Agricultural finance for sustainable systems

Dossier

 

Betty Wampfler's viewpoint

Betty Wampfler advocates a systemic funding approach tailored to the family farming environment in ACP countries, which she feels is currently the only effective way to address agricultural finance issues.

How and in what way does technology change farming community access to finance?

Currently, 80-90% of agricultural production in developing countries is from family farms, which in turn are highly varied, particularly in terms of access to technology. In Africa, the digital divide is very broad and farmers are the first to be excluded, especially the poorest. In this setting, technology is not a way of life for many family farmers. Digital market information systems are available in some areas, but only the most well off farmers have access to this technology. Stakeholders do not seem to have much experience with digital agricultural finance in the areas where I work. This technology is somewhat more developed in Eastern Africa, but its dissemination is still very slow. In my view, these isolated initiatives are amplified by major communication campaigns, thus giving a false sense of widespread adoption and implementation.

Betty Wampfler is Professor of Development Economics at Montpellier SupAgro and researcher in CIRAD’s Markets, Organizations, Institutions and Stakeholder Strategies Joint Research Unit

Betty Wampfler is Professor of Development Economics at Montpellier SupAgro and researcher in CIRAD’s Markets, Organizations, Institutions and Stakeholder Strategies Joint Research Unit

Delamette

Should agricultural finance be redefined with less focus on microfinance?

We all agree that agricultural finance is difficult and risky, so current thinking points towards value chain finance as an effective solution. This involves tripartite contracts between large-scale farmers (or farmers grouped in organisations), a financial institution and a big buyer. The buyer pays the farmer via the financial institution which, after granting the farmer a loan, can then levy the loan repayment directly at the source. Value chain finance is far from being an innovation – it has existed for over 30 years and has helped in the development of major agricultural sectors and agricultural modernisation techniques, such as animal draught. This system has the advantage of reassuring financial institutions with regard to agriculture, but does not solve all of the problems. It is based on contractual relations that are hard to uphold in a fragile institutional environment. Moreover, family farms combine different types of interlinked production, so only funding one type of production via value chain finance will really not solve the overall problem of financing farms and farming households, and could even lead to serious problems (as clearly demonstrated by the historic loan default crises in the cotton sector).

Value chain finance can now be an effective tool but must be backed by family farm finance. Microfinance and its networks of local agents, together with the banks that hold the capital, can adapt to the systemic nature of family farms.

Agricultural finance systems are currently quite disjointed. How could this problem be solved?

This disjointed situation actually concerns microfinance institutions that have access to farmers but lack adequate financial resources (in terms of volume and medium- and long-term duration), and also banks that are in an excess liquidity situation but have limited access to farmers. There is a real need to think in terms of sustainable agricultural finance systems while incorporating the different options and striving to strengthen the skills of all stakeholders – farmers, financial institutions, support providers (extension agents, NGOs, etc.). We are working in this direction in West Africa with Montpellier SupAgro and various partners, especially in the AGRI+ programme in Burkina Faso and Mali.

Are you aware of any agricultural finance success stories involving large-scale agrifood businesses?

Given the very strong demand for high quality cocoa, large processing companies have focused on building cocoa farmer loyalty via the provision of finance services – credit for production, insurance, consumer credit, or even credit for child education, etc. We were asked to support one of these initiatives as a good overall understanding of the functioning of farm households and agriculture is essential for this to work.