Hi Mike, thanks for this blog and Simon for the valuable comment.
I would like to focus on staples and make a distinction between farmers that produce for a known market and farmers that do not. For the second category, AGRA focuses on making farmers more resilient to shocks (market, income, weather). Giving farmers credit is in that case not part of the priorities because a crop or market failure will mean over-indebtedness and farmers becoming more vulnerable. Instead we have focused on improving uptake of insurance against weather hazards, digital payments to reduce risk of using cash, more rural touch points (agency banking, mobile money agents) to reduce cost of financial services delivery and prepayment or lay away schemes to help farmers manage their cash flows better.
For farmers that do produce for a known market we look much more at how the SMEs that benefit from that market can partake in the risk and costs of producing crops. SMEs like seed and fertilizer companies, input dealers, aggregators and processors all have an interest in crops being produced. So they should carry part of the risk of financing that crop production. If risks of crop production is shared only between a smallholder farmer and a financial institution, the economics will never work : agricultural production is too high risk - low margin business so we need all actors along the value chain to share costs and risks to produce the crops that are essential to their businesses. Green grocers, maize millers, input dealers, fertilizer companies, they are all out of business if there is no agricultural production, so let them co-invest in the value chain alongside farmers and financial institutions.
This idea is not new and already happening but I often see too much focus on getting finance to farmers while I think farmers need inputs and markets which come from SMEs. So my take is more focus on agri-SME finance, risk sharing among value chain actors and understanding of the agricultural sector by financiers.
Hi Mike, thanks for this blog and Simon for the valuable comment.
I would like to focus on staples and make a distinction between farmers that produce for a known market and farmers that do not. For the second category, AGRA focuses on making farmers more resilient to shocks (market, income, weather). Giving farmers credit is in that case not part of the priorities because a crop or market failure will mean over-indebtedness and farmers becoming more vulnerable. Instead we have focused on improving uptake of insurance against weather hazards, digital payments to reduce risk of using cash, more rural touch points (agency banking, mobile money agents) to reduce cost of financial services delivery and prepayment or lay away schemes to help farmers manage their cash flows better.
For farmers that do produce for a known market we look much more at how the SMEs that benefit from that market can partake in the risk and costs of producing crops. SMEs like seed and fertilizer companies, input dealers, aggregators and processors all have an interest in crops being produced. So they should carry part of the risk of financing that crop production. If risks of crop production is shared only between a smallholder farmer and a financial institution, the economics will never work : agricultural production is too high risk - low margin business so we need all actors along the value chain to share costs and risks to produce the crops that are essential to their businesses. Green grocers, maize millers, input dealers, fertilizer companies, they are all out of business if there is no agricultural production, so let them co-invest in the value chain alongside farmers and financial institutions.
This idea is not new and already happening but I often see too much focus on getting finance to farmers while I think farmers need inputs and markets which come from SMEs. So my take is more focus on agri-SME finance, risk sharing among value chain actors and understanding of the agricultural sector by financiers.