By Babajide Komolafe
Access to agricultural inputs, market linkages, technical support services as well as access to financial services through value-chain financing are the factors that could lead to revival and growth of Nigeria’s ailing agriculture sector, says Jacques Taylor of Stanbic IBTC Bank.
He said that the sector currently faces numerous hurdles such as high transaction costs and high risk, skills and technological gaps, lack of reliable financial information about smallholder agriculture, among others. Value chain financing will ensure the flow of financing within the agricultural sector, across all value chain actors, thereby getting agricultural products to the market.
Taylor, an expert in agriculture development financing and Head of Agricultural Banking, Stanbic IBTC Bank, said that development and proper coordination of the country’s food production chain comprising input suppliers, primary producers, storage, logistics and processors, among others, will reduce risk, attract financing and new investments which will make the country’s agriculture sector competitive and commercially viable.
In his view, the agricultural sector in Nigeria has the potential to rapidly jumpstart economic growth and poverty reduction, positioning Nigeria as the food basket of the world, given the availability of vast portions of arable land, and the fact that about 70 percent of its over 140 million people are involved in farming. According to Taylor, capacity building for lenders, risk reduction through yield and price insurance and value chain approach to agricultural lending from commodities to products, will address the risks and capacity bottlenecks along the agricultural and financing value chains, which are stifling the existence of a demand-driven market.
“Agricultural finance is value chain finance; it requires understanding of the interdependency of businesses along the value chain, which is as important as understanding the sector you are financing.
For instance, lack of usable collateral makes traditional lending products inappropriate for smallholders, thus Stanbic IBTC Bank’s lending model uses a funding structure that includes partnering with key players in the agriculture value chain, high profile foundations and NGO’s who assist smallholders with operational management.” While provision of finance is important, “it is only one of the constraints facing smallholder agriculture in the country,” said Taylor. “Equally important is the provision of a system through which small farmers can improve efficiencies in all areas; from accessing inputs, improving yields, market linkages, infrastructure development and skills transfer.
The partnership between Standard Bank and the Alliance for a Green Revolution in Africa (AGRA) and other partners currently operational in Ghana, Uganda, Tanzania and Mozambique is an example of this type of system, benefitting 55,000 farmers, in four countries.”
In this model he stated, “The lending structure makes use of a co-operative mechanism that includes linkages to formal markets that provide minimum price guarantees (thus mitigating price risk), includes weather index insurance (to mitigate climate risk) as well as training and mentorship.
The co-operative structure in turn, allows farmers to consolidate their bargaining power, which reduces input costs and contributes to economies of scale in terms of output and market