Social enabling: Achieving food security by 2050

Access to knowledge, finance and agri markets key to food security

The world's most productive agricultural areas are not those with the best climate and soil quality, but rather those places with the best social enabling environment, according to the book Future of Farming, published by Rabobank. Examples of social enabling factors, which determine if a farmer can achieve the full potential of the soil and the climate, are: government policies, functioning agricultural markets, access to finance, access to knowledge and public expenditure on agricultural R&D.

It is these social enabling factors that are key to increasing both food production and distribution in unleashing the potential in Sub-Saharan Africa to feed the world by 2050.

Social enabling: knowledge and access to finance

The soil and climate of northern Europe are not of the highest quality, but, thanks to access to knowledge and finance, the actual yield is very high. In Africa, which has abundant fertile soil and a good farming climate, it is quite the reverse with Sub-Saharan countries that could increase their yields with a factor four. In a recent report by Rabobank Senior Analyst Bill Cordingley Africa is named as the continent with the biggest yield gap in the world.

Take the example of Koos van der Merwe, an experienced farmer in Mozambique. The country has excellent agricultural potential, with good soil and an ideal climate. However, the ground needs to be properly irrigated, which is an expense far beyond most farmers just starting out. People don’t have the money and, when they do, many are unable to handle it because they don’t have access to a banking system or financial knowledge.

Van der Merwe provides Mozambican farmers with training on his research farm, which he hires from the government. Financial training is used to increase the farmers' financial literacy. “The accountants teach our workers what a bank account is, how to manage it, what a profit and loss concept is and how you budget,” Van der Merwe says. At the same time, the farmers are taught a range of relevant of skills on how to run a farm, with the aim that they can eventually work independently.

An enabling environment: what is needed?

Creating the right enabling environment is crucial to achieving agricultural success. Some of the key steps according to Frank Nagel, Director Banking Advisory at Rabo Development are:

Enable access to financial services: without cash, there's no crop

  • Globally, 2.5 billion people lack access to financial services, many of these people live in rural areas and depend on agriculture. Access to financial services may help in getting better inputs, better farming, higher yields and better returns for the farmer.
  • Invest in financial literacy. Farmers that do not know how to make a basic cash flow forecast will struggle to understand the economics of their own business let alone reach access to finance from banks.

Long-term government vision and reforms

  • Laws governing the creation, perfection and enforcement of security interests, movable property collateral and the regulations need improvement. Proper land registration and creating a really working mortgage system are important issues.
  • The state needs to be a reliable partner in terms of tax system, legalisation, policy etc.
  • Trade policies should be predictable and consistent
  • Agriculture, although with specific characteristics and risks, is an economic activity. Therefore economic principles also have to be applied by the financial intermediaries when financing farmers. This means that a farmer has to generate sufficient cash flow to repay the loan. Poverty elevation which requires partly grant elements needs to be funded separately.

Build a strong agricultural infrastructure

  • Build roads, post-harvest handling, provide extension services and create access to markets.
  • Economies of scale are essential in reaching sustainable solutions in agri. Warehouses only make sense at minimum throughput volumes, mechanization and irrigation require minimum land plots to be economical, private input suppliers are happy to advise farmers but cannot deal with thousands of smallholders. Hence, cooperation between smallholder farmers e.g. via cooperative structures is key. Also block farming initiatives whereby small farmers pool their land can improve yields, smoothen access to markets and access to finance.
  • Cooperation right along the value chain is key. Ensure all stakeholders in the value chain communicate whereby integrators (“value chain captains”) should take a lead role in streamlining the value chain including organizing technical assistance to farmers.

Chap Chap: providing access to finance by mobile technology

In the last decade, six of the world’s 10 fastest growing economies were in sub-Saharan Africa, according to The Economist. The African continent combines the greatest need with the biggest potential. While 75% of the world’s poor live in rural areas in developing countries, a mere 4% of official development assistance goes to agriculture.

Agriculture can make a difference to the poorest people in the world. Which is one of the reasons that Rabobank invests in five countries on the African continent, including Tanzania, where it has a 35 percent stake in local bank NMB. The focus of Rabobank is on providing the farmers with access to finance individually or through Farmer Organizations.

Between 1998 and 2009 mobile penetration in Tanzania increased from .53 handsets per 100 people to 42.82 per 100 people. Costs of Mobile phones dropped from USD 150 in the early 2000s to half that amount in 2010.

Arjan Molenkamp, Chief Retail Banking Officer of NBM bank Tanzania, “In 2012 NMB launched mobile banking service Chap Chap, which provides Tanzanians with easy access to their bank account, 24/7. For many of the bank’s 1.8 million customers, it’s their first bank account. Chap Chap is extremely user friendly: customers can open an account in just seven minutes, there’s no fee or minimum account balance, and they have mobile access to a range of services, including being able to pay utility bills.“

Quote

"While the macro-level picture of Africa’s economic and social development is increasingly positive, this only increases the strain on an already lackluster F&A sector. Africa’s share of global agricultural exports is falling while imports of many foods are rising. The continent’s supply chain infrastructure lags well behind the rest of the world. As a result, African consumers are paying more for basic food commodities, have fewer choices and face higher food safety and security risks than consumers in most of the rest of the world. Africa must act now to close the gap."

Senior Analyst Bill Cordingley at Rabobank