotton, Jute etc. Perennial Crops : Tea, Coffee, Rubber, fruit Crops etc. Based on season: Maha (Oct to Jan) : Paddy, Maize, Greengram, Kurakkan etc. Yala (May to Aug) : Paddy, onion, vegetables (Beans, carrots, cabbages, beet-root leeks etc.) 4.0 Scrutiny of applications: Crop loan applications if properly filled in will provide the vital information needed for credit evaluation and sanction. The data and facts mentioned in the application are to be thoroughly scrutinized and verified during the Field/Farm Visit. The scrutiny should ensure the following critical points are verified: n Suitability of the Ø proposed cropping pattern in regard to soil conditions, Ø irrigation facilities Ø quality inputs supply availability Ø post harvest sales arrangements Ø Farmer’s own involvement in farm activities and his experience and ability etc. n Loan evaluation should specify Ø the loan amount recommended crop-wise, Ø Considering the quantum of loan proposed to be sanctioned, if it is considered necessary break-up for loan disbursements in “cash” and ‘ kind” component is to be prescribed, for monitoring end use of funds and Ø indicative loan drawls, n Periods of drawls for various crops and for various operations to plan disbursements n Period of harvest and marketing to be noted for proper follow up and recovery n Due dates to be diarized for follow up n Security for the loan to be ascertained 5.0 Appraisal of Crop Loans: The crop loan applications can be accepted under New Comprehensive Rural Credit Scheme (NCRCS) or the bank’s own scheme. The flow chart of crop loan appraisal system given in the Annexure-2 shows how the applications under NCRCS scheme or the bank’s own scheme are taken-up for financing. The eligible crops under NCRCS are specified by Central Bank of Sri Lanka (CBSL), whereas the crop loan Page|5 Agriculture Operational Manual - Techno-Economic Aspects March 2013 Hatton National Bank Ltd – Colombo under banks owns scheme could cover all the crops including those listed under NCRCS. The appraisal of crop loans in terms of cost of cultivation, loan amount differ between NCRCS and bank’s own scheme. Similarly, there are differences in terms of ceiling on cropped area, rate of interest, security, disbursement and repayment stipulations. These norms / guidelines are given in detail under Annexure – 1 at the end of this chapter. 5.1 Scale of finance: The quantum of finance for which a farmer is eligible is to be decided with reference to the crop and the extent of land where the crop is proposed to be raised. It should be ensured that the purpose(s) for the loan is to cover cultivation expenses like (i) inputs purchases like seeds, organic manures, fertilizers and pesticides, (ii) labour cost, (iii) farm equipment hire charges, if incurred and (iv) transportation cost for transporting inputs to the farm and the harvested produce for sale to the market place. The cost of cultivation may vary from farmer to farmer depending upon the area of cultivation, soil fertility, the type and variety of crop raised, and certain other factors. But it is not possible for a bank to accommodate this variation among different farmers. Therefore, it is convenient to fix crop wise per acre/hectare 'scale of finance' (SOF), which would satisfactorily meet the requirement of majority of cultivators in the area. With a view to minimizing the chances of under financing as well as over financing, the Central Bank of Sri Lanka (CBSL), in consultation with Department of Agriculture lays down the “scale of finance” reckoning the prevalent cost of inputs and labour. The scale of finance announced by CBSL for the cropping season for different crops is in Annexure -3.