The global demand for food continues to rise and is projected to increase up to 102% to satisfy the requirements of 9 billion people by 2050. Consequently, agricultural production needs to also increase by 60%–70% to ensure the supply of raw materials for food, feed, and fiber. Ensuring a sustainable future, despite today’s sustained and intensified pressure on global resources, means that each actor in the food system needs to commit themselves to develop and enforce practices that will reduce the use of natural resources where possible, and reuse, recycle, and repurpose them otherwise. Government entities can aid these efforts by implementing policies and strategies for efficient resource management on both national and local levels.
Adopting sustainable farming practices worldwide is contributing to the agroecosystem’s efforts to meet the world’s current food needs while also ensuring that the future generations will be able to meet theirs with the limited resources that they will have. These practices also focus on holistic development that incorporates environmental, social, and economic sustainability that are the three fundamental pillars of sustainable development.
Emerging Technologies: How Do They Help Ensure Economic Sustainability?
Technological advancements are today integral to attaining sustainability goals in agriculture. Satellite and GPS technologies, sensors, smart irrigation, drones, and automation, to list a few, provide the means for precision agriculture, which further aids in the effective resource utilisation. On the one hand, they reduce the use of harmful agrochemicals and, on the other, they help conserve non-renewable resources. They also help agriculturists to prepare days in advance for unseasonal or extreme weather events, thereby reducing crop losses during such events.
Other technologies that hold promise of promoting sustainability are blockchain technologies for food safety through greater transparency, controlled environmental agriculture (CEA), and biotechnology, along with 3D printing technology that allows the production of food products while saving both time and energy. Scientific research and advancements in agriculture enable farmers to utilise the best of traditional and technology-led crop production for nutritious, high-output yield while causing as little damage to the environment as possible and ensuring cost-effectiveness. With adequate and timely information at hand, even remotely-located rural farmers can adopt climate-resilient and sustainable farming practices that also result in economic gains.
One of the ways for a stakeholder to realise economic sustainability is by achieving optimal production quantities at lower production costs. Data from satellite images, sensors, and IoT devices facilitate smarter decisions to optimise farm operations by using as minimal resources as possible and mitigates risks to realise optimal crop yields. Traceability solutions make agri supply chains more transparent and provide stakeholders with increased control over operations and quality compliance. It enables them to identify and address issues, such as food loss or wastage, and recognise opportunities to make processes cost-effective. They also help reduce the stakeholders’ response time to food crises, thus saving up to millions of dollars in losses. Traceability to source, along with accurate certification and product labelling, provides agri-enterprises with a competitive edge that helps improve their access to local and international markets and leads to better price realisation for the smallholder farmers. Financial inclusion and expanding smallholder farmers’ access to financial services also contributes to the long-term goal of economic sustainability in agriculture.
Promoting Economically Sustainable Farming By Enhancing Access To Finance For Smallholder Farmers
Smallholder farmers cultivate crops on 12% of the world’s farmlands and constitute a majority of producers in developing economies. To encourage them to produce high-quality yield, it is crucial to improve their access to financial assistance, which can aid them in investing further in farm productivity by procuring high-quality inputs, upgrading their post-harvest processes, staying informed about sustainable farming practices, and adopting better risk management practices; all of which will support their transition from subsistence farming to one that is economically and commercially viable.
Farmer aggregation models play a crucial role in bringing together individual farmers under a structured system of their own. They enable them to adopt sustainable livelihood activities that ensure increased income and an enhanced livelihood for themselves on account of economies of scale. However, a significant number of farmer producer organisations/companies (FPOs/FPCs) face several systemic issues that impede their progress, including the inability to raise external capital owing to a lack of collateral to offer to lenders; insufficient market access; and inefficient constitutional governance and management of human resources, to name a few.
One of the solutions that seek to improve an FPO’s access to capital is Rabo Foundation’s Credit Guarantee Product, which is India’s first credit enhancement product and is also estimated to be the largest-used product tailor-made for the farmer institutions’ segment in the country. The guarantee that this development finance product provides is available to any local financial institution (FI) interested in extending finance to the target group. FIs that are concerned about the risks associated with lending to this often-unexplored space can leverage the Credit Guarantee Product and benefit from Rabobank’s deep F&A sectoral knowledge and network. The product encourages FIs to initiate the flow of money and goods between farmers and FPOs and between the FPO and the market. It also helps the FIs to invest in SMEs that implement modern technologies and innovations at the initial stages, where the interest of mainstream lenders is lacking.
Another effective instrument that improves the incomes of smallholders is the Warehouse Receipt Finance (WRF), where stored produce is used as a collateral to finance post-harvest credit needs. When implemented through effective FPOs/FPCs, it has the possibility of generating a sustainable increase in small farmers’ incomes. However, despite its effectiveness and high potential, the reach of WRF is highly restricted to smallholder farmers. To encourage WRF to the smallholder farmer groups and their institutions, Rabo Foundation has designed a 2-stage guarantee product that addresses the price risk and default risk of the FIs. Known as the Commodity Finance Guarantee, it ensures a relatively higher loan to value (LTV) and a guarantee to mitigate price-risk in case of adverse price movement. Additionally, the product includes a provision to share 50% of the principal and interest loss with the lender. The Rabo Foundation has signed MoUs with three of the largest Indian FIs for the product’s implementation.
While, on the one hand, the Rabo Foundation is encouraging FIs to invest confidently in smallholder agriculture, it is also facilitating debt funding in the AgTech sector. The Foundation has introduced a USD 2-million debt-finance product, in collaboration with Caspian Impact Investments, that provides credit to start-ups with the potential to use advanced digitisation technologies to address the issues that smallholder farmers face. The product aims to enable liquidity beyond the conventional angel/venture capital as a source of high-risk capital.
Speaking of advanced technologies, satellite technology has been making a breakthrough in the finance sector over the last several years. An in-depth analysis of geodata from satellite images provides FIs with information on the crop under cultivation, its health and growth stage, and up-to-date weather data that has a direct impact on the yield. AI-powered solutions like CropIn’s SmartRisk® also provide FIs with details on a farmer’s creditworthiness based on the farm plot’s historical, current, and predictive performance. FI’s can leverage this intelligence as an alternate source of data, along with field data on the farm’s location, type of crops being grown, and inputs used, to assess risks before providing credit. Digital technologies show immense potential to increase the time- and cost-efficiency of processing loans and also reduce NPAs.
With several new technologies being developed, tested, and implemented each day, the Rabo Foundation is conducting various pilot schemes in East Africa with partners including the Netherlands Space Office and the Geodata for Agriculture and Water (G4AW) program. In one of the projects, the Foundation combined their farm input loan to farmers’ cooperatives with insurance and advice. In 2018, the Foundation tied up with NpM (Netherlands Platform for Inclusive Finance), Bill and Melinda Gates Foundation, FMO (Dutch Entrepreneurial Development Bank), the Netherlands Space Office, and ICCO (Interchurch Coordination Committee Development Aid) to establish the Geodata for Inclusive Finance and Food (G4IFF) workstream. Its goal continues to be the improvement of risk management and the lowering of transaction costs for FIs, as well as to increase smallholder farmers’ access to financial services with the help of geodata-based information.
Today’s Technology For The Future of Tomorrow
The agroecosystem is fast in embracing technology, and its fullest potential is yet to be discovered. Over the past five decades, digitisation has resulted in the radical transformation of agriculture by improving its speed, scale, and productivity globally. Agriculture 4.0, the fourth agricultural revolution, has provided the agri-stakeholders with a broad range of technological options to choose from to help them achieve their goals — be it remote sensing and GPS technologies, artificial intelligence and machine learning, connected sensors, IoTs, or any of the other emerging technologies. Mounting pressures on the environment are also redirecting scientists’ approach to the way we farm today. The road to sustainable farming requires significant investments in infrastructure and technology infusion, but its success can ensure that the current and future generations can live comfortably with the resources available.
Discover how strengthened partnerships between financial Institutions and agri-stakeholders ultimately enhances the efficiency of credit and insurance delivery in the priority sector.