• Saturday, April 13, 2024
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BusinessDay

De-risking agricultural investment in Africa

Beset by frequent drought, unpredictable rainfall, degraded soils, pests, disease and conflict, African farmers struggle to produce a steady supply of crops and livestock for consumption and sale.

Such risks remain too great for investors, who struggle to unlock financing to support agribusinesses. Agricultural lending interest rates in Africa are frequently in double digits, reaching as high as 47 per cent in some countries. According to the African Development Bank, less than 3 per cent of total bank lending in Africa goes to a sector that accounts for about 70 per cent of all employment and more than 40 per cent of gross domestic product.

The impact of climate change on people in sub-Saharan Africa is expected to be as great as or greater than in other regions, yet the continent receives just a 5 per cent share of global climate funding. Initiatives in Climate-Smart Agriculture (CSA), which seek to help farmers adapt to changing weather patterns while reducing emissions and boosting food security, remain severely underfunded.

This is why a multiyear project, led by the International Center for Tropical Agriculture (CIAT) working with the World Bank, the UN Food and Agriculture Organization and other partners, is delving into evidence that may guide investors towards the most viable CSA options in African countries.

Originally designed to inform a $250m World Bank CSA Project, so-called “CSA profiles” have been produced for 14 African countries: Benin, Ethiopia, Ivory Coast, Kenya, Lesotho, Mali, Mozambique, Niger, Rwanda, Senegal, Uganda, Tanzania, Zambia and Zimbabwe.

For the first time, we have a detailed snapshot of the diverse climate risks each of these countries is facing, and an analysis of the factors that are driving or hindering the adoption of climate-smart practices.

Take Kenya, for example, where agriculture generates 28 per cent of GDP and annual exports worth more than $2.5bn. We worked with stakeholders to identify and analyse agricultural techniques that could make the production of key commodities such as rice, tea and dairy more climate-smart and less risky to investors.

Practices such as water-efficient irrigation for rice and biogas production for dairy farms were shown to be highly climate-smart. Yet adoption rates were incredibly low, signalling a key area for investment to boost resilience in the sector.

In Senegal, total precipitation rates are predicted to decrease by as much as 10 per cent in some regions, meaning temperatures could increase by 2C. This is worrying and exposes farmers to immense risk, given that only 5 per cent of land is equipped for irrigation.

Our research has shown that providing climate information is one of the most effective ways to help farmers and other investors reduce their risk exposure to such conditions. In line with this, the Senegalese National Meteorological Agency produces four types of climate information — seasonal forecasts, 10-day forecasts, daily forecasts and instant forecasts for extreme events — which are helping farmers better adjust their agricultural management to respond to weather forecasts.

Through seminars, training and the integration of local knowledge, farmers are adapting their land management practices in consideration of weather forecasts. For instance, in a season where rainfall is projected to be lower than average, farmers substituted maize for soyabeans or sesame due to their lower water requirements. Predicting the onset date of the rainy season can help farmers avoid losing their seedlings due to early planting — a key piece of climate information.

Given that agriculture is both a cause and a casualty of climate change, climate-smart interventions can also help farmers reduce their own carbon footprints. In Tanzania, our research has shown that biogas digesters have helped farmers significantly reduce firewood and charcoal use. At the same time, they provide an effective fertiliser and insect repellent.

African soils are among the most degraded in the world, due to decades of farming without replacing nutrients. Biogas digesters help farmers produce their own fertiliser, so that they can reduce climate risk by retaining moisture during drier times and capture carbon from the atmosphere, reducing greenhouse gas emissions. Farmers have been able to generate up to six times their usual income from boosted output since the introduction of biogas.

Climate-smart agriculture helps to de-risk agricultural lending and insurance by making climate-related crop failures and other risks less likely to occur or less severe when they do occur. There is now the emergence of climate-smart financial products, such as F3 Life operating in east Africa, providing farmers with lower interest rates for credit, if they use climate-smart agriculture to protect them from climate related risks — the more climate smart they are, the better the terms of the loan.

Similarly, Rabobank and UN Environment recently launched a new $1bn facility to finance sustainable agriculture using a combination of public and private funding. The facility will provide grants, de-risking instruments and credit for sustainable agricultural production. This is exactly the type of private sector-led effort that is needed to promote investment in African agriculture through climate-smart agriculture which can help lower interest rates and insurance premiums, provide safer economic returns and produce a more consistent supply of food.

Climate change is one of the greatest threats to agriculture and, by extension, one of the greatest threats to African economies. By using science to guide investment decisions in climate-smart agriculture, we can de-risk farming to help promote the much-needed investment in African agriculture, despite the mounting challenges a warming world presents.