Lenders must shift focus to sustainable agriculture

Farmers Parade breeds of livestock at the Nairobi International Trade Fair at the Showground Arena on September 30, 2022. [Jonah Onyango, Standard]

The Covid-19 pandemic and runaway inflation blamed on the Ukraine-Russia war have dealt a double blow to global economies and businesses.

Enterprises that rely heavily on imported raw materials have been forced to pay more and wait for longer for deliveries as a result of the marked global appreciation of the value of the US dollar.

Supply chain disruptions and increases in freight, insurance, and logistic service charges mean a conveyor-belt kind of adverse price effect where manufacturers pass on the biting cost to distributors, distributors to wholesalers and eventually to retailers whose only recompense is to increase retail prices for their goods.

How can banks chip in to reduce challenges arising from delayed deliveries, and rising transport and storage costs?

Given the importance of Russia and Ukraine in the global supply chain for fertiliser, cereals and oil seeds, the Food and Agriculture Organisation (FAO) predicts that global prices will remain high in the coming months.

Reduced local food supply means increased import demand for food items, causing prices to rise even further.

With Kenya currently suffering from a drought that has left over 3.5 million people facing starvation, a call to action would entail the involvement of financial institutions to provide much-needed funds to fund immediate proactive measures to reverse the deteriorating situation. Banks, microfinance institutions and institutional investors have traditionally provided the agricultural sector with very limited resources.

Agriculture accounts for 3.3 per cent of gross loans offered by local banks, amounting to nearly Sh100.2 billion, according to the Central Bank of Kenya's 2021 Supervision Annual Report.

Banks can help to strengthen agriculture finance markets by re-tooling themselves through continuous investment in agribusiness knowledge to better understand emerging risks and co-create solutions with sector players. 

Absa Bank Kenya, on its part, has embedded agribusiness as one of the growth pillars in its overall business strategy and has a dedicated agribusiness team supported by an agri-specialist to advise the bank.

The bank takes a value chain approach, actively providing solutions for input providers, primary producers, aggregators, and agro-industry players. 

More than ever, financial institutions must shift their investments to sustainable agriculture and agri-food industries.