Why accelerate agri-fintech and marketplaces?

Transforming our food system through agri-fintech and marketplace innovation

We recently launched a new blog series about the 6 key impact areas of the AgFunder GROW Impact Accelerator (application deadline 26 Feb). 

We believe that by accelerating startups who are at the forefront of innovation in each of these 6 areas, we can help to transform our food system into one that is sustainable, resilient, and just. 

In this post, we dive into agri-fintech and marketplaces.

As it stands, farmers around the world are facing numerous threats to their financial stability. Beyond factors like climate change, soil degradation, and water scarcity, which threaten to disrupt the productivity and profitability of agricultural operations, many farmers also have limited access to adequate financing to run their business, or offtake channels to sell their produce. This hampers their ability to earn a fair income from their work. These challenges are particularly acute in developing countries, where the majority of the world’s farmers live. 

Emerging innovations in agri-fintech and marketplaces offer promising pathways toward a more equitable, resilient food system, which puts farmers at the centre. By promoting the financial inclusion of farmers and providing more efficient channels to market, these new technologies grant better and more secure access to financing and offtake solutions, which in turn helps to reduce risk, improve production methods, and stabilise agricultural output as a whole.

Check out our latest posts on 4 other impact areas, Food as Medicine, Circular Economy, Automation and Robotics, and Decarbonisation!

The need for better agrifinance and marketplaces

As it stands, farmers regularly depend on some form of financing  in every production cycle. During the period between seed and harvest when they don’t have any cash flow, farmers require a continuous stream of inputs like water, fertilisers and pesticides. 

Providing viable financing options during these cash-barren months can help to tide farmers over until they can recoup their costs post-harvest. Innovations within agri marketplaces also help farmers by harnessing cash-flow from organising demand-side actors, such as supermarkets and restaurants. This further helps to power the increasing digitisation and sophistication of the agri supply chain. 

Besides being key to the farm’s survivability, access to capital helps farmers to grow and constantly improve their production and efficiency. Agri financing is also needed to prepare farmers to mitigate climate change and resource scarcity while meeting increasing global demand for food, requiring an estimated  US$80bn of annual investment, according to the World Bank.

Half the world’s farmers lack adequate financing

Despite the necessity of agri financing, the World Bank estimates that half of the world’s farmers lack access to adequate financing, equivalent to about 440 million farmers. 

The trend looks to be worsening across the globe. In the US, one of the most well-serviced regions in terms of agricultural finance, the number of farm-focused banks is on a continuing decline despite the increasing need for agri-financing given climbing farm debt. Across the pond in Europe, farmers faced with inadequate financing options often have to turn to inferior options, such as borrowing from agricultural input suppliers at inordinate rates, a process known as “vendor financing”. In other parts of the world, such as India, only 30% of farmers have access to institutional financial support. 

The world’s farmers consist almost entirely of smallholder farmers. Smallholder farmers depend on farming for their livelihood and are usually considered part of the informal economy, producing small volumes on relatively small plots of land, and lack access to resources unlike commercial-scale farmers. On a collective scale, smallholder farmers are responsible for producing 80% of food in regions such as Asia and sub-Saharan Africa. 

These smallholder farmers are particularly out of reach of traditional credit options, such as institutional credit from banks. Due to a lack of reliable and consistent data regarding factors such as asset quality i.e. soil health and price and quality of produce, it is difficult for them to meet borrowing requirements. The unpredictable nature of agriculture also increases lending risk, given that asset quality can radically change in a short span of time due to unseasonal rain or temperature shock. 

Innovations to accelerate financial inclusion of farmers

The current digital transformation of the agri supply chain is already setting the scene for accelerating financial inclusion and productivity enhancement among smallholder farmers on the ground. In India, 4G connectivity and rising smartphone penetration is leading to increased transparency and traceability in the farming sector, enabling faster loans at better terms and reduced risk. 

For instance, our GROW Impact Accelerator alumnus Tractor Junction is streamlining an agri-marketplace to help farmers in India access basic mechanised equipment like tractors and implements, which is typically hindered by a highly fragmented and opaque market for new and used farm vehicles, unfair pricing and a lack of financing options. As an online digital marketplace, Tractor Junction works with all major banks in India to provide ease of access to equipment and loans for smallholder farmers. 

Working on an end-to-end management system to help smallholder rice farmers in Indonesia get financing and supplies as well as sell crops when they are ready, Eratani is partnering with the Indonesian government to develop the agricultural ecosystem and boost crop yields and farmer income. Their technology involves onboarding farmers onto a platform which can provide a granular view of farmers’ credit-worthiness while working with local and neobanks to finance the cost of purchasing agri inputs. 

Powering a more equitable, resilient, and sustainable food system 

Innovations within agri-fintech and marketplaces promise to fill a hole in agricultural finance that has trapped farmers in cycles of debt, as well as held back progress in terms of climate mitigation and adaptability for the worldwide agri supply chain. 

That’s why for this year’s cohort of the AgFunder GROW Impact Accelerator, we are looking to supercharge the success of innovative agri-fintech and marketplace solutions that power the financial inclusion of farmers. By accelerating these new scalable technologies, we can help to power the transition towards a more sustainable, resilient, and equitable food system.