MANAGING PASSING ON THE GIFT AS A CASH LOAN

LESSONS FROM THE CHINA PROGRAM

(revised 5\8\93)

Pamela Leonard and Chen Naxin

Passing on the gift, where a farmer receives an animal free of charge and then returns one or two of that animal's female offspring to be given to another farmer, has proved difficult to

manage in Sichuan dairy projects. Project managers cite as problematic several tendencies. First, farmers see the gift animal as just that, a gift from overseas to them, a poor farmer, and they do not understand why they should shoulder the burden of returning capital to the project administrators. Second, when they pass on an animal it tends to be in poor health and underfed. Third, they may pretend to have had only male offspring to avoid their obligation. If they were allowed to arrange the pass-on themselves, it is felt that they would likely pass it on to a relative, and this person may not be the most eligible of candidates. This list comes from both the Xuanhan project and the Yaan project.

In Xuanhan, project administrators have developed a way to avoid these difficulties. The system works like this: When they receive the heifer from the HPI project managers, they sign a contract. The farmer provides care for the animal, plants crops for fodder, brings the cow to be bred, does the milking, and pays some technical service fees. The project managers make sure quality grass seeds are made available, select the bull for breeding and carry out the actual breeding work, manage disease prevention and provide a concentrate feed service and milk purchasing service. Originally HPI recipients were given a choice to return an offspring or repay the value of the cow they received. If they choose to return an offspring they were penalized if the calf was underweight. They were also rewarded in the same way if the calf was above the standards set. Because the value of the next generation heifer usually exceeds the value of the original heifer received, the farmers almost always choose to repay the money, for which they are given a three year payment plan. This method has been so popular that the more recent recipients have come to discriminate the HPI cows as different from cows purchased through an IFAD credit program as "the loan with no interest." This difference should not be belittled. Poorer farmers also indicated they would not consider a loan from the government at 9 mil per month, that 5 or 6 mil was possible but required hard thought, but a no interest loan was certainly worth the risk; they would take that.

Before project holders had to work very hard educating farmers as to the aims of HPI and the idea of passing on the gift. Managing the pass-ons as cash has simplified the obligations and thus made such education less necessary, saving time and trouble. At the same time the role of the project manager is clearly defined. They are in charge of inputs and technical assistance. The system provides them with some capital to carry out their role--there is the technical assistance fee and the profit from the feed factory and the milk factory which gives strength to the system and also, more directly relevant, there is the employment in the collective farm where heifers for distribution are reared at a small profit.

There is also another benefit that outweighs all the other benefits in the minds of the project administrators. Managing the gift as a loan is a much faster path to development, reaching more families in a shorter period. With the old method of returning an animal for an animal, one has to wait until the animal matures, gives birth to a female, and that animal then matures -- this could be five or six or seven years before a gift calf has given rise to another productive gift. With the cash system, farmers begin paying the first year and usually finish by the third, and the project can still recoup something when a cow dies without having giving birth to another heifer. This fast and efficient method of using the repayments to buy more cows for distribution is what people here refer to as "rolling the snowball."

On the other hand, there are some disadvantages of this method of passing-on that should be considered. The first is that Passing on the Gift in its original form has a social objective. HPI aims not just to improve wealth in the countryside but also improve the sense of community. In Dr. Robert K. Pelant's booklet on Passing on the Gift he uses a quotation to show how this sense of community and helping others begins with members of a family and then can grow to the village and finally the nation and the world. From this perspective there would be nothing wrong with beginning by passing on to family members, and there is evidence that some of the farmers in Xuanhan really did understand and identify with this higher aim as taught to them in the early classes about HPI.

A second point that should be considered is that this system of loans is more appropriate for livestock that is more capital intensive in nature such as the dairy cow. Dr. Pu Jiabi points out that this kind of system is difficult to develop and make profitable where the cost to an individual farmer of getting started is lower, for example in a rabbit project.

Another problem that can occur when managing the pass-ons as loans is that the raising of certain animals can go in and out of style and at different times be more or less profitable. When a new kind of husbandry is introduced in China, the price rises and rises until it is overextended and then there is an abrupt downturn and presumably an ultimate leveling off. The people who arrive early make good money, but latecomers can loose. Livestock, like anything, can be an uncertain investment. If a farmer receives an animal as a gift and the price goes down or even collapses, he will not be too upset. If he is encouraged by HPI to take a loan and then the price collapses, HPI will be blamed. In Xuanhan the system works well because the dairy business has been consistently profitable.

In Xuanhan the loan comes in the form of a cow. While this is good because the Bureau technician can knowledgeably select cows of good quality, it can also be bad because it limits the age and breeding of what is available to farmers in need and keeps the burden of management centralized in the hands of the project holders. Thus farmers who wish to participate may be restricted to buying a heifer which has reached the breeding age or to buying a purebred holstein. The heifers provided by the project managers, in some cases, may be more tailored to satisfying the objectives of the Bureau of Animal Husbandry's objectives than to the interests of the farmers most in need of assistance.

For example, in Xuanhan, because of a great range in local conditions, there is also a variance in what is thought to be the ideal family cow. Some farmers identify the cow that can produce 30 jin (15 kg) of milk and still plow land as their ideal. Given that the current breeding program is to breed all local cows to purebred Simmental or holstein bulls, this means an F2 or F3 crossbred likely meets this ideal. Other farmers have enough cash to buffer themselves and see the extra cash gains of keeping a purebred as worth the risks. There is no current program to stabilize an F2 or F3 type crossbred, although the bureau recognizes the desirability of this type for some farmers. The Bureau and the factory prefer to promote holstein purebreds; although the capital required is higher for both purchase and maintenance, the higher milk production achieved increases factory profits. Adult holsteins are being imported for 5000 yuan apiece; F3 crossbreds are locally available for 2000 yuan. And in a similar way, a farmer may prefer to receive a cheaper, immature calf and rear it himself whereas the project may limit him to the purchase of an older, more expensive breeding-age heifer.

I asked a farmer who received a full grown crossbred for 1200 yuan how he would feel about a program that gave him an immature calf which he would raise to maturity and in return he would have to give a healthy female calf to another farmer. He said "ah, that sounds great. Where do I sign up for this program? I could have saved a thousand yuan this way." China's farmers are notable for their desire to go to great lengths and work very hard in order to avoid spending cash. I then asked him to whom he would give that calf, and he replied, "a poor farmer of course! I attended the classes and know what HPI is about."

While this story gets to the heart of drawbacks of the system, it must be emphasized that there can be no question that the system of loans increases the number of farmers reached and the efficiency of the program overall. It is a question of tradeoffs and prioritizing project aims. Of course there are a number of middle paths, too, and the project in Xuanhan is currently experimenting, ever trying to do better.