Friday, February 10, 2012

Access to agricultural finance

Access to agricultural finance remains a critical concern in Africa. The development of financial products tailored to the needs of all rice value-chain actors is paramount to stimulate further improvement in the supply and competitiveness of local rice.  The financial products (e.g. credit) need to be adapted to the target borrower — there is no ‘one size fits all’ credit mechanism for everyone involved in the value chain.

For instance, limited access to production credit to purchase productivity-enhancing inputs can counter otherwise profitable production decisions. Without access to adequate financial products, rice farmers often end up selling their paddy on credit to traders who may then delay payment to farmers because of their own lack of access to adequate finance. 

Failures in credit provision and access services constitute a major bottleneck in the development of a well-integrated value chain for locally produced rice, which adversely affects the overall competitiveness of the chain. The fixed investments in improved processing technologies, warehouses and farm machinery require longer-term financing than the short-term financing needs of paddy-production credit. 

The development of storage capacity (warehouses) will require appropriate financial products to guarantee rice stocks. In many countries, little locally produced rice is available in urban areas. As paddy production expands, it will be necessary to promote year-round availability and marketing of local rice.   

Therefore, more investments need to be targeted toward the development of effective warehouse systems. For instance, successful experiences with warehouse-receipt systems could be scaled up and out.   

Incentives should be given to rice millers to facilitate access to finance for investment and working capital necessary to procure and hold paddy and milled rice in storage. Adequate financing mechanisms and facilities for the marketing of rice should be extended to wholesalers of local rice.

“With all this is place, Africa as a whole, and the various sub-regions, should be able to become self-sufficient in rice,” says Dr Aliou Diagne, Program Leader of Policy, Innovation Systems and Impact Assessment at the Africa Rice Center (AfricaRice).

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