Limited access to adequate financing is one of the key inhibitors to achieving long-term sustainability for Africa’s agricultural practitioners.
This is especially impeding particularly to smallholder and subsistence-level farmers who typically must resort to borrowing from community members or pooling resources together to make ends meet.
John Deere Financial Managing Director in Johannesburg, Antois van der Westhuizen, says this is partly why the traditional reliance on grant funding from government sources or NGOs has not succeeded in creating real agricultural productivity gains on the continent. It has simply been too limited in scope.
“There is a real need to unlock financing for small-holder farmers to give them access to mechanisation and other technologies. But, there is no use in helping them buy a tractor and then they don’t have money to buy seed and fertilizer.”
He adds that Africa’s farmers require a holistic financing solution that focuses on the entire agricultural value chain.
Van der Westhuizen says relying on commercial banks to solve the problem also has its limitations as their regulatory and fiduciary duties require them to adopt a risk mitigation strategy.
By its very nature, the regulations limit the potential scope of clients to larger organisations with established track records.
While this makes sound commercial sense, it doesn’t necessarily achieve broader policy objectives of developing agriculture for food security, job creation and community welfare reasons.
“For a bank, the risk profile of a commercial farmer is vastly different to that of a smallholder farmer. It makes more sense for them to lend to the end-customer of a group of smallholder farmers than each individual smallholder,” says van der Westhuizen.
He adds, “If you’ve got a community of smallholder farmers growing barley for a brewery then it makes more sense for the bank to lend to the brewery who can then on-lend to the smallholders.”
In Africa, smallholder farmers account for between 70% and 80% of agricultural output, which is often insufficient to meet the continent’s nutrition requirements.
This results in countries having to import food from abroad, often from heavily subsidised markets like the European Union, which makes it difficult for domestic farmers to compete on price.
This results in a situation in Africa, which is home to roughly 60% of the world’s available arable land, being regarded as a food insecure continent.
This is partly due to the lack of access to mechanised solutions such as irrigation equipment meaning as much as 90% of the smallholder farmers on the continent still rely on rain to water their crops.
Improved farming techniques, access to better seeds and other mechanised equipment could further boost agricultural yields.
In contrast to what is the norm in Africa, there are about 32,000 commercial farmers in South Africa of which between 5,000 and 7,000 are responsible for producing roughly 80% of the country’s agricultural output.
South Africa is a highly mechanized country in agriculture which has made it possible to produce adequate food for the country’s population.
This is unlike several African countries where they are forced to import food every so often to plug deficits occasioned by either the weather elements like inadequate rain, drought or by pests.
The country was ranked 44th out of 113 countries making it the first on the African continent.
South Africa improved its performance while global performance dropped for the first time in five years. The improvement was despite the drought in 2016 during which the country produced half of its requirements according to Paul Makube, an agricultural economist at FNB.
The country has among the best food safety net programmes which are public initiatives meant to protect the poor from food-related shocks.
In 2018, South Africa dropped one rank to 45th out of the 113 countries on the GFSI.