Agriculture is undeniably the world’s most important industry. For Africa, it’s the bedrock of economic stability, accounting for 25% of the continent's gross domestic product (GDP), 65% of its employment, and 75% of its domestic trade. This vital sector provides livelihoods to millions and has a direct impact on our daily lives.
Leon Kotze, Head of Agribusiness at Business & Commercial Banking, Africa Regions & Offshore
Climate change, however, poses significant challenges. Africa's 95% rain-fed cropland is vulnerable to heat, drought, pests, and floods, threatening food security. Yet, this urgency also presents a powerful opportunity. With 65% of the world's uncultivated arable land and a vast labour force, Africa has immense potential for growth.
However, to unlock this opportunity and build resilience, embracing climate-smart practices and advanced technologies is essential.
To unlock this opportunity and build resilience, it is essential to embrace climate-smart practices and advanced technologies. For example, regenerative agriculture plays a vital role in maintaining soil health, improving water retention, and sequestering carbon.
This approach, combined with powerful tools like precision agriculture, drought-resistant seeds, solar-powered irrigation, and protected cultivation methods, will enable Africa to leapfrog toward a sustainable agricultural future.
The pivotal role of financial institutions
At a practical level, adopting climate-smart farming involves a financial dilemma: initial investments can temporarily lower yields or profitability, creating a barrier to adoption. This financial strain, combined with the capital-intensive nature of modern agriculture, necessitates financial partners with a deep understanding of the sector’s cyclical nature and unique risks.
A key differentiator for effective financial support lies in human capital and expertise. Financial institutions require experts with in-depth, empirical knowledge of the sector, who spend time on farms and walk the journey with customers to truly understand their unique challenges and aspirations.
Crucially, business and credit teams must have a nuanced understanding of external events, such as weather, volatile market prices, and tariffs. This, combined with credit specialists’ knowledge of the agricultural sector’s dynamic revenue and cost cycles, enables them to more precisely meet the sector’s demands and the individual needs of their clients.
For instance, recognising seasonal commodity price variations allows financial partners to structure financing that optimises stock management during advantageous buying cycles, enhancing operational efficiency and financial viability.
To ensure long-term sustainability, the focus should be on supporting the transition from adaptation to mitigation of climate risk across both commercial and small-scale farming. While their operational sizes and needs differ, both segments face a common set of significant challenges. The impacts of changing weather patterns, such as unpredictable rainfall and severe floods, directly affect yields and financial viability.
Empowering commercial farmers
Commercial farmers require substantial, long-term capital for large-scale infrastructure investments, including extensive irrigation systems and sophisticated processing plants.
They also bear the burden of navigating stringent international regulations, such as phytosanitary requirements and environmental stipulations for premium export destinations like the European Union, while managing complex supply chains that span vast territories.
For financial institutions, supporting the commercial journey should be underpinned by a focus on affordability. As large-scale climate-smart transitions are rarely possible all at once, agribusinesses should adopt a phased approach that balances long-term sustainability with immediate affordability. For example, upgrading to precision planters, variable-rate fertiliser spreaders, or installing variable speed drives for irrigation pumps.
To incentivise commercial farming clients to adopt climate-smart practices, financial institutions can provide cheaper, more flexible debt with longer repayment terms. This is typically made possible through collaboration with Development Finance Institutions (DFIs) and concessional funding from entities such as the Green Climate Fund.
A distinguishing factor for leading financial institutions is their willingness to navigate the complexities of accessing these funds on behalf of their clients, making the journey easier and more affordable for their customers.
Building climate-smart ecosystems
For Africa’s small-scale farmers, our view is that a primary focus for financial institutions should be on partnerships. Given the fragmented nature of this segment, we have found that direct individual support is often less impactful than a value chain approach.
Our experience shows that best practices involve supporting seed companies at the forefront of technology. We finance the development of drought-resistant varieties and seeds for shorter or longer growing seasons, which are crucial for climate adaptation. This makes viable options widely accessible to all farmers, including small-scale producers, who can then select inputs best suited to their climatic conditions and market needs.
This support extends beyond seed companies, reaching their outgrowers with essential resources, such as climate-smart irrigation systems. This ensures consistent, high-quality seed production, which in turn secures a reliable supply chain for farmers of all sizes.
Similarly, we collaborate with leading poultry genetic companies, assisting them in establishing foundational infrastructure, such as grandparent farms and hatcheries, across Africa. By ensuring the reliable availability of high-quality day-old chicks with genetics that efficiently convert minimal feed into maximal protein, this enhances the entire poultry value chain's viability and resilience.
This strategy reduces risks associated with disease outbreaks, such as avian flu, which can lead to border closures and supply chain disruptions. Strong local supply chains ensure quality chicks are consistently available, enabling both commercial and small-scale farmers to operate more profitably while maintaining a vital, affordable protein source.
Partnering for a sustainable agricultural future
Africa’s agricultural future holds immense potential. A comprehensive offering from financial institutions includes tailored solutions, unlocking concessional capital, investing in scalable value chain solutions, fostering strategic partnerships, and guiding climate-smart growth.
A long-term commitment to agribusinesses ensures every step is built on financial viability and sustainability, benefiting Africa's agricultural future for generations to come.
