Financing African Agriculture: Perspective from the Private Sector
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The document discusses challenges in financing African agriculture and opportunities for private sector involvement. It notes limited smallholder finance, long-term development finance, and ability to manage agricultural risk. Typical African imports are met by many small shipments rather than bulk imports, representing a missing link between smallholder farmers and international trade. The value chain is also not well integrated, with smallholder farmers bearing most risk. Opportunities exist in better connecting smallholders to markets through farmer organizations and aggregating activities across the agricultural value chain. This could help address the "missing middle" and improve access to finance for smallholder farmers.
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Financing African Agriculture: Perspective from the Private Sector
- 1. Financing African Agriculture: Perspective from the Private Sector Hans Balyamujura African Continental Briefing, Yaoundé 3rd to 5th December 2013
- 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. Typical Trend with African Imports … One Ship load of razor blades Trucks loads Pick up loads Bicycles loads Rural consumer 2
- 4. Missing Piece for Effective Trade … Truck loads Pick up loads Bicycle loads Smallholder farmers 3 Ship load of maize
- 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. 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. 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. 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. 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. 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. 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. Thank You Email: Phone: hans@zedgroupza.com +27 83 346 1655 11