Overview
There is an ever increasing need to invest in agriculture due to a drastic rise in global population and changing dietary preferences of the growing middle class in emerging markets towards higher value agricultural products. In addition, climate risks increase the need for investments to make agriculture more resilient to such risks. Estimates suggest that demand for food will increase by 70% by 2050 and at least $80 billion annual investments will be needed to meet this demand, most of which needs to come from the private sector. Financial sector institutions in developing countries lend a disproportionately lower share of their loan portfolios to agriculture compared to the agriculture sector’s share of GDP.
On the other side, the growth and deepening of agriculture finance markets is constrained by a variety of factors which include: i) inadequate or ineffective policies, ii) high transaction costs to reach remote rural populations, iii) covariance of production, market, and price risks, iv) absence of adequate instruments to manage risks, v) low levels of demand due to fragmentation and incipient development of value chains, and vi) lack of expertise of financial institutions in managing agricultural loan portfolios. The development and commercialization of agriculture requires financial services that can support: larger agriculture investments and agriculture-related infrastructure that require long-term funding (given that currently transportation and logistics costs are too high, especially for landlocked countries), a greater inclusion of youth and women in the sector, and advancements in technology (both in terms of mechanizing the agricultural processes and leveraging mobile phones and electronic payment platforms to enhance access and reduce transaction costs). An important challenge is to address systemic risks through insurance and other risk management mechanisms and lower operating costs in dealing with smallholder farmers.
Agriculture finance and agricultural insurance are strategically important for eradicating extreme poverty and boosting shared prosperity. Globally, there are an estimated 500 million smallholder farming households – representing 2.5 billion people – relying, to varying degrees, on agricultural production for their livelihoods. The benefits of our work include the following: growing income of farmers and agricultural SMEs through commercialization and access to better technologies, increasing resilience through climate smart production, risk diversification and access to financial tools, and smoothing the transition of non-commercial farmers out of agriculture and facilitating the consolidation of farms, assets and production (financing structural change).
What We Do
We focus on developing and implementing agriculture finance strategies and instruments to crowd-in private sector, enhancing access to suitable financial services to farmers – particularly smallholders – and agricultural Small and Medium Enterprises (SMEs) as a way to increase agricultural productivity and income, and facilitating the consolidation/ integration of production and marketing entities in agriculture to achieve economies of scale and stronger presence in markets. Important instruments for our work are: diagnostics on the state and areas for improvement of agricultural finance, participation by our team members as technical experts in agricultural finance in lending and advisory projects, and KM/GE activities on topics related to agricultural finance.
We primarily work on agriculture finance, agriculture insurance and its linkages with agriculture finance. Our key areas of work are described below –
