The farming operation and all associated forms of production need sustainable financing, while small farmers using rural savings and self-financing are unable to meet the agricultural requirements. They are unable to cover the cost of agricultural production in all its diversity, nor contribute to the development of farming methods and tools of agriculture and improve production.
The obstacle of agricultural finance, coupled with the taxes imposed by the authorities in Egypt during various eras, has always been a gateway to further exploitation for the majority of farmers, who have always resorted to borrowing from traders, usurers, and later banks.
We cannot talk about the issue of farmers’ debt in Egypt and understand its dimensions except by going back and tracking the farmers’ situations, conditions, and priorities of agricultural production, the emergence and development of the banking system, and above all the form of political power in one era or another.
The commitment system established by the Ottomans and the taxes and revenues it brought were not satisfactory to Muhammad Ali Pasha (1805-1848), nor did it meet his expansionist ambition, which required building a strong army, establishing a modern industry, and pushing him to search for sources to increase income. He turned Egypt into a large cotton field to export to European countries, after taking over the land from the original owners and putting them under his direct administration.
David Landez says in his book “Bankers and Pashas”:
“Almost all the villages in Egypt have turned into large government farms and the farmers turned into a serf. He sowed what was ordered and he was ordered at any given time and then gave what he harvested to the government. He could not sell his crop, but he was forced to give his crop to the country at the prices they imposed on him, which also did not cover the taxes imposed on him.”
agricultural finance & taxes has always been a gateway to further exploitation for the majority of farmers in Egypt
The cotton achieved what Muhammad Ali desired; an increase in income. A few seasons after introducing the cultivation of “long-staple” cotton to Egypt, Egypt’s cotton production rose from 650 thousand pounds to 18 million pounds, and the new variety – long-staple, won the trust of Europeans and European ports were overcrowded with Egyptian cotton.
At the end of Muhammad Ali’s reign, the productivity of the main crops on which he relied had deteriorated significantly, in parallel with the collapse of its prices in Europe. The country’s income based on agriculture has fallen sharply, and the Pasha’s industrial projects have come to a relative halt.
The farmers in Egypt suffered from the policies of Muhammad Ali, and tens of thousands abandoned their land, whether for their inability to pay taxes or to escape forced conscription and forced labor, which claimed thousands of lives.
During the reigns of Abbas and Sa’id, especially the latter, the authority loosened its grip on farmers and agricultural lands, thousands of fugitives returned to their lands, growth in Egyptian cotton productivity returned, and prices rose. However, this recovery in the cotton trade only increased the oppression and impoverishment of the farmers.
Farmers’ debts; A history of exploitation
With Muhammad Ali abolishing the monopoly, after pressure from European governments, and granting the farmers the freedom to sell their crops, it was the emergence of a segment of usurer merchants, from whom the farmers were forced to borrow and use their crops as collateral, or sell it in advance, to pay the taxes imposed by the “Pasha” government and cover the cost of agriculture, and feed their families.
The usurers, who were all foreigners, remained a small segment throughout the reign of Muhammad Ali, despite their earnings – the product of loan interests, which, together with government taxes, represented the looting of the revenues of the small areas that were in the possession of the farmers at the time. That segment expanded and its profits grew during the reign of Muhammad Ali’s successors, with thousands of foreigners flocking to Egypt. Dr. Mohamed Medhat Mustafa, in his book “The Origin and Recognition of Individual Ownership of Agricultural Land in Egypt”, states that the interest that foreign usurers received from farmers on loans reached 9% per month, i.e. 108% annually during the reign of Khedive Sa’id.
The banking system in Egypt was made in the second half of the nineteenth century, targeting the farmer and his agricultural production. Mortgage companies and European banks came to the country driven by the boom in the Egyptian cotton trade, as a result of the repercussions of the American Civil War that prevented American cotton from reaching Europe. Many banks and companies have started to establish branches in Egypt.
The Egyptian Arab Land Bank was founded with a capital of 40 million French francs in 1880. The bank provided loans with agricultural land as collateral but gave the bulk of them to large landowners, and as for smallholders, they were loaned by real estate companies, merchants and moneylenders.
With the change of laws and farmers being given the right to mortgage the land in their possession, after taking the first steps to establish individual ownership, the usurers were able to remove large areas of land after the farmers were unable to pay their debts.
According to Muhammad Midhat Mustafa, the area of agricultural land that the hybrid tribunals ruled to be taken from the farmers for debts, amounted to: “22047 acres, in 1883, and in 1884 it amounted to 18148 acres, and in 1885 it amounted to 17828 acres, and in 1886 it amounted to 12969 acres.” In this way, a class of large agricultural landowners was formed from foreign usurers.
The interest that foreign usurers received from farmers on loans reached 9% per month, i.e. 108% annually during the reign of Khedive Sa’id.
In 1902, Mustafa Fahmy Pasha’s government established the Agricultural Bank of Egypt, with the aim of financing agricultural production activities, and the bank has expanded into lending to farmers. However, because of the economic recession that prevailed in Egypt as a result of the decline in the prices of crops globally, in the wake of the economic/ financial crisis in 1907, the farmers could not pay their debts back to the Agricultural Bank, so it expropriated the lands of thousands of small farmers. In his study, “The land, the farmer and the investor… A study in the agricultural and farmers’ issues ” the Egyptian researcher Saqr Al-Nour mentions that the agricultural land seized by the Agricultural Bank from the farmers between 1911 and 1912 were estimated to be worth 1.1 million pounds at the time.
Thus, the agricultural bank treated the farmers the same way as the mortgage companies and itinerant moneylenders who had roamed the villages of Egypt since the middle of the nineteenth century.
The evolution of the Agricultural Bank’s structure and its relationship with farmers
In 1929, the State Agricultural Reserve Institution was established as an extension of the Agricultural Bank, to finance agricultural activity through agricultural advances and loans. Two years later, the government established the Agricultural Credit Bank (Bank Al-Tasleef Al Zira’i), which many studies say played a major role in lending to small farmers at much lower interest rates compared to the benefits of the Agricultural Bank in its first stage of formation.
However, the regulation of the “Agricultural Credit Bank” prevented those who owned the land of agricultural land – who constituted the majority of the farmers at the time – from borrowing except with the approval of the owner, which left them at the mercy of the usurers.
In 1948, the regulation of the “Agricultural Credit Bank” was amended and called the “Agricultural and Cooperative Credit Bank”. The bank expanded the financing of agricultural cooperative societies, especially after the “Free Officers” came to power in the country. In 1961, the Bank forgave all debt interest on agricultural cooperatives.
Despite much writing on the issue of agriculture and political economy, the steps taken by the “Free Officers’ State” (1952) in agrarian reform were never enough, and the first and second agrarian reform laws, which distributed land to small farmers, only touched 20% of the agricultural land at the time. The Free Officers’ State has also deprived a large proportion of farmers/ agricultural workers of land ownership, but this statement, although it represents a large part of the truth, does not negate the improvement in the lives of large segments of the farmers.
Hundreds of thousands of acres of ” Al Izab ” and “Al-Wasaya” lands were also placed under the possession of farmers with permanent leases, and the law enabled them to control their production, and treated them as the owner until it was taken from them by the notorious Law 96 of 1992, known as the “Law Regulating the Relationship between the Landowner and the Tenant in Agricultural Lands.”
In 1964, the Agricultural Credit and Cooperative Bank (Bank Al-Tasleef wa AlTa’aowni) was transformed into the General Egyptian Institution for Agricultural Credit and Cooperative (Al Moasasa Al-Masrya Ala’ama Ll-Eetman Alzira’i wa AlTa’aowni). The Corporation continued to grant interest-free agricultural loans. Loans granted to agricultural cooperatives in 1966 amounted to about 87 million pounds, but starting in 1967 the state returned to collecting interest on agricultural loans, which negatively affected farmers’ willingness to borrow.
In the mid-1970s, the “Egyptian Institution for Agricultural Credit ” was transformed into an entity named ” The Main Bank for Development and Agricultural Credit” and the credit banks of the governorates and villages were transformed into branches.
The Main Bank for Development and Agricultural Credit has adopted two lending systems. The first, called agricultural advances or plant production loans, and is concerned with financing seasonal farming operations for field and horticultural crops, which are small loans at an interest rate of 5% per year.
The second system, called investment loans, was divided into short-term loans aimed at financing existing agricultural activities such as livestock and poultry production projects with short production cycles, and activities related to agriculture, and the loan period does not exceed 14 months. Medium-term loans aimed at financing animal production projects that have a continuous productive nature, such as raising buffaloes, milking cows, beekeeping, and purchasing agricultural equipment and machinery. Long-term loans are aimed at financing land reclamation, well drilling, and modern irrigation systems. The benefits of investment loans of all three types reach more than 20%.
Agricultural Bank and the Policy of Entrapment… The farmer as a “customer”
Since the mid-1990s, the state has accepted the liberalization of the exchange rates of agricultural production supplies, whether it being plant production supplies such as seeds, fertilizers and pesticides, or animal, poultry and fish production supplies such as food and medicines. Although the state continued to intervene to support agricultural fertilizers, this support has not been significant.
The new situation created the liberalization of the prices of agricultural production supplies, and the state almost completely lifted its hand from supporting farmers, in favor of plant production loans (agricultural advances), but agricultural advances were not enough to cover the cost of agricultural operations.
Mr. Ahmed Awadallah, 60 years old, who owns one and a half acres of land in Al-Fashn District in Beni Suef governorate, recalls what happened during the last three decades: “The prices of fertilizers and seeds have risen, and our share of fertilizers have been delayed for more than two months every season, so we have resorted to buying from traders at high prices, and the prices of seeds we receive from agricultural associations have also risen.”
The situation was not only related to the delay of the farmers’ quotas of fertilizers, as Awadallah says, but the quotas were not fully accessible to the farmers, due to corrupt employees. Dozens of investigations have been conducted into cases in which employees of agricultural associations and branches of the Agricultural Bank in villages have been accused of stealing farmers’ fertilizer portions and selling them on the black market.
Awadallah continues: “Agricultural advances were not enough because they were small amounts, so I resorted to investment loans to meet the cost of agriculture, and the fact that I was spending some of it on the needs of the house, the product of selling the crop of an acre and a half was not enough for my four children.”
Seven years after Awadallah continued to borrow, he accumulated the loan assets and interest to reach 80 thousand pounds, while the original amount he started his dealings with the bank was not more than 5 thousand, forcing him to sell 4 carats to pay off his debts before cutting off his dealings with the Principal Bank for Development & Agricultural Credit permanently.
The question is: How does a small debt reach more than 15 times in 7 years?! Even if interest were 20% per year, indebtedness would barely double.
Abdel Nasser Abu Ratib, who owns 5 acres at the district of Etsa in Fayoum governorate, answers us through his story with the Principal Bank For Development & Agricultural Credit: “When I had to borrow from the Agricultural Bank, only a short-term loan, called [fattening calves] was available to me for 6 months, at an interest rate of 17%, which reaches up to more than 20% after calculating the administrative expenses. But when the repayment was due, I could not manage the principal and interest of the loan, and the required amount was 35 thousand pounds, and the bank employee advised me to “turn over” or rotate the loan, and this was the beginning of the disaster. “
The process of “turning over” – rotating loans, as explained to us by Abu Ratib and some of those who testified, is that the bank employee repays the farmer’s loan on paper, meanwhile nothing enters the bank’s treasury. The employee usually does this on Thursday, so he has Friday and Saturday as weekly holidays, to avoid any inspections of the bank, as the regulations require three days between repaying the loan and the disbursement of a new one. Then on Sunday, the employee returns and disburses the same farmer a new loan, which is usually larger, so that he can cover the origin and interest of the old loan and the administrative expenses of the new loan, and what is left is given to the farmer. Thus, the farmer is forced to repeat this process whenever it is time to repay the loan.
Abu Ratib says that he had to rotate several times until he accumulated debts because he could not provide the amount of repayment every time. The loan was not used in actual projects, because of the short duration of the loan, but he spent it on financing the farming process and the needs of his family. The yield of agricultural crops was often low, and the crop was always subject to price fluctuations or damage.
The process of “turning over” loans means repaying the farmer’s loan on paper, meanwhile nothing enters the bank’s treasury.
Ahmed S, a pensioner, acknowledges that when he worked as a director of several branches of the Principal Bank For Development & Agricultural Credit between 2004 and 2017, the process of rotating loans was happening a lot in the branches he managed, but he tries to justify: “The farmer comes at the time of repaying the loan, and he does not have a single pound of the original loan or its interest. It is not reasonable to throw him in prison, so the employees work to facilitate the procedures for disbursing a new loan to him.”
Several years later, the amount owed by Abu Rateb to the Agricultural Bank was more than two hundred thousand pounds, which he was involved with after rotating the loan a number of times, while the amount he started borrowing did not exceed 30 thousand pounds. The Agricultural Bank took legal action on the unpaid loan installments that Abu Rateb signed when disbursing the loan, and the court sentenced Abu Rateb to three years in prison in 2014, so he was forced to sell part of his property to avoid imprisonment.
Agricultural Bank and Lending Directive… Development or Exploitation?
According to the Central Agency for Public Mobilization and Statistics (CAPMAS), the short-term loans granted by the Agricultural Bank to farmers during the fiscal year (2009-2010) amounted to about 4.4 billion pounds, while medium-term loans amounted to 1.5 billion pounds, and long-term loans in the same year did not exceed 8.9 million pounds. During the fiscal year (2015-2016), the gap remained in favor of short-term loans, which in that year amounted to 8.2 billion pounds, while the volume of medium-term loans amounted to 2.8 billion pounds, and long-term loans amounted to 470 million pounds.
Ahmed S. says in his testimony that the policy that has governed the bank throughout its years of service is to facilitate the granting of short-term loans to farmers, complicate medium-term procedures and avoid long-term ones as much as possible. This is because short-term loans have rapid capital turnover, enabling the bank to recover its funds in a short period of time, achieve higher interest and maintain liquidity. As for medium- and long-term loans, the nature of the activities directed to them requires years to complete their productive cycle.
The policies of the Agricultural Bank directed towards short-term lending, and their neglect of medium and long-term lending, have seriously damaged the process of developing agricultural production in all its forms. Medium-term loans are supposed to be directed to animal production projects that have a developmental nature such as raising buffaloes and dairy cows and buying agricultural equipment and machinery, while long-term loans are supposed to be directed to land reclamation operations, drilling wells and agricultural facilities, and modern irrigation systems, to develop agriculture vertically and horizontally, which did not happen.
These policies also affected millions of small farmers who have fallen into the spiral of debt rotation, when they realized that a few thousand pounds borrowed a few years ago had doubled and multiplied, which ultimately forced them to sell part of their land so that they would not be thrown in prison.
Depriving tenants and landless farmers of agricultural land of agricultural finance services has been part of the policies of the Agricultural Bank since its establishment 120 years ago.
“The biggest problem facing union members is that most of them are tenants who do not own agricultural holdings, or who have small agricultural holdings, and they are deprived of agricultural bank loans,” says Hana Abdel Hakim, head of the Small Farmers Syndicate in Samalut, Minya governorate. “They face great problems in financing their agricultural activities, whether it being the cost of rent or the supplies/ requirements of planting operations.”
The Small Farmers Syndicate in Samalut, which started with 60 farmers and has now reached 2,700 members, is trying to overcome the problem of financing by resorting to some civil society organizations that granted the union’s farmers loans with personal guarantee, without requiring the existence of agricultural holdings.
A provident fund founded by the union members also played a funding role, as some members granted small loans, which were used to cultivate areas of land with a cumin crop, and goat herding projects.
Waiving interest and restructuring of the Agricultural Bank
In 2015, government figures indicated that the number of struggling farmers at the Agricultural Credit Bank was 206,960, with a total indebtedness of 4 billion pounds, while tens of thousands of farmers were prosecuted after being sentenced to imprisonment.
The Agricultural Development and Credit Bank was restructured in 2016 after the Egyptian Parliament ratified Law 84, which requires the transformation of the main Agricultural Development and Credit Bank into a public sector bank called the “Agricultural Bank of Egypt” in the form of an Egyptian joint stock company fully owned by the state, and has an independent legal personality, in accordance with the provisions of the Central Bank and the banking system law. That is, it is no longer affiliated with the Ministry of Agriculture.
In 2021, the Agricultural Bank launched an initiative whereby it forgave the debts of a small number of farmers, while it forgave the rest of the farmers’ interest. The Egyptian media portrayed it as a waiver of debt for all strugglers, not just a waiver of interest. However, it was a good step, as some of those who testified on this subject asserted that the waiver of interest on their debts was beneficial, if not a great benefit.
Despite the concerns of many about the new identity and dependency of the Agricultural Bank, after it was separated from the Ministry of Agriculture, things seemed to be improving. The data of the Central Agency for Public Mobilization and Statistics (CAPMAS) indicate a significant growth in the volume of medium and long-term investment loans granted by the Agricultural Bank in recent years. Medium-term loans jumped from 3.5 billion pounds in 2017 to 11.3 billion pounds in 2021, while long-term loans jumped from 466 million in 2017 to 853 million in 2021, while short-term loans remained almost the same, as they recorded in 2021 about 7.6 billion pounds, which is the same as 2017 rates.
The figures indicate that for the first time, medium-term loans are exceeding short-term loans by a significant margin, which means that the Agricultural Bank appeared to adopt a trend in favor of real agricultural development, as medium-term loans are supposed to be directed, as aforementioned, towards more sustainable agricultural projects and activities. However, the volume of long-term loans, despite its growth, is far too small for the development of land reclamation, well drilling and modern irrigation systems to take place.
Despite the optimism that the Central Agency for Public Mobilization and Statistics (CAPMAS) figures convey to us regarding medium-term loans, we cannot be sure whether these loans have benefited small farmers, or that the bulk of them have gone to agricultural investment companies, without disclosing government data on the destinations of these loans, which is not yet available.
The persistence of high interest and the absence of a guidance and oversight role on projects may lead farmers to a spiral of borrowing money and unreal activities to take place without bringing about real agricultural development. Here, we cannot deny the farmers’ own responsibility for the unreal agricultural activities and the fabrication of projects that have nothing to do with reality, with the aim of obtaining loans.
Active social forces and cooperative agriculture
According to the latest statistics issued by the Central Agency for Public Mobilization and Statistics (CAPMAS), the cultivated areas in Egypt are 9.6 million acres, of which about 6.3 million acres are old lands known as “Delta and Valley” lands, which are owned by small farmers and divided into small holdings. The remaining 3.3 million acres fall under new and reclaimed lands, mostly owned by businessmen and agricultural investment companies. The percentage of those working in agriculture is 21% in the labor force in Egypt, which is about 30.3 million people.
While new landowners tend to grow export crops of vegetables and fruits, with the support of the government, which gives them great facilities in both lending systems and export stimulus, the burden of providing a large part of the food falls on small farmers and their production.
A recent report by the Central Bank of Egypt indicates that the total balances of loans provided to bank customers other than the Central Bank recorded 3.348 trillion pounds, of which the share of agricultural activities did not exceed 47.9 billion pounds, while industrial activity accounted for about 452.4 billion pounds, commercial activity for 211.2 billion pounds, and service activity for 454.5 billion pounds, while the rest of the undistributed sectors, which included the family sector, regular people, local non-profit agencies, and foreign agencies operating in Egypt, accounted for 654.1 billion pounds.
Farmers – food producers in Egypt – face many problems, which are intertwined and overlap significantly. The crisis of financing agricultural activities, and the inability of agricultural savings to meet the cost of agricultural production, are closely linked to the fragmentation of agricultural ownership. It is also linked to the inability of farmers to market their crops, their subjection to exploitation from merchants at one time, to price fluctuations in markets at another time, and, above all, to agricultural policies and agricultural financing institutions that have dealt with the farmers in recent decades as a “customer” who must make the largest possible profit from their dealings.
We cannot put our hands on urgent and complete solutions to all these problems. While the agricultural issue needs systematic plans that prioritize the farmer and support his ability to produce food, the country’s policies have for decades prevailed in the concept of “food security” over “self-sufficiency”, as long as they were able to provide food through import, there was no need to produce it. For these trends to change, pressing social and political forces that embrace sovereignty over food must be created.
Solving these problems also requires the organization and formation of blocs of small farmers in associations and unions, and the establishment of agricultural cooperatives, which seek to overcome the crisis of fragmentation of agricultural property, overcome the obstacle of agricultural financing and the accumulation of debt, and contribute to the development of agricultural methods and tools and improve production.
Ahmed Khalifa – Egypt
(This article was translated from Arabic, find the original text on the Link)
Translated by: Noran Samy
References and sources:
1.”Bankers and Pashas” – Davids Landez – translated by Dr. Abdelazim Anis
2.”The Origin and Recognition of Individual Ownership of Agricultural Land in Egypt” – Dr. Mohamed Medhat Mustafa
3.“The land, the farmer and the investor – A study in the agricultural and farmers’ issues”- Saqr Al-Nour
4.Development Bank and Agricultural Credit and Its Potential for Agricultural Sector Development” – Maha Mahmoud Abdel Razek Abu Zeid
5.Central Agency for Public Mobilization and Statistics – Annual Statistical Book (Miscellaneous)
6.Central Bank of Egypt (Miscellaneous Data)
7. Agricultural Bank of Egypt (Miscellaneous)