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Feeding prosperity: the power of accessible finance in agriculture  

Jon Rhymes, Head of Origin Digital.
Jon Rhymes, Head of Origin Digital.

Jon Rhymes, Head of Origin Digital, outlines how technology is transforming the landscape of agricultural credit provision.

  • Smallholder farmers, who operate over 80% of the world’s estimated 608 million farms, play a pivotal role in global food security. 
  • Historically, access to credit has posed a significant challenge for small-scale farmers in Sub-Saharan Africa, with the financing gap standing at a staggering $74.5 billion. 
  • Technological innovations are enabling lenders to give farmers improved and faster access to credit, significantly improving their productivity, profitability, and sustainability.  

Having access to credit is the biggest driver of improved crop yields among the smallholder farmers who operate the vast majority of the world’s farms, but providing this finance has long been a challenge.

Now, however, technology that offers precise and efficient field-level intelligence in remote locations is transforming the landscape of agricultural credit provision. In doing so, it has the potential to release billions of dollars in financing to boost both the sustainability and security of global food supplies.

Smallholder farmers play a crucial role in global food security and sustainability

As global demand for food increases and environmental concerns escalate, the world is faced with a pressing conundrum: how to sustainably feed an estimated 9.7 billion people by 2050 while mitigating the impact of climate change on agriculture and the impact of agriculture on climate change?

At current crop yield levels, projections indicate that to feed this population we’d need to convert an area the size of Germany and India combined into additional farmland, much of which would likely come from deforestation and other forms of habitat loss.  

In search of a solution, eyes are now turning to Sub-Saharan Africa, a region blessed with vast agricultural potential yet still lagging in terms of productivity. With nearly a quarter of the region’s GDP derived from agriculture and 40-50% of the working population employed in the sector, helping smallholder and medium-sized farmers to improve their crop yields is key to relieve land-use pressure and improve food security both locally and globally.  

To meet the needs of the region’s growing population, the International Food Policy Research Institute (IFPRI) says that an additional 200 million tons of food will be needed annually by 2050, underscoring the crucial contribution of smallholder farmers, who operate over 80% of the world’s estimated 608 million farms. 

Producing so much extra food while protecting wild spaces from conversion into farmland will require these farmers to achieve significantly higher average yields. According to the International Fund for Agricultural Development (IFAD), the biggest driver for smallholder farmers’ productivity starts with effective access to credit. Then they require technical assistance and market opportunities. With these resources in place, the International Monetary Fund projects that typical wheat and maize yields could increase fourfold.  

The challenge of providing credit to smallholder and medium-sized farmers 

For the finance sector, providing accessible credit to smallholder and medium-sized farmers is already a well-recognised opportunity, yet there remains a big catch. Risks can be high and farm business data is hard to validate, particularly in remote locations, so the availability of appropriate financial products is often low.    

Consequently, the financing gap for smallholder farmers in Sub-Saharan Africa is a staggering $74.5 billion, with 83% of need unmet, highlighting the untapped potential to improve productivity in the region. Looking ahead, the agricultural market in Sub-Saharan Africa is projected to grow to a value of $1 trillion by 2030, driven by factors such as population growth, rising incomes, and increasing urbanisation. 

Providing credit to smallholder and medium-sized farmers has long been a challenge. Not only is there often no independent, reliable data that can be used to verify historical land productivity and therefore assess credit risk in the absence of collateral, but smaller farmers are often more vulnerable to shocks that may occur during the growing season such as extreme weather events or pest outbreaks – both of which are becoming more common due to climate change.  

Even larger farms can struggle to access financing. Daan Du Plessis, Managing Director of For Farmers East, a South African micro-cooperative, recently explained to me that obtaining credit had been a huge challenge when he took on a 2,000 HA operation of wheat, soya beans and potatoes.  

Ag-tech can unlock lending

Fortunately, the agriculture sector is on the verge of a major transformation, thanks to the fusion of geospatial imagery, predictive AI, and agricultural expertise. This scalable technology is especially relevant than in the provision of credit.  

Accurate, sophisticated, remote-sensed predictive tools now exist that offer field-level intelligence on crop types, plant dates, productive area, and yield. Importantly, these capabilities remove the need to visit a farm or rely on farmer-provided information, greatly accelerating and supporting the analysis of financial status and creditworthiness at farm level.  

Deploying these tools means that lenders’ in-house finance teams can assess the economic performance, potential and risk of non-collateralised credit applicants far faster and more cost effectively than has ever been possible. This has the potential to unlock new categories of lending to smaller farmers, solving the trust, cost and reliability issues that have always been blockers.  

Transforming the way lenders serve their farming customers

Progressive banking executives in the region think the potential is enormous. Abrie Rautenbach, head of AgriBusiness at ABSA, South Africa’s largest agricultural lender, recently told me he believes reliable predictive performance analytics will provide the route to trust in a production-based working capital model, enabling fulfilment of the credit needs of more smallholder farmers and SMEs.  

His vision to incorporate technological advances such as these could transform the way the bank serves their customers. Not only is it an entry point to bring in new customers, but the technology could be used to enhance the bank’s relationship offering by offering in-season alerts and advice directly to farmers. These alerts could range from hyper-local farm weather warnings on frost, wind or rainfall events, to crop level disease risk notifications with advice on crop protection strategies.  

Expanded access to credit for smallholders benefits everyone

Expanded access to credit offers many benefits to farmers, financiers, and society. With funds to invest in their operations, farmers can access better quality inputs such as higher-yielding, climate-resilient seed varieties, or the right fertiliser and crop protection products and the tools to apply them at the right time and place.   

Combined with advisor and farmer access to advanced decision-support tools, there will be a higher likelihood of agricultural best practice adoption, from precision planning to integrated pest management, efficient irrigation, and soil health management. This will not only benefit farmers, but the retailers, grain marketers, insurers and other organisations that partner with them as well. These factors would contribute heavily to trackable, evidenced yield gains, meaning increased regional and global food security.  

For example, For Farmers East now incorporates remote-sensed field performance analytics in their farming operations to better understand their field productivity metrics. While theyaccessed credit the hard way, their flourishing relationship with their banking partner symbolises the potential for a broader transformation in credit provision which, Du Plessis tells me, can take farmers from surviving to thriving.  

Simplicity of service and integration into existing processes will be essential to gain widespread adoption. Both the agricultural investment community and value chain providers such as banks, insurers, and retailers must be at the forefront of driving that adoption to make this technology accessible to their teams. It’s a win-win approach for both farmers and agribusinesses.   

Driving sustainable, profitable farming

Innovation-driven transformations such as these offer hope for the future. The potential to drive increased yield, food security, and profitability for farmers and agribusinesses alike is huge.  

In the face of daunting global challenges, the convergence of agriculture-focused technology and financial service partnerships herald a brighter era of sustainable and profitable farming. Working together, we can foster a more resilient agricultural sector that helps answer one of the world’s pressing conundrums, meeting the food demands of a growing global population while also contributing to the long-term health of our planet.   

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