Ensuring food security in Sub-Saharan Africa through sustainable agribusiness financing

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By Yaw NJORGNAB

In 1996, the World Food Summit (WFS) defined food security as a state where all people, at all times, have physical and economic access to sufficient, safe, and nutritious food that meets their dietary needs and food preferences for an active and healthy life.

This definition highlights four crucial dimensions of food security: physical availability of food, economic and physical access to food, food utilization, and the stability of these three dimensions over time.

Physical availability of food pertains to the supply side, dictated by the level of food production, stock levels, and net trade. The availability of food hinges on the efficiency and productivity of the agricultural sector.

Access to food is influenced by the population’s income levels, expenditure capacity, and market prices. Ensuring access requires that individuals have the means to purchase food or grow their own, thereby achieving food security.

Food utilization refers to the body’s ability to make the most of the nutrients in the food consumed. Proper food utilization depends on adequate energy and nutrient intake, which results from good feeding practices, food preparation, dietary diversity, and equitable intra-household food distribution.

Stability encompasses the continuous access to adequate food. A person is considered food insecure if they cannot consistently access sufficient food due to factors like adverse weather, political instability, or economic challenges.

Despite global efforts, food security remains a critical issue in Sub-Saharan Africa. As of 2023, an estimated 239 million people, approximately 20% of the region’s population, suffer from extreme hunger and food insecurity, according to the World Food Programme (WFP). This alarming statistic underscores the severe impact of recent crises, including the COVID-19 pandemic, the Russia-Ukraine conflict, and political instability in various African nations such as Mali, Niger, and Burkina Faso.

Global developments have increased the urgency of food security particularly is regions such as Sub-Sahara Africa where countries are most vulnerable. Sustainable agribusiness financing is vital for addressing food security challenges, fostering economic growth, and enhancing climate resilience in Sub-Saharan Africa.

According to the United States Agency for International Development (USAID), there is an annual unmet demand of approximately US$11 billion for financing small and medium-sized enterprises (SMEs) in the region. This gap affects three-quarters of agri-SMEs, which struggle to access formal bank financing.

Financial institutions, including banks, insurance companies, and development finance institutions (DFIs), play a crucial role in supporting agribusinesses. Their contributions include access to finance through the provision of loans, credit lines, and investment capital, enabling agribusinesses to expand operations, invest in technology, and improve productivity. Financial institutions also offer risk management services through insurance products that help protect agribusinesses against risks such as crop failure, weather events, and market fluctuations, ensuring sustainable growth. They also provide technical assistance, offering training and advisory services to help agribusinesses enhance their financial management, adopt best practices, and improve overall business acumen.

Value chain financing, where financial institutions support the entire agricultural value chain from input suppliers to processors and distributors, ensures a resilient and efficient system. Collaboration with research institutions and development agencies promotes innovative solutions like digital payment systems and climate-smart financing.

Despite their critical role, financial institutions face several challenges when financing agribusinesses. One of the primary challenges is the high-risk perception of agribusinesses due to weather volatility, market fluctuations, and production uncertainties. Additionally, there is a lack of standardized frameworks for evaluating agribusinesses, complicating the assessment of their creditworthiness. The nature of agribusiness operations often limits their ability to provide traditional collateral, reducing access to loans. The dispersed nature of farms and varying crop cycles also contribute to higher transaction costs for financial institutions, further compounded by the seasonal nature of agricultural cash flows, necessitating flexible financing options.

It is critical that countries in the sub-region find innovative ways to bridge the substantial financing gap to enable agribusiness growth and productivity. Holistic support for the agricultural value chain ensures a stable food supply. Sustainable financing supports investments in technology, infrastructure, and inputs, leading to increased food production. It also affords capacity building to improve financial literacy and business skills, contributing to sustainable food production.

Several collaborative initiatives and innovative approaches have been developed to support agribusiness financing in the region. The World Bank Group provide credit lines, risk-sharing facilities, and technical assistance to improve access to finance for SMEs in the agricultural sector.

Fintech initiatives leverage digital platforms, mobile banking, and innovative payment systems to enhance access to finance for farmers and agribusinesses. Banks and other financial institutions have also developed programs offering small loans to underserved communities, empowering farmers to invest in their businesses. Though governments in the region have made some level of interventions around supporting agribusiness and ensuring food security in Sub-Saharan Africa, these efforts have been politically stained hence barely yielded the needed results in ensuring food security.

The future of sustainable agribusiness financing in Sub-Saharan Africa is marked by several trends and challenges. One critical trend is the rise of digital payment systems, which enhance financial inclusion and streamline transactions.

Investments in climate-resilient practices and sustainable supply chains are gaining momentum in the agriculture sector and are likely to inform decision-making relative to financing. Efforts to reach smallholder farmers and women-led enterprises are also crucial to bridging the financing gap and achieving inclusive financing.

To enhance food security through agribusiness financing, stakeholders including governments should consider designing products and initiatives that meet the unique needs of agribusinesses, including long term funding with flexible repayment terms as well as seasonal loans. They must also focus on financial literacy and business management training for farmers. Collaborative efforts to strengthen the value chains in the agric-sector and encourage agribusinesses to adopt climate-smart technologies and efficient resource use are essential.

Collaboration and a holistic approach are essential for achieving food security and promoting economic growth in Sub-Saharan Africa. By addressing the financing gap, managing risks, and fostering innovation, stakeholders can build a resilient and sustainable agricultural sector that ensures food security for all.

Yaw is the Relationship Manager, Agri Business, Business and Commercial Banking, Stanbic Bank Ghana

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