The United Nations 2016 climate change conference (COP22), meeting in Marrakech, Morocco, presented an historic opportunity to refocus the global community’s attention on the need to help developing nations adapt to climate change. In no area could this be more pressing than Africa, where protecting food security and ending hunger is an urgent necessity.
During the COP21 last year in Paris, the world’s developed nations reaffirmed their commitment to provide at least $100 billion per year, beginning in 2020, to help developing nations combat climate change.
In the past, most funds have been used on mitigation projects – those intended to curtail greenhouse gas emissions. But there is a growing consensus that work focused on adapting to climate change is of equal importance and more funding needs to be devoted to it.
This is a step in the right direction. With 28 African countries expected to more than double in population by 2050, and 10 African countries – Angola, Burundi, Democratic Republic of Congo, Malawi, Mali, Niger, Somalia, Uganda, Tanzania and Zambia – expected to grow “by at least a factor of five” by 2100, according to the UN Department of Economic and Social Affairs, Africa will be hard pressed to feed itself as temperature increases drive farm production down.
Higher temperatures leads to weak output in Africa
The scientific consensus is that a temperature increase of 2°Celsius would result in an average reduction of 15% to 20% in agricultural yields on the continent.
While increases in temperature and carbon dioxide “can increase some crop yields in some places,” experts at the US Environmental Protection Agency have noted Africa isn’t among them. In fact, the opposite is true: The scientific consensus is that a temperature increase of 2°Celsius would result in an average reduction of 15% to 20% in agricultural yields on the continent.
The Center for Global Development’s 2011 report, Quantifying Vulnerability to Climate Change Implications for Adaptation Assistance, forecasts median agricultural productivity losses due to climate change ranging from 18% in North Africa to 19.8% in Central Africa through 2050.
The weak output in Africa, reinforced by a spike in temperatures and exacerbated by extreme climate events, could create a vicious loop of food insecurity, impoverishment, mass migration and, finally, armed conflict. Climate-related migration and conflict already are a reality on the continent, and more often than not they are related to agriculture and food.
The feedback loop
In addition to the moral imperative of feeding people, there is also an essentially practical argument to be made in favour of significantly increasing support for agricultural adaptation in Africa – the so-called feedback loop. By helping Africa boost agricultural production through improved soil management and irrigation techniques, as well as increased research on other farming techniques that respect the integrity of land, the global community also would be helping reduce greenhouse gas concentrations in the atmosphere. That’s because the improved agricultural practices, in a virtuous circle, would increase yields on poor farmland, reduce deforestation and improve the carbon sequestration capacity of cultivated soil.
Adapting African Agriculture
Currently, agriculture and Africa are the poor relations of climate finance. Adaptation, agriculture and Africa have been understudied and underfunded and their importance underestimated. In the area of agriculture, all geographic regions combined account for only 4% of public funds linked to climate change. The African continent, home to nearly 25% of the developing world’s population, receives just 5% of public and private climate funds. This is difficult to swallow when you consider that Africa is among the most vulnerable to the impacts of climate change, while only marginally contributing to greenhouse gas emissions.
By maintaining African agriculture and reinforcing its capacity for adapting to climate change, the international community can show its responsiveness to the life-and-death issue of African food security, while addressing the global imperative to reduce temperature increases.
Marrakech COP22 is a unique opportunity to finally position the adaptation of African agriculture as one of the highest priority subjects. Delegates to the Marrakech climate conference can help solve this problem by reallocating available climate change resources from mitigation efforts to adaptation projects in general, and to the African agriculture in particular.
For Africa and the world, it is time to consider these realities.
AFEX Raises $50Million for Agri-SMEs, Africa’s First Warehouse Receipt Backed Commercial Paper
AFEX CEO, Ayodeji Balogun (Source: AFEX)
AFEX Commodities Exchange Limited (AFEX), Nigeria’s leading private commodities exchange company, has announced the first Warehouse Receipt Backed Commercial Paper in Africa, with tech-enabled operations and a 24-hour fast cash turnaround for borrowers. With over $50 million raised for Agri-SMEs, this bridges the funding gap between lenders and borrowers in the Nigerian agricultural sector with a commodity-backed instrument – for the first time.
The AFEX financing deal will help eradicate the high cost of procurement incurred by processors by deploying a discounted value of a warehouse receipt distributed among five leading players in the Food and Beverage, Trading Poultry and Animal Feed segments in Nigeria. The receiving companies are top 10 players in their respective segments. They have now been enabled access to a tool for managing price volatility, enabling up to 30% direct savings on prices.
“With our vision to reach a cumulative total of over $5 Billion in investment to the agriculture sector over the next five years, this financing deal is right on track to achieve this goal’’ – said Ayodeji Balogun, CEO, AFEX Commodities Exchange. “As we move towards building a derivatives market in Africa, we want to be able to reduce exposure to price risk for stakeholders, by enabling them to hedge their positions and trade in commodity derivatives.”
The warehouse receipts, which can then be transferred from commodities to a financial asset and listed under the borrower’s portfolio on the AFEX trading platform, will create a sustainable funding structure and address underfunding in the Nigerian agricultural sector. With the warehouse receipt system linked to financiers, the system allows financiers value and marks the commodities’ price to market on a real-time basis.
“Our mission is to provide low-risk working capital facility for stakeholders in the Agro sector, in a way that is transparent and has a very high viable investment return’’ – said Akinyinka Akintunde, VP Financial Markets at AFEX. “As a licensed commodities exchange and warehouse receipt system operator, we deploy a warehouse receipt system and collateral management infrastructure to increase market confidence for both lenders and borrower.”With AFEX’s goal to support Africa’s food security while promoting a fair exchange of value among players in commodity value chains, this deal’s social impact is delivered through market access for farmers and reduced post-harvest losses. AFEX continues to contribute to the United Nations Sustainable Development Goals 1, 2, 5 and 8; no
poverty, zero hunger, gender equality, decent work, and economic growth.
SunCulture secures $11m debt facility from SunFunder syndicate to expand solar irrigation in Africa
SunCulture CEO and co-Founder, Samir Ibrahim (Source: YouTube)
SunCulture, a solar irrigation company headquartered in Nairobi, Kenya, today received the first disbursement from a new $11m syndicated debt facility to expand its operations in sub-Saharan Africa.
The new loan is groundbreaking for the “productive use” solar sector due to its size and its innovative combination of working capital and end-user financing.
Arranged by SunFunder, the co-investors in the facility are Nordic Development Fund; Triodos Investment Management, through its Hivos-Triodos Fund; SunFunder through its Solar Energy Transformation Fund; AlphaMundi through both its SocialAlpha and AlphaJiri Investment Funds; and the AfDB’s FEI OGEF managed by Lion’s Head.
This will enable SunCulture to scale up renewable energy installations at smallholder farms and households that will mitigate over 20,000 tons of CO2 annually – as farmers replace diesel pumps with solar ones – whilst facilitating income growth and job opportunities in rural communities.
SunCulture has pioneered a “Pay-As-You-Grow” business model to make solar-powered irrigation affordable for smallholder farmers in sub-Saharan Africa, combining end-user finance, value-added services, modern climate technology, and access to improve productivity. A recent report developed by Dalberg Research shows that irrigation systems and solar-powered water pumps can increase farmers’ production between 2 and 4 times, and their income between 2 and 6 times.
Samir Ibrahim, Chief Executive Officer at SunCulture, said, “The past year was devastating for the millions of smallholder farmers in Kenya; 87% are in a worse financial position due to the pandemic. 81% of SunCulture farmers, however, were able to increase their revenue from farming in 2020. Solar irrigation helps create food security and sovereignty, and it also helps lift people out of poverty. This facility further enables our efforts to support farmers by
providing them with more of our solar solutions, and faster.”
Jemimah Kwakye-Fosu, Investment Officer, who led the transaction for SunFunder, said: “We are delighted to have led this syndicate of proactive lenders who worked well together for a common goal: to help SunCulture reach many more farmers. It shows how working capital can be combined with end user financing, which is essential for making productive use technologies affordable.”
Surabhi Mathur Visser, Head of Investments at SunFunder, said: “This is a pioneering transaction that demonstrates how productive use technologies like solar irrigation can be scaled up. SunFunder arranged this facility with a similar-minded group of lenders to support an innovative product and business model. We look forward to seeing SunCulture grow in Kenya and new markets.”
Karin Isaksson, Managing Director at NDF, said: “This loan to SunCulture is the second e[tended to a company graduating from the EEP Trust Fund managed by NDF. It is a clear demonstration that we can deliver on the new NDF Strategy and its commitment to provide flexible and scalable financing as well as catalytic impact. It has all the ingredients that define NDF’s added value in the climate financing landscape. It demonstrates our capability to convene and mobilise additional financing, as well as our unique mix of financing instruments to match the needs of our partners, public or private. We are proud to be standing with our partners and supporting the emergence of a greener economy, precisely at this time of COVID-19.”
“Since our first investment in 2019, SunCulture has made huge strides to unlock the potential of smallholder agriculture through innovative products and consumer credit. FEI-OGEF is happy to be able to refinance our inventory loan into this new working capital facility and continue that growth alongside a committed and constructive group of lenders,´ noted Harry Guinness from Lion’s Head.
Judith Santbergen, Senior Investment Manager at AlphaMundi, said: “Since 2018, AlphaMundi has successively provided support to SunCulture through a combination of technical assistance and debt investment. We are e[cited to continue and increase our investment in the company via this new, innovative working capital facility.”
Sjoerd Melsert, Senior Investment Manager at Triodos Investment Management, said: “SunCulture is a great e[ample of an innovative company that is active on the nexus of renewable energy and agriculture, using solar energy to increase farmers’ incomes. Our facility supports the further growth of SunCulture’s pay-as-you-go solar portfolio, leading to a more sustainable and higher production for smallholder farmers, which is fully aligned with the
mission, ambition and activities of Hivos-Triodos Fund.”
Cocoa Pricing: Why Public-Private Sector Partnerships are Key to Sustaining the Livelihood of Smallholders Farmers in Africa
Pricing is a debating point in the cocoa sector, dominating contemporary stakeholder conversations; especially African cocoa producers. This is a result of the historically low cocoa prices that do not provide a fair income to farmers involved in cocoa production. Despite the announcement of the Living Income Differential (LID) by both Cote d’Ivoire and the Ghana Cocoa Boards, there still exist questions on the sustainability of this intervention – to take farmers out of poverty. Stakeholders in the African Cocoa industry need to rethink its strategy to improving farmers’ livelihood, by increasing their earning potential through value chain efficiency, facilitated by public-private sector partnership.
Interventions aimed at income enhancement and lifting farmers out of poverty are often based on the assumption that the said interventions, alone, are enough for the solution being pursued. On the surface, the decision to increase the farmgate price of cocoa and LID by an additional $400 a tonne on all cocoa contracts, appear to be a solution to lifting farmers out of poverty. However, even if farmers’ incomes were to increase – through increased farm gate prices – other structural issues like small farm sizes and low productivity levels will still keep these farmers below the poverty line.
For Cocoa farmers to earn a fair wage from their input, issues like ageing plantations, lack of adequate training and financing as well as direct access to the market, need to be addressed. These structural issues pose a more significant threat on the livelihood of cocoa producers in Africa. Price increases on their own are not enough to lift the poorest farmers out of poverty. Price interventions like the LID must go hand in hand with other policies and programme, implemented to increase the volume and quality of beans produced. Achieving this will require a multi-stakeholder collaboration involving both the private and public sector aimed at not only improving the quality of lives of farmers but ensuring that the cocoa value chain is optimized.
To enable smallholder farmers benefit in an egalitarian way from the cocoa industry, the focus should be towards improving value chain efficiency while addressing structural challenges in the sector. This is achievable through a public-private collaboration that will drive private sector operations to deepen financial markets, scale-up infrastructure investments and enhance productivity and quality through training and input supply.
Through collaborating with Cocoa Cooperative Societies –providing training, input financing and market access, AFEX has enabled smallholder farmers to increase their productivity, while producing to international standards. With technology like AFEX Workbench – a value chain management platform which facilitates input sourcing, loan administration, sales, a transparent and efficiently executed cocoa process is achieved.
A public-private sector-driven model will create a sustainable approach which will revitalize and boost cocoa production in Africa – creating jobs and improving the living standard of the farmers. While the government takes the driver seat to develop policies and the infrastructure to catalyze this growth across the cocoa ecosystem, private sector organizations will ensure value chain efficiency – increasing the benefits stakeholders gain from the industry.
AFEX is committed to providing the support and technology to improve the quality of life for African cocoa farmers and their communities.