Governments, in most international markets, support farmers through subsidies or participation in MPCI (multi-peril crop insurance) programmes. According to Philip du Preez, head of agriculture at Mutual & Federal, “In the current environment, the South African government is urged to assist in promoting food security in South Africa by way of increased public-private partnerships (PPPs).”
While there are some PPPs in the agriculture sector, such as the Strategic Water Partners Network (SWPN), it is not nearly enough to stimulate the type of growth that is required to see the industry back on its feet. Another example of a PPP at work is the Water Efficient Maize for Africa (WEMA) programme, coordinated by the African Agricultural Technology Foundation (AATF). The aim of the WEMA programme is to develop drought-tolerant and insect-protected maize using conventional breeding, marker-assisted breeding, and biotechnology, with the goal of making these varieties available royalty-free to small farmers in South Africa, Kenya, Mozambique, and Tanzania.
Revitalising public investment in agriculture
Du Preez notes that the Mutual & Federal Community Trust invested R3m in the Qamata community last year, more specifically in the Ilitye Labathembu Dairy Farming Co-operative. The funding was allocated by the co-op to the purchase of dairy and other farming equipment, such as tractors. “The cooperative has long-term plans to expand and diversify its farming activities, an initiative which is now enhanced by our investment,” he says.
According to an Oxfam report, government and donors should revitalise public investment in agriculture targeted at the needs of small-scale producers and women. This represents a proven policy to meet poverty and food security goals through agriculture. Initiatives should also ensure that any agricultural investment builds the climate and environmental resilience of local communities. This would include strong analysis of the opportunity cost of the use of land and water through large-scale agricultural investment initiatives.
Du Preez notes that early indications for 2017 point to a more normal planting season with better maize plantings than last season and farmers being more positive overall. However, he cautions that it will take at least two seasons for any significant improvement in the agriculture sector after the severe drought experienced over the last year. “For example, livestock farmers could take five to seven years to build up bloodlines again, after they had to cull their animals,” he says. In addition, many farmers are battling with high levels of debt following a drop in harvests realised in the last year.
The drought has had dire effects on the local agricultural industry, with a direct and large impact on production. “For example, last season’s production of maize, our staple food, was 25% – 30% down on the previous season,” he says.
The effect of the drought on the economy
Du Preez says that while a lot depends on follow-up rain, South Africa is likely to benefit in the year ahead from increased exports of maize and fruit in particular, and sales of farming equipment are looking better. However, consumer price inflation will remain high for the next few months. “There might be some relief for consumers from September 2017 onwards following a more normal harvest,” he says.
Looking at the country’s economy, Du Preez says primary agriculture makes up 3% of GDP but when you look at the whole value chain, this contribution rises to as much as 27%. “With the return of the rains, we expect agriculture’s contribution to GDP in 2017 to improve as more land is put under cultivation, leading to higher yields and output,” he says.
The role of the insurance industry
The insurance industry has responded to the drought in a number of ways. Firstly, Du Preez notes that risk selection as far as MPCI cover was concerned became tougher. Insurers tried to select the better risks with a proven track record. Secondly, rates on MPCI increased and thirdly pricing on hail business became more competitive. “In certain areas, MPCI cover was not available at all,” he says.
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.
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