🌾 Contextualising the case for crowdfunding for farmers in underserved markets.
How crowdfunding and decentralised investment platforms for farmers and livestock keepers are providing capital to small businesses in agriculture.
Briter’s Cross-Regional Innovation Series 🗺️ is founded upon the intention to highlight thematic areas that present similarities and patterns across so-called underserved markets. Chapter 3 explores the role played by crowdfunding platforms for farmers across these regions and their contribution to bridging financing for agriculture in underserved economies.
Financing for agriculture as a prerequisite to increase productivity in Africa and contribute to fighting poverty and malnutrition is an avidly debated subject in socio-economic development conversations. Africa is a largely rurally populated continent, boasting 60% of global, unused arable land, and the agricultural sector employs over two-thirds of the population, mainly involved in small-holding and subsistence farming.
The agricultural sector accounts for about 15% of total GDP with an extremely high variation between countries but, according to the Mastercard Foundation, ‘less than five per cent of net bank lending goes to agriculture’. This indicates that banks remain significantly risk-averse towards the biggest employer on the continent - i.e. farms and agri-businesses - and this behaviour, coupled with the lack of meaningful credit sources, directly impacts the ability of farmers to access higher value items such as inputs, fertilisers, and machinery, which would allow them to increase productivity and improve output.
Figure 1 shows the correlation between:
The agricultural share in GDP;
The sector’s share in the employment rate;
GDP per capita,
highlighting that, in lower-income countries, agriculture occupies a larger share of GDP and contributes more to the employment.
Agriculture as a share of employment and GDP in Africa
🚧 Risk and hindrances in finance for agriculture
Farms are subject to several forms of risk, ranging from weather conditions to commodity prices and currency fluctuation. A 2012 report by Making Finance Work for Africa Secretariat (MFW4A) captures some of the main factors associated with the financing gap in agriculture across Africa:
Real and perception of risks connected with market segments, production and political instability;
Cost structures on both the demand and supply sides which overburden credit schemes and hinder lenders;
Lack of collateral;
Weak financial and bureaucratic infrastructure —e.g. credit bureaus, payment systems, collateral registries;
Overregulation and lack of flexibility due to inadequate legal and regulatory frameworks;
Scarcity of agriculture-focused financial instruments and knowledge;
🐷 The state of funding for agricultural technology
AgFunder estimates that $19 billion were invested into agrifood companies globally in 2019, with the US and Europe accounting for the bulk of total funding. Although several investments have been made by private equity funds and in more traditional verticals, such as mechanisation and processing, our investment tracker 📊 identifies between $50 and $75 million only being deployed into agri-tech startups in respectively 2019 and 2020 across Africa. This amount is however misleading as the bulk of these figures come from two deals which cut across logistics and forestry: 🛺 Twiga Foods and 🌳 Komaza’s Series B (respectively $30 million and $28 million).
During the past decade, the agri-tech landscape has seen the proliferation of a composite suite of products and solutions ranging from financial services to the internet of things, precision agriculture, and farm management.
Crowdfunding as an additional financing avenue for farmers
Faced with the need to address the crippling lack of financial sources, entrepreneurs have turned to technology and the crowd as a way to bridge the funding gap. Crowdfunding for farmers 🚜 and livestock 🐄 have been among the most common solutions to gain ground in the agricultural technology sector, spearheaded by companies such as Farmcrowdy in Africa and Tanifund in Indonesia. These platforms have been attracting thousands of investors by allowing to deploy small sums of cash in exchange for farms’ shares or on the basis of profit share. Although they represent a marginal contribution in the overall funding gap, by creating a digital interface that is accessible to individual users globally, crowdfunding platforms have shown the ability to reduce barriers to entry and sustainability of smallholding and small scale farming by diversifying the sources of capital and drastically cutting bureaucratic protocols that would be otherwise a requirement of more traditional financial institutions.