The global food security crisis is intensifying every day and it has become crucial to create resilient systems at a swift pace. One of the ways to tackle this concern is formal financial inclusion of farmers in the ecosystem by improving their access to credit through agri fintech.
Agri fintech is the synergy between agriculture and financial technologies. It refers to the adoption of digital solutions to fill the gaps between financial institutions, farmers, and other stakeholders in the value chain. It goes beyond ensuring that farmers have bank accounts. It also improves farmers’ access to affordable finance through both traditional and modern financial institutions and offers them innovative credit, payment, and other financial services.
Let’s take a look at how access to credit can make a positive difference to the agriculture supply chain:
Hassle-Free Finance
Currently, the biggest obstacle for farmers to avail credit from banks and other financial institutions is their inability to provide reliable data regarding their personal details, land records, and farming transactions. As a result, they have to rely on local money lenders or middlemen for credit at inordinate rates, terms, and conditions.
Agri fintech companies have tools and technologies such as artificial intelligence, blockchain, and satellites that can collect accurate farm-level data and circulate it in the financial system. Banks and other financial institutions can assess this data and make informed decisions while reducing default risk in disbursing loans to farmers.
When farmers get hassle-free credit, they can buy better quality seeds, fertilizers, and other agri inputs. They can also invest in modern farming equipment, machinery, and technologies. This will further help them improve the quantity, quality, and profitability of their yield within the arable land available to them. They can grow more food to feed the increasing world population.
Insurance Against Unforeseen Events
Crop, livestock, land, and equipment damage are increasingly becoming common due to unpredictable weather changes, natural disasters (flood, drought, hailstorms, wildfires, etc), pests and insects attack, and other unforeseen events. Farmers not only incur financial losses due to lower yield but also lose their potential income if animals die or the land becomes infertile. When crops get ruined, there is less food available to distribute through the supply chain.
If farmers have access to credit, they can buy crop insurance which can safeguard them against natural calamities; risks at the time of sowing, planting, germination, and harvesting; and even post-harvest losses due to price fluctuations. They can also buy insurance to secure their land, equipment, and livestock. Credit and insurance provide a safety net to farmers.
Financing Carbon Offset Projects
Agriculture is responsible for 19–29% of greenhouse emissions which can adversely impact soil health, yield, and farm productivity. This can have a ripple effect on the global food security situation. Farmers can offset these emissions through sustainable farming practices such as carbon offsets projects that remove or reduce emissions. Farmers who engage in carbon offsets can earn additional income by selling carbon credits to organizations which want to compensate for their greenhouse emissions.
However, carbon offset projects require considerable planning, knowledge, and funds to implement them effectively. Easy access to carbon financing can empower farmers to adopt sustainable and climate-smart farming which is a crucial key to managing food security problems.
Market Linkages
The Agri fintech industry has given rise to several online marketplaces where farmers can buy agri inputs or sell their produce directly to customers. Farmers can register and use these market linkage platforms from their smartphones. With no middlemen in the picture, farmers can not only get fair prices, but also save a significant amount on the fee they pay for marketing, distribution, and retailing.
Some digital marketplaces also connect farmers with banks and other financial institutions for credit. A few digital platforms also extend credit to farmers for equipment purchases, working capital, bill discounting, and other purposes. As more money circulates through market linkages, farmers have more financial resources at their disposal to invest in high-quality agri inputs and farming machinery and technologies to increase food production.
Infrastructure and Logistics
Globally, around 14% of food produced is lost between harvest and retail. However, a robust infrastructure and logistics system can minimize this wastage. Access to credit can help supply chain stakeholders build better warehouses, cold chain units, transportation networks, etc.
Conclusion
Access to credit can play a pivotal role in managing the food security crisis and creating a reliable food supply chain. Agri fintech companies can be instrumental in infusing capital into the agriculture sector through innovative digital solutions. However, the onus of ensuring access to credit in the supply chain also lies on the shoulders of policymakers, financial institutions, retailers, traders, and other stakeholders.
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