27 June 2023
Banks can help mitigate the food crisis while ensuring a future for small-scale farmers across sub-Saharan Africa, says Zhann Meyer, head of agricultural commodities at Nedbank Corporate and Investment Banking.
As the food crisis becomes more acute across sub-Saharan Africa, many farmers are being forced to plant staple foods instead of the traditional blend of maize and cash crops.
According to the 2022 Global Report on Food Crises Mid-Year Update, 20% of people in Africa go to bed hungry, while about 140 million people (11,5% of Africans) live with severe food insecurity.
One of the many issues the sub-continent faces is climate change, which reduces yield, destroys crops and disrupts the food supply chain and logistics. One in three global droughts occur in sub-Saharan Africa, where most farmers lack infrastructure and rely heavily on seasonal rainfall.
The Covid-19 pandemic, from which the world is still recovering, and the Russia-Ukraine war compound the situation, adding to food shortages and increasing prices of agricultural inputs such as fertiliser across the sub-Saharan region.
According to the Ukrainian Nature Conservation Group, about a third of Ukrainian crops could be inaccessible or abandoned because of the war, and Russia is in a similar position. As a direct result, food prices have rocketed, often moving out of reach of those living on social grants.
The United Nations’ Food and Agriculture Organization’s latest report from 2022 found that the prices of vegetable oils and cereals had reached new records due to the conflict, and consumers in developing countries are suffering the most.
Moving forward
Farmers who cannot afford to buy the same volume of inputs as before now depend on grants from relief agencies and governments as well as increased funding from financial institutions for fertiliser, seeds and chemicals.
Taking a broader view on funding that goes beyond typical production loans is an investment in the future. Project finance to repair and maintain roads, bridges and crop stores helps to meet environmental, social and corporate governance (ESG) targets. At the same time, these loans have a profound impact on millions of small-scale African farmers by increasing their harvests, and they encourage the proliferation of markets.
Financing agri-inputs for small-scale farmers often means additional assessment and due diligence because repayment relies almost entirely on the price the crop fetches at harvest time. Banks carefully consider aspects such as technical skills, long-term rainfall patterns, soil health, the suitability of the crop, the ability to harvest and deliver the crop, as well as the availability of area yield insurance. The proximity of a liquid and transparent market for the harvest is of critical importance.
Collaboration between banks, processors, traders, communities and governments is crucial. Equally important are stable government policies on food security, import tariffs to stimulate local production and consumption, and the procurement of safe storage for a strategic food reserve to combat famine and dependence on foreign aid during droughts.
Harvested crops require secondary processing for consumption, so another area where banks can provide support is in financing the construction of maize and wheat mills, oilseed crushing plants, cotton gins, fertiliser blenders and granulation plants. These investments not only add value to the local economy but create rural jobs and economic stability where they are needed most.
While finding solutions to food shortages in Africa may seem challenging, the answer lies in collaboration between all stakeholders and role players to ensure that crops land on tables and in markets in a sustainable, consistent and affordable manner.
