Has the agricultural value chain model really contributed to the development of agricultural financing?
I. Introduction
Agricultural value chains offer a model capable of making a significant contribution to the development of agriculture, insofar as they promote better coordination between the various players in the chain, such as producers, processors, distributors and retailers. This greater coordination leads to greater transparency and better risk management, which in turn can attract more financial investment.
By integrating all links in the value chain, risks associated with agriculture, such as price fluctuations and climatic hazards, can be better managed. Financial institutions are more inclined to provide loans and credit when risks are reduced.
The value chain model helps farmers access larger, more stable markets. This ensures more regular and predictable incomes for farmers, making the agricultural sector more attractive to investors and lenders.
Agricultural value chains encourage the transfer of knowledge and technology, improving farmers’ productivity and efficiency. More productive agriculture is more profitable and therefore more likely to attract financing.
The value chain model has also fostered the emergence of new financial products tailored to the specific needs of farmers: crop insurance, campaign credit, inventory-based financing, etc.
II. Benefits of financing agricultural value chains
By integrating different stages from production to distribution, agricultural value chain financing enables risks to be better managed and spread. For example, long-term contracts between farmers and processors can stabilize farmers’ incomes.
Farmers and other value chain players can access credit more easily by using contracts and relationships in the value chain as collateral. This reduces risk for lenders.
Financing targeted at specific segments of the value chain can improve efficiency and productivity. For example, investing in storage infrastructure reduces post-harvest losses.
Value chain players can benefit from financing to adopt new technologies and farming practices, which can increase production and product quality
Providing financial support throughout the value chain creates stronger links between producers, processors and distributors. This can improve market access and stabilize prices.
The financing of agricultural value chains in developing countries must be designed to include small farmers by integrating them into wider networks, giving them access to markets they could not reach on their own.
- Case study: The date industry in Tunisia
A notable example of successful agricultural value chain financing in Tunisia is the date industry.
Tunisia is one of the world’s leading date producers, with the Deglet Nour variety being particularly renowned. However, date producers, often small-scale farmers, faced several challenges:
– Limited access to financing
– Lack of storage and processing infrastructure
– Poor connections to international markets
– Inefficient and unsustainable farming practices
In response to these challenges, several initiatives were put in place, supported by international financial institutions, local banks and development organizations:
-Microfinance programs were developed to provide loans to date growers. These loans were often secured by long-term purchase contracts with processors or exporters.
-Investments have been made in modern date storage and processing infrastructures, financed by credit on favorable terms. This has reduced post-harvest losses and improved product quality.
-Producers have been connected to international markets through partnerships with exporters. Quality certifications and sanitary standards have been introduced to meet the requirements of foreign markets.
-Producers received training in sustainable and efficient farming practices. Technological innovations, such as drip irrigation, have been introduced to improve productivity and water resource management.
In terms of impact, the funding of these initiatives has resulted in higher incomes for date growers thanks to better access to markets and more stable prices. The quality of Tunisian dates has also improved, strengthening their position on international markets. Post-harvest losses have been considerably reduced thanks to new storage infrastructures. Sustainable farming practices have led to better management of natural resources, particularly water.
- Case study: The dairy industry in Morocco
Another successful example of agricultural value chain financing in Morocco’s dairy sector is the milk sector development project initiated by the Office National Interprofessionnel du Lait (ONIL) in collaboration with several partners, including dairy cooperatives, financial institutions and international organizations.
The Moroccan dairy industry is an important component of Moroccan agriculture, but it was also facing a number of difficulties:
– Low productivity of dairy cows
– Lack of training and skills among breeders
– Inadequate milk collection and processing infrastructure
– Limited access to financing for small-scale producers
To overcome these challenges, several initiatives have been implemented:
-Financial institutions offered credit tailored to the needs of dairy farmers. These credits were often secured by milk supply contracts with cooperatives and dairies. Banks such as Crédit Agricole du Maroc played a crucial role by offering specific financial products for the dairy sector.
-The farmers received training in best practices in feeding, herd management and milking techniques. Lactation experts were mobilized to improve milk productivity and quality.
-Investments have been made to improve milk collection and processing infrastructures. Modern collection centers have been built and equipped to ensure better quality and greater storage capacity.
-The development of the dairy industry has benefited from partnerships between the government, dairy cooperatives, private companies and international organizations such as USAID and FAO.
Thanks to these various initiatives, milk production has increased thanks to improved husbandry practices and better cow nutrition. The quality of the milk produced has been improved, enabling access to more remunerative markets. Dairy farmers’ incomes have risen thanks to improved productivity and more stable prices.
Dairy cooperatives have strengthened their capacity to collect, process and market milk, ensuring a better value chain.
III. Conditions and challenges for the development of agricultural value chains
As previously reported, the Tunisian authorities attach importance to the development of insurance among all categories of the Tunisian population, by integrating microinsurance into the SNIF 2018 – 2022 as one of the five components of the Strategy. In addition, microfinance institutions have been authorized for several years to distribute insurance products to their clients. This leads them to work with insurance companies to develop products and services adapted to their clients, particularly low-income people and micro-enterprises.
The Tunisian authorities continue to explore other measures to develop Inclusive Insurance, in partnership with the profession, represented by the FTUSA. In this regard, studies on new distribution networks to be explored such as telecommunications operators or the development of the digitalization of the end-to-end insurance policy subscription process are underway.
According to a study on the demand for inclusive insurance in Tunisia:
- Most people prefer to save money to face possible future risks, while only 1% subscribe to an insurance policy
- Most people wish to dedicate a monthly budget between 20 and 40 D for voluntary insurance policies
- A large proportion of people wish to pay their insurance premium monthly or quarterly
- More than half of people say they do not know about insurance products at all, without seeking information
Overall, this study shows a certain willingness of the different categories of society for insurance products if they are informed more and better about these products which must be developed in a way that is well adapted to each market segment in terms of risks to be covered, prices, payment terms and the compensation period in the event of risk.
In this regard, index insurance could be a product to explore and offer to farmers to better develop their resilience to different risks, particularly risks related to climate change.
Efforts are still to be developed by the various stakeholders to strengthen Inclusive Insurance, knowing that a certain willingness on the part of the population for insurance really exists.
IV. Conclusion
An efficient value chain requires well-established marketing channels so that products can reach markets quickly and at reasonable cost. This includes efficient distribution systems and good coordination between the various players in the chain.
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