Sustainable Farming In Africa Improves Access To Financing

Sustainable Farming In Africa Improves Access To Financing

For most farmers in Africa, building sustainability into their farming practices goes beyond just addressing environmental risks and challenges — it is vital for accessing the financing needed to keep on farming, Zhann Meyer writes in a guest opinion piece for BusinessDayLive.

Meyer is Africa head of Nedbank Capital Global Commodity Finance.

Financing is an area where sustainability considerations are taking center stage, particularly in South Africa, Meyer said. Banks and other finance providers increasingly look at the sustainable actions farmers take to mitigate risk and maximize production before they consider approving loan applications.

A key, and often-overlooked component of sustainable farming in Africa is the adoption of innovative and technologically advanced farming techniques, Meyer said.

These include GPS-based soil profiling and differentiating for optimum fertilization and planting practices; the use of soil sampling and chemical analysis for
yield-maximising fertilisation programs with limited environmental impact; and no-till or minimum-till farming techniques to limit top-layer erosion and maximize organic richness of soil.

This is a major departure from historic financing decision-making, which was primarily based on the assessed value of the farm land. While this type of valuation is still core to
financial provision, these days the move to leased-land farming means banks put
far greater importance on insurability and hedging of the future crops.

In South Africa, multi-peril insurance is an essential form of coverage for most banks, Meyer said.

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However, the same climate-change issues that raised the need for this type of insurance have made it more difficult to buy. A number of prominent multi-peril insurance providers and underwriters have recently reduced their coverage — and even exited the market — due to sustained financial losses.

Those insurers who are still in business have become highly selective in the clients they accept and the percentage of long-term average yield coverage they offer.

As a result, farmers wanting to qualify for this insurance must demonstrate a
commitment to sustainability of their operations or yields, despite the possibility that they may find themselves in less-than-ideal climate conditions.

The proven ability of a farmer to operate sustainably, and deliver results, becomes an essential consideration in any financing decision, Meyer said.

Sustainability is not just about securing the future of a farm. Farmers must also contribute to the economic and social wellbeing of their markets — including the communities surrounding their farms, from which many hire their workforce.

Sustainable farmers recognise that they rely on their labor force for their survival and place a priority on fair treatment, competitive pay and a commitment to community support, because they know that is the best way to maximise productivity, reduce absenteeism and prevent high employee turnover.

For some farmers, the perceived costs of incorporating sustainable practices into their
operations may seem too high — particularly during challenging economic times.

However, the truth is that the long-term costs of not making sustainability a priority now
are almost certain to be higher.

Sustainability is no longer an option — it is an imperative, Meyer said. All stakeholders in the agriculture value chain must act sustainably: farmer, financier, processor, supplier, and even consumer.