Financing African Agriculture: Perspective from the Private Sector

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Hans Balyamujura

African Continental Briefing, Yaoundé
3rd to 5th December 2013

Published in: Business, Economy & Finance
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Financing African Agriculture: Perspective from the Private Sector

  1. 1. Financing African Agriculture: Perspective from the Private Sector Hans Balyamujura African Continental Briefing, Yaoundé 3rd to 5th December 2013
  2. 2. Agricultural Finance Challenges … • Limited small scale/smallholder finance. • Limited long term and development finance. • Limited ability to manage agricultural market risk. • Poor appetite for entrepreneurial risk. • Poor integration of value chains. • Some policy environments not strong enough for value chain finance. Regulatory environment too flexible thus poor stability of value. • Value chain finance not compensating for the perceived primary agricultural risk. • The producer still carries the bulk of the risk. 1
  3. 3. Typical Trend with African Imports … One Ship load of razor blades Trucks loads Pick up loads Bicycles loads Rural consumer 2
  4. 4. Missing Piece for Effective Trade … Truck loads Pick up loads Bicycle loads Smallholder farmers 3 Ship load of maize
  5. 5. Limited Access to Agricultural Finance ... Figure 1: The Small Scale Farmers and the Agricultural Value Chains Transport Store Process Food & Energy Input Supplies Commercial Banks Consumer Plant Harvest Produce Growing Crop Store Transport Harvested Produce Commercial Banks Manufacture Agricultural Entrepreneurs Small Scale Farmers (Majority of the African Farmers) Characteristics (Left) • Less risk • Access to multiple financial institutions • Growth among actors is too slow  Limited repeat business (Most are new farmers) Characteristics of the Missing Middle • Activities led by the NGO sector • Individual scale very small • Poor profitability of the smallholder farmers • Lack of adequate security/collateral 4 Characteristics (Right) • Less risk • Access to multiple financial institutions • Limited local supply (size of operations) • Limited local demand (purchasing power) and scale is too small for profitable international export.
  6. 6. Value and Risk along the Value Chain … Figure 2: Perception of Risk in a Non-Integrated Value Chain Financial Solutions Flow of Money Manufacture Transport Store Plant Input Supplies Banking Relationship Produce Harvest Growing Crop Store Transport Harvested Produce VALU RISK 5 E International/ Process Local market Food & Energy
  7. 7. Reliable Value in the Chain ... • Movement of signals along the chain to the front and back Source:www.ebay.co.uk • Storage capacity. Source:www.northerntool.com • Markets (local and international). • Good and effective Logistics. • Strong and effective demand. • Income per capita - Affordability. • Multiple uses of the produce (animal feed, beer, human food, breakfast cereal, etc.). • Is production in line with growing demands of the ‘middle class’ • Well defined policy environment. 6
  8. 8. Value Chain of Financial Services … Figure 3: Small Scale Farmers and the Agricultural Value Chain Hardwood trees Commercial Banks Softwood trees Shrubs Micro Finance Institutions Perennial plants and grasses Farmer/Peer Groups Social Services Annual plants Lichens Farmers Inputs Farmers Logistics/Processor Farmer Group Farmers 7 Market
  9. 9. Value Chain of Financial Services and Farmer Organisations … Figure 4: Farmer Organisations and Financial Services National Hardwood trees Provincial Softwood tress Shrubs Regional Perennial plants and grasses Farmer/Peer Groups Social Services 8 Annual plants Lichens
  10. 10. Addressing Access for the Missing Middle … Focus of activities/Start point Figure 4: Farmer Organisations Lichens Social Services Annual plants Farmer/Peer Groups Regional Provincial National 9 Perennial plants and grasses Shrubs Softwood tress Hardwood trees
  11. 11. Investments to Integrate Value Chain Operations … Figure 5: Aggregation of Activities within the Value Chain Primary Farming Farmer Organisations Inputs Food processing Advisory Manufacture Transport Store Plant Harvest Produce Store Transport Farmer Organisation Investments • Strategic investments (Interests). • No control: Leverage private sector skills (Avoid ownership of technical skills). • Access income across the value chain. 10 Consumers
  12. 12. Thank You Email: Phone: hans@zedgroupza.com +27 83 346 1655 11

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