To avoid food insecurity, keep finance flowing
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As lockdowns in response to the coronavirus (COVID-19) curtail economic activity around the world, the agricultural sector seems to be less affected than other industries, at first glance. Yet enterprises in the sector are far from immune to what is happening in the broader economy. Agricultural production and distribution systems are under serious strain—with logistics and marketing disruptions caused by widespread sanitary restrictions, social distancing measures, and labor shortages.
Ensuring that financial resources continue to flow to the agricultural sector is crucial during the pandemic and as countries recover from it, with firms adapting to a new normal. If such funding is not available, disruptions can happen anywhere in the food value chain—which would translate into less food on the table and increased food insecurity.
The shutdown of restaurants, hotels, bars, and event venues has rapidly and fundamentally changed the way food is processed, distributed, and consumed. People are eating more meals at home than out, drastically reducing demand for kinds of food usually consumed in restaurants, like fish or shellfish. At the same time, the closure of food processing plants and farmers’ markets in some countries is hampering supply.
COVID-19 is imposing major changes in food distribution. Because demand has shifted to retail outlets, e-commerce platforms are emerging to facilitate transactions between farmers and final consumers. This is leading to changes to logistics and marketing. One example is the growing demand for food in smaller packages, for family or individual consumption.
Meanwhile, in their operations, food processing plants and food markets need to be retrofitted to comply with social distancing requirements and new sanitary standards.
But as farmers and companies change their business plans and investments, financing must also adapt to these new norms. New contactless processes and transactions, logistics infrastructure, and e-commerce platforms demand substantial capital—and might lead to other investment needs, such as e-payment systems, for example. Early indications point to the increasing importance of warehouse finance as concerns over food availability are leading to higher demand for food stocks.
Farmers and companies operating in the sector rely on finance to purchase inputs as well as plant, harvest, process, trade, and distribute. Yet governments’ responses to COVID-19 are not focusing on agriculture finance, apart from some financial sector-wide policy measures, such as those specific to micro, small, and medium-sized enterprises (MSMEs).
It is equally important that finance flow is continually monitored and focused not only on commercial banks, but directed especially to public banks, financial cooperatives, and microfinance institutions, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.
The heterogeneity of food consumption implies a wide range and diversity of forms of food production, distribution and consumption. In terms of distribution, one of these forms is e-commerce and, in terms of consumption, the fractionation into units of lesser weight, suitable for individual intake, can also be considered representative of the same phenomenon.
First of these forms, food-e-commerce, has increased its importance as a way of supplying food products by the population in many countries of the world as a consequence of COVID-19. It´s presumed that, once the effects of the pandemic wear off, consumer preference for this modality continues to consolidate, extending since health to those related to sustainability and environmental issues.
A consequence of COVID-19 is the need of the actors that make up the production system to adapt to the new requirements, today the sanitary and tomorrow the sanitary and also the environmental requiremnts, too. In our opinion, COVID-19 acts as a catalyst for transition processes towards these “modern” forms of production, distribution and consumption, where concerns about food sustainability will occupy a more prominent place than today.
As in any transition process, also in this case it is important to pay attention to the existence of "drivers" to its consolidation. Among them, consumer trust in products and distribution systems, such as e-commerce, is particularly relevant, jointly with the availability of information by consumers. The need to reinforce the link between information-trust-new forms of distribution and consumption implies a significant work to reduce the existence of information asymmetries between consumers, regulatory agencies and producers, to enable the development of effective forms of communication that allow the consumer has the appropriate information at the time of purchase of the food and to avoid the presence of confusing information about the characteristics of the products, among other aspects.
It is also interesting to point out the importance that governance schemes that regulate the performance of food systems can assume as catalysts for this process. Finally, the existence of a financial system that provides incentives to strengthen the presence of these schemes in the market through various mechanisms within the framework of "sustainable finance" is also viewed as a highly relevant "driver".
In the adaptation and modernization of these schemes, the incorporation of the so-called “green innovations” by the different actors in the different stages of the chain are also called to play an important role. In particular, due to the importance that organizational forms have to ensure the proper operation of these schemes, the so-called "green organizational innovations" are highly relevant, in order to have "a better navigation" of the transition stage previously described as a contribution to achieving the necessary functionality that the different forms of food consumption post COVID-19 needs to consolidate and grow.
You are doing a good work.
I agree with the contents, I feel commercialization of indeginous farmers in rural areas is a great stride for African governments. Grants and flexible loans are most favoured for this to work. Arable land is in abundance in rural areas where farmers use only one season to grow maize.
Need to strengthen finacial cooperatives is very important. Strategies must be developed and operationalized