Agricultural Finance: The Value-Chain Approach

Agricultural Finance

A historical review of trends reveals that agricultural finance was and remains a major setback to agricultural development in Nigeria. This article, therefore, seeks to create an understanding of the gap that exists in financing agriculture and proffers the value-chain financing approach as a sustainable solution that enables a functional food system in the country.

The state of agricultural finance in Nigeria

While farmers complain of not being adequately catered for by the government, the media is often awash with government led agricultural initiatives lending financial support to farmers across the country. The government has also continued to reiterate that despite its support towards improving agricultural development through improved credit provision and other lending initiatives, very few farmers have leveraged on these opportunities to access the much needed funds for improving efficiency and productivity in their farming business.

On the part of the private sector, the report is near the same, as quite a number of private sector operatives believe that insufficient capital is not the problem. Rather, the problem is perceived to hover on the existence of too many “uninvestable” farming businesses that lack a sustainable management structure. Recommendations by investors suggest the need for farmers to project their businesses in a better light. This can be achieved by maintaining and providing evidence of a good business track record as well as ensuring transparency in the process of execution. Also, taking advantage of collaboration opportunities through cooperatives is critical to gaining the trust of investors.

The challenge of agricultural finance in Nigeria

The previous section identified lack of sustainable structure and lack of trust by investors as some major challenges of financing agriculture in the country. In addition to these, Famogbiele Akinola in a research on the challenges of agricultural finance in Nigeria, stated that providing finance for agriculture cannot perform the magic of overturning the economy, considering that factors such as corruption, policy inconsistency, commodity marketing boards, lack of storage facilities and inadequate insurance cover remain major challenges.

Little wonder a closer look at government interventions clearly reveals that despite the government’s continued intervention, not much impact is felt. Concisely, despite interventions being rolled out, it is rather unfortunate that in agreement with Famogbiele’s thoughts, there are foundational problems that will continue to submerge the government’s efforts. This thus, calls for new and improved strategies that would ensure that solution-driven undertakings by both the public and private sector create the required impact over time.

The Value-Chain Approach

The World Bank estimates that the value chain approach to agricultural financing will lead Africa’s agribusiness market to a reach of about US$1trillion by 20304.  It is an innovative and proven approach that addresses problems associated with cost of financing, efficiency, and meeting the value-added needs of consumers especially at a time when more consumers are focused on value-for-money.

An Agricultural Commodity Value Chain or Agricultural Value Chain (AVC) refers to a set of actors and activities involved in bringing an agricultural commodity through different value-adding processes to the table of the final consumer.  

Agricultural Value Chain Finance (AVCF) on the other hand refers to the flow of funds to and among value chain actors, that is, the links or players that make up a particular value chain. It can also be described as all products, financial, and support services flowing through a value chain to address problems peculiar to it. Amongst other benefits, AVCF is:

  1. A sustainable approach that considers the unique complexities of transforming agricultural commodities from “farm to fork”;
  2. It promotes resilient food production systems against the back-drop of evolving challenges;
  3. It creates value for money;
  4. It also addresses both sides of demand and supply, thus, ensuring farmers have ready access to resources required to produce and market high valued products demanded by consumers consistently;
  5. It puts away the blanket system of funding agricultural activities and addresses specific challenges, and as such, it is considered a more focused and result-oriented approach to agricultural development.

It is noteworthy that the sustainability of the AVCF is hinged on the following strategies;

  • Getting the input factor right: Good quality inputs are the foundation for improving agricultural productivity and profitability. These inputs include seeds, farm machinery, fertilizers, and other agrochemicals. The place of healthy soils is also salient.
  • Warehousing approach: the warehousing approach as an instrument in value chain finance is not common in Nigeria. This approach protects farmers from price crashes during harvest seasons by preserving value until off-season when they can trade-off their commodities at higher profit margins. Also, inventory of the stored commodity can be used to guarantee loans from financial institutions.
  • Strengthening technical capacity of actors: knowledge they say is power. In achieving food security, a forceful infusion of human resources is required because human capacity building is key to efficient food production and rural development.5

Other strategies include technological infusion, synergizing activities with current research findings, standardization, the involvement of women and youths, as well as incorporating insurance similar to the model adopted by the incentive-based risk-sharing systems in Nigeria, Ghana, Rwanda and Kenya.6

References

  1. FAO, IFAD, and ILO (2010): Agricultural Value Chain Development: Threat or Opportunity for Women’s Employment. Gender and Rural Development Policy Brief #4. http://www.fao.org/3/i2008e/i2008e04.pdf
  2. IFAD (2012): Agricultural Value Chain Finance Strategy and Design. A Technical Note produced by the Calvin Miller for International Fund for Agricultural Development (IFAD)
  3. FAO (2010): Agricultural Value Chain Finance: Tools and Lessons. A book compiled by Calvin Miller and Linda Jones, and published by the Food and Agriculture Organisation of the United Nations and Practical Active Publishing.
  4. Evbuomwan .G. and Okoye, L. (2017): Agricultural Value Chain Financing and Small Scale Farmers in Nigeria: The Pre-Requisites. Journal of Social Development, Vol. 6, Pp. 47 – 57. https://www.researchgate.net/publication/321189151_Agricultural_Value_Chain_Financing_and_Small_Scale_Farmers_in_Nigeria_The_Pre-Requisites/citation/download
  5. Chikaire, J. U., Ani, A. O., Atoma, C. N., Tijani, A. R. (2015): Capacity Building: Key to Agricultural Extension Survival. Scholars Journal of Agriculture and Veterinary Sciences, Vol. 2(1A), Pp. 13 – 21
  6. FAO and AFRACA (2020): Agricultural Value Chain Finance Innovations and Lessons: Case Studies in Africa. Rome. http://www.fao.org/3/ca6345en/CA6345EN.pdf

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