According to the World Bank, demand for food is estimated to increase by 70% by 2050 and at least USD$80 Billion will be needed in annual investments to meet this demand. A huge chunk of these billions is expected to come from the private sector and in particular the banking sector.
Some governments and farmers globally, are beginning to realize the pressing need to increase investment in agriculture. This is majorly because there are many unavoidable push factors at play including; population increase, climate change, advancement in agricultural technologies including innovations, increase in migrations, specific dietary needs and etc.
In developing countries like Uganda, the banking sector apportions a much smaller share of its annual loan allocation to agriculture. This demonstrates a lack of trust and willingness by the private sector to invest in Agriculture. And this is in part due to the sector’s specific high financial risks including; production and price fluctuations, market risks, weather and climate change, among other major reasons.
Another major factor affecting financing of the Agricultural sector is the ineffective government policies, laws, strategies and other frameworks that promote and guide the financing component of the sector. Inclusive of these are policies and laws on land ownership and use, interest rate caps, loan management strategies and programs and concessional lending.
National budget allocations for Agriculture also make it difficult for the private sector to invest in it. This is so because they would have to trust a sector that sees a reasonably small amount of money to improve on components that would avoid major financial risks. That being said, the sector has seen a reasonable and steady increase in budget allocations for the past three years. With the 2015/16 budget seeing an allocation of UGX 479.96 Billion, an increase by 65% in 2016/17 which saw the sector receive UGX823.42 Billion and in this financial year 2017/18, not a very huge difference from the last financial year with the sector receiving UGX828 Billion, only 3.8% of the national Budget. Historically speaking though, national budget allocations to the agriculture sector have never been sufficient for the sector’s development. Even with these slight increases in government financing of the sector, there is still need for more public-sector investment if the sector is to attract private sector financing.
Agricultural financing can take on different forms. It refers to financial services ranging from short term, medium and long-term loans, land leasing, crop and livestock insurance. All of these components of agri-financing cover aspects of agricultural processes from the planting to marketing phase of the sector value chain.
Despite the lack of trust from banking institutions in this sector and the many challenges that farmers face while trying to acquire financing from the private sector, all hope should not be lost. Farmers in Uganda can still benefit from alternative forms of Agricultural financing. They can do this by;
- Taking up agricultural insurance to cover crop losses, damage to farm equipment and other damages.
- Setting up/ working in agricultural cooperatives including Savings and Credit Cooperative Organizations (SACCOs) which would make it easier to attain and payback bank loans.
- Taking up government sector initiatives and financing schemes such as; value chain financing and the warehouse receipt finance system offered by the Ministry of Trade, Industry and Cooperatives.
- Utilizing initiatives such as commodity exchange also by the Ministry of Trade, Industry and Cooperatives as a means to address market risk particularly for crop farmers.
- Taking up the use of ICTs to cater for mobile banking service needs and to be informed on plant varieties, trends and changes in the sector among other benefits, as a cost-effective way of market access and learning good farming practices from farmers elsewhere. Key outcomes of such initiatives are evident with WOUGNET’S farmer groups under the organization’s ARF funded project on Enhancing Rice and Green gram productivity in Northern Uganda. This project has enabled farmers to use ICTs (phones) to access market, carryout financial transactions including savings on phone and request for information through an SMS platform managed by the Kubere Information Center (KIC) which is managed under WOUGNET’s information sharing and Networking Program. Such initiatives enable farmers benefit greatly as they are able to acquire the necessary information they need on agriculture financing, seed varieties, weather predictions, market for their produce and etc.
While some of these sector financial alternatives may seem unrealistic, in terms of affordability, adaptability and how they would be of benefit to rural farmers in a Least Developed Country like Uganda, the applicability is possible if farmers are guided and made aware of their availability and benefit. The use of ICT tools for example as is with the case with WOUGNET’s projects and farmer cooperatives for loans have registered progress among farmers who have opted for these means of sourcing agricultural financing.
As the world grapples with the impacts of climate change, rapid population growth and other changes in the political, social and economic spheres, we need to appreciate that the agricultural sector is not immune to the impacts of all these factors and that components of the sector are evolving. All these factors and more put in to consideration, the world and particularly governments need to pay attention to the changing and pressing needs of the agricultural sector including agricultural financing, if the sector is to register progress as will be evaluated by its ability to feed the ever-growing populations of the world.