While an earlier article talked about value chain financing (VCF), the key question of relevance is what can be done in a practical sense to re-engineer financing of agriculture through VCF, especially in the Covid-19 era?
For this, financial inclusion of agriculture through VCF should not be merely viewed as enhancing access to finance for primary producers in an agriculture value chain, but rather, it must be seen as a broader intervention that can (a) help create better and enabling infrastructures in the chain (investment credit); (b) enhance competition among various stakeholders and increase choice within the chain (competition enhancing finance); (c) reduce vulnerability of producers (marginal, small and primary producers) and increase their staying/bargaining/negotiating power vis-à-vis other actors in the chain (vulnerability reducing finance); (d) act as a catalyst and stimulate access to productivity-enhancing technology and practices (technology adoption finance); (e) facilitate small/marginal and other primary producers to get better returns/rewards through better access to business development services including markets (market access enhancing finance); (f) enable product, process, functional and channel improvement/upgrading in the chain, which is critical (product/process innovation enhancing finance); and/or (g) address other constraints/challenges that small and marginal producers face and the like.
In practice, such a broader outlook about VCF and sustained financial inclusion (for agriculture) is likely to enable achievement of the larger development objectives such as ensuring inclusive growth in a more effective manner—an aspect so very vital during the COVID-19 era, which is seeing significant exclusions. Clearly, the time is ripe now to get the real avatar of VCF to drive a billion dreams (or more) in agriculture.
Some of the specific aspects that such an approach could focus on with regard to such agriculture financing, especially in the COVID-19 era, are given below:
- Repositioning agriculture and rural life: This calls for priority focus on access to finance in agriculture in terms of investment credit, risk mitigation products and finance for infrastructure, including watersheds, extension services, quality inputs, standardization and the like, apart from and most importantly, finance for marketing of agricultural produce.
- Promoting innovation, competitiveness and growth of agribusiness: Competition-enhancing finance for players in various agriculture supply chains (mainly middle level) and especially for other kinds of intermediaries (like producer organizations). This apart, there could be specialised financial arrangements for the re-structuring of such supply chains, which have been disrupted due to COVID-19.
- Strengthening agricultural health and food safety systems: It is critical to do this in terms of inputs, processes and infrastructure and ensure that various standards are adhered to. Finance for infrastructure is important here and offers a great opportunity again during the COVID-19 era. This is an aspect especially dictated by the fact that future threats to human civilization are more likely from the zoonotic spillover of viruses (the spread of pathogens from non-human mammals to humans).
- Introducing appropriate technology and innovation for the modernization of agriculture and rural life: Again, innovative financial products can play a major role here in bringing technologies from lab to land in a successful manner and facilitating their wide-scale adoption by small producers and farmers.
- Strengthening existing agricultural and rural communities: Enhancing the staying, negotiating and bargaining power of small and marginal farmers is going to be critical. Thus, finance for reducing the vulnerability and risks of small producers would be most useful, and this alone will enable them to participate fully as stakeholders and demand and get their due. This would include a range of post-harvest financing arrangements, including warehouse receipts.
As several stakeholders have argued, agriculture is at crossroads, especially at the time of COVID-19, and a major challenge is to reverse the present trend of slow-medium growth in most developing and emerging country contexts, including India. The strategy would be to push agriculture in the high growth path/trajectory—something which is eminently possible now because COVID-19 has impacted (densely populated) urban centers more than rural areas.
The key seems to be to provide an integrated set of services, including access to financial services including credit, access to market, value adding technology, training, access to machinery, storage facilities including warehouses and cold storage, access to extensions, processing facilities and quality control.
Partnership between public, private sector companies/organizations and, most importantly, communities, is needed to provide these integrated services in a seamless fashion at scale and profitably—this is what I would call public-private-community partnerships (PPCPs) as opposed to public-private partnerships (PPPs). PPCPs have a greater chance of succeeding than PPPs as the experience of the last decade has shown.
Overall, any efforts towards financial inclusion in agriculture (especially in the COVID-19 era) must strive to improve the bargaining power of smallholder producers, while also reducing the transaction costs for intervening stakeholders through promotion of truly democratic producers’ groups, associations and cooperatives. Small producers will be able to effectively participate in the changing markets and establish links with new market actors (agribusiness companies, processors, exporters, chains, etc.) only when they have access to basic infrastructure, quality inputs and various services, they are organized and most importantly, empowered in terms of bargaining and staying power. All of this requires quality, innovative and vulnerability-reducing financial services of a sufficient scale, and not just the traditional micro-credit or conventional agriculture financing.
Furthermore, there is a clear need to look closely at most, if not all, agriculture value chains (in every context) from the primary producers’ perspective and re-engineer financing arrangements to enable and facilitate a wide range of innovative financing solutions that can reduce the vulnerability of the primary producer. I hope that the concerned ministries and stakeholders, including the ministries of finance, ministries of agriculture, central banks and other stakeholders in the respective countries take up this task on a war footing, if they are serious about fighting poverty and ensuring that there is inclusive growth for millions of low-income people (especially, small and marginal farmers) and that their dreams are powered for a strong, resilient and sustainable future in line with UNSDGs[1] #1, 1.3 and 10.
One final point is in order here. The way forward for agriculture is “smart agriculture” that combines crucial (good) elements of low external input sustainable agriculture (LEISA), eclectic financing of agriculture, especially through vulnerability reducing and bargaining power enhancing financial products and information technology. If this is done, along with the financing of all stakeholders in a variety of agriculture value chains, it won’t be long before we realise the true potential of agriculture that can go a long way in alleviating the problems caused by COVID-19.
In summary, the aforementioned broader outlook about VCF (especially for agriculture) is likely to enable achievement of the larger development objectives such as ensuring inclusive growth in a more effective manner. Furthermore, the time is now ripe to get the real avatar of VCF to drive a billion dreams (or more) in agriculture. COVID-19, which is still devastating urban centers, has left us with no real option. And most importantly, given the burgeoning demand for agriculture and wellness products, it is seeming prudent to afford greater attention to agriculture as it can eminently drive economic revival in the COVID-19 era.
The writer is a board member of the Financial Inclusion Advocacy Centre (FIAC), Ghana and UK, is author of 14 critically acclaimed books. Ramesh also provides strategic advice on a wide variety of Financial Sector, Financial Inclusion and Economic Development issues. He can be contacted at [email protected] and +919962815615 & locally on 0302-908-640.
[1] UNSDG = United Nations Sustainable Development Goals
