Climate adaptation in Africa is critical not only for a just transition but also because it is more affordable than the alternative. Better infrastructure, more resilient food systems, and robust healthcare could all help manage the cost of impending climate shocks and stressors. In fact, Brookings reports that unless $15 billion a year is invested in adaptation in Africa, costs could soar to over $200 billion. It is worth noting that only $11 billion was invested in 2019 and 2020.
In Nigeria and Kenya, Catalyst Fund portfolio company Farmz2U is working to improve the efficiency and resilience of the agricultural value chain. With an active network of over 3,000 farmers, Farmz2U is not only improving cultivation practices and growing incomes but also improving pathways to market so that buyers and retailers have more reliable access to affordable, high-quality produce.
In addition to their venture-building experience with Catalyst Fund, we embarked on a research effort to understand the resilience challenges faced by Farmz2U’s farmers and various actors in the agricultural value chain, including aggregators, lenders and input vendors.
Our research with more than 40 farmers in Nigeria found that they are experiencing climate shocks, through a variety of climate events. Among the group we spoke to, two-thirds of sampled farmers had experienced emergencies in the last twelve months. Slightly over half of those emergencies experienced were related to climatic events such as low rainfall, floods, and pests. This suggests that though climate shocks are increasingly common, they are so varied that it makes them unpredictable.
Given the variety of climate events, solving for climatic risks requires a range of interventions, including drought-tolerant seeds, better logistics, well-designed insurance coverage, and other solutions for market issues on both the demand and supply side.
Recognizing that farmers’ vulnerability to climate change, many innovators have centered their efforts on improving on-farm productivity to build resilience among farmers and in the broader food system. They argue that increasing productivity—growing more and better produce—will not only supply more nutritious food to the market but also boost the incomes of farmers. Many highlight the importance of access to finance, proposing that greater access to credit and insurance can enhance resilience for both farmers and food systems.
However, our research found that farmers' earnings are not solely determined by how much produce they grow. In practice, other factors such as relationships with buyers and access to liquidity can strongly determine how much income farmers take home. In fact, by a large margin, farmers most frequently cite “input prices” as the biggest challenge on the horizon. It is no surprise that inputs are a key worry since inputs are needed throughout the farming period from planting to harvest. If a farmer is unable to secure inputs when needed, they are likely to achieve suboptimal yield, creating a vicious cycle of low yields caused by poor inputs. Addressing access and affordability of inputs is challenging because it requires solving various problems at once: access to capital, input availability, access to agri merchants, and volatile agricultural prices.
Capital was also cited as a challenge by a quarter of farmers, but we found that bank account penetration is not delivering the desired access to credit. From our sample, 78% of farmers have access to MFIs or bank accounts. Conversely, only 28% of the farmers had ever accessed a loan from either an MFI or bank. This implies that only one in three farmers with formal financial services have ever accessed a bank loan. Similarly, we found that 95% of farmers had never even considered insurance saying it is too expensive or is for large farms and corporates.
Low uptake of loan products could reflect the perception that a bank account is expensive, or could simply reflect that credit and capital is embedded into the agriculture value chain in ways that are not easily unraveled. We found that farmers access capital via deferred payments or advance inputs from a variety of middlemen, aggregators and agri-merchants. These market partners not only act as offtakers, but also provide value added services such as logistics, inputs, basic processing, and schemes where farmers can repay in-kind. Farmers not only depend on these players for a variety of wrap-around services, they also know and trust them.
Recognizing this complexity, Farmz2U is delivering not just a product but an entire value chain intervention empowering trusted middlemen with better logistics, data-driven insights, and lower cost of capital so as to provide benefits to all players in the food system. Using Farmz2U, middlemen are better able to connect farmers with buyers via digital ordering and online marketplaces. This allows Farmz2U to improve their earning predictability, and break the vicious cycle of low earnings driving low investment in inputs, creating weak harvests. Additionally, Farmz2U partners with lenders to offer financial services to farmers as well as input providers to provide quality inputs for farmers. In a nutshell, F2U is on a mission to simplify sourcing processes for buyers while improving economic outcomes for the largest segment in Africa: the smallholder farmer.