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Will young people be attracted to the agricultural sector if access to finance is made possible?


par Lamon Rutten

Will young people be attracted to the agricultural sector if access to finance is made possible? Will they be willing to involve themselves in agriculture? According to Mike Njau, the answer is yes.

Twenty five year old Mike Njau is a model strawberry farmer in Kiambu County in Kenya. Three years ago, he resigned from his job in a local bank. He ventured into small scale strawberry farming. Today, he has expanded his business and doubled his income. He is now a full-time strawberry farmer. Next year, he plans to start adding value to his harvest. M. Njau benefits from a training provided by a regional non-profit group Farm Concern International, which is supported by Alliance for a Green Revolution in Africa (AGRA).

According to M. Njau, lack of access to affordable finance is one of the biggest challenges facing young people in Africa who want to venture into agriculture. The other challenge is lack of land. M. Njau was lucky enough to get financing through family borrowing and the little savings he had from his banking employment. Since he started, however, he has used internally generated resources to finance his farm expansion. He cannot borrow from banks or microfinance institutions because he does not have collateral. He says even if he had collateral, the cost of loans is high.

There are many cases similar to his. The interest in farming by African youth is not restricted to food growing or livestock production, but also extends to investment in value chain production.

In Tanzania, three students of Sokoine University own a milk processing plant. At the beginning, their daily processing capacity was 30 liters. Today, it is 1,000 liters. The number of young farmers in Africa is increasing but lack of affordable financing is holding them back. Financing is the bottom-line. Buying land is expensive. Leasing land is cheaper but also requires funding. The Kenya Youth Enterprise Development Fund (YEDF) list of borrowers shows that youth is very interested in borrowing for farming. Evidence shows that if finances are made available, an increasing number of young people will start working in the agricultural sector.

According to the Food and Agriculture Organization of the United Nations (FAO), the average age of the Kenyan small scale farmer is 55 years old. This is also true for the rest of Africa where young people represent a large portion of the population. Successive high level talks in Africa have appreciated the huge potential that could be realized from the engagement of youth in the agricultural sector. Agriculture offers a mechanism for building skills and accessing education and training opportunities for a generation that is key to the future of Africa.

According to various experts, one action necessary to attract youth is to redefine the agri-food sector to reflect the promise it holds for business and mechanical skills, rather than for the manual labour of subsistence farmers. A concentrated effort to rebrand the opportunities, update educational curricula, and engage the younger generation workforce is needed. Some of the actions that have been called for implementation include setting up demonstration farms to show how money can be made in agriculture; replicating existing youth agripreneur champions whose number is increasing in the private sector; conducting focus groups to interact with young people and explain how they could enter into agriculture; promoting the development of relevant skills starting at the high school level; and modernizing educational programs, including integration of business skills into existing coursework.

Enabling youth farmers to venture into agriculture should be priority for all development stakeholders. Solutions that would enable the youth access financing should be used and implemented urgently. Several solutions have already been suggested and partially successfully put into practice in various countries.

According to the 2012 Global Food Policy Report, allowing alternative forms of collateral such as warehouse receipts and future harvests can reduce the cost of credit. Leasing can be particularly helpful for young farmers, as it opens access to equipment with less collateral than is the case for purchasing. Linking agricultural credit to extension services can address the needs of young farmers for simultaneous finance and information.

There is also an opportunity in bundling credit with insurance which will force farmers to purchase more insurance than they would otherwise wish, but at the same time opens new opportunities for borrowing. Matching grants are used in many programs supported by governments and non-governmental organizations to promote improved technologies, empower farmers to hire service providers, build linkages with private firms through productive partnerships, and provide rural infrastructure for common use.

Out-grower arrangements can offer pre-financing of inputs and assured marketing channels. For example, contract farming with financial arrangements that limit risk of default or side-selling has proven effective in Mozambique, Rwanda, Tanzania, and Zambia. Similarly, provision of credit through supply chains in Kenya has benefited more than 3,000 farmers. The program reduces the risk of default through cashless bank transfers. The Alliance for a Green Revolution in Africa’s Innovative Finance Initiative has achieved low default rates on partial guarantees in Kenya, Mozambique, and Tanzania.

Programs that combine access to financial services with advice or mentoring are likely to be especially suitable in light of the limited experience of young people. Those that start by offering grants and systematically transition to offering savings and ultimately credit may be promising.

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