Insurance Could Ease the Challenges of Agric



Accra, September 20, 2017//-The agriculture sector still holds a lot of promise provided government takes urgent measures to mitigate against certain inherent risks in the sector.

The sector, which has seen a continuous decline in its contribution to Gross Domestic Product (GDP) over the last few years, is bedeviled with many challenges, including: lack of credit, ready market for produce and absence of irrigation facilities.

The agriculture sector remains one of the fundamental drivers of a strong Ghanaian economy. However, over the past decade, the agriculture sector has seen steady slow growth.

After witnessing a major slump in growth in 2007, it is estimated that the agriculture sector will grow at an average of 3.3% yearly until 2018 while contributing just about 25% to the nation’s Gross Domestic Product (GDP).

However, Andrew Ahiaku, Head of Agribusiness, Barclays Bank, believes that the promotion of agriculture insurance could ease most of these challenges and make the sector more attractive to investors and financial institutions that will ultimately increase its contribution to GDP.

“There is a potential in the sector but my view is that it is a sector that is inherently risky, there are certain risks that you cannot take away. So there is the need for government to support agriculture financiers or the banks to deal with some of these risks.

For example, if government was able to provide infrastructure, if government supports the sector such that there is strong market for products, the only thing banks will be thinking of, or the farmer will deal with, will be the production risk and that production risk can be dealt with by agriculture insurance. If that is done on a large scale, agriculture will be no longer be inherently risky,” he explained to the B&FT in Accra.

Unfortunately, one difficulty with that proposal is that because the uptake for agriculture insurance is low, the premium for it is still very high.

“At Barclays, what we have done is to partner with other agencies like EXIMGuaranty, and the Ghana Agriculture Insurance Pool for example, to be able to reduce some of the risks around agriculture financing,” he noted.

The agricultural sector, he argued, must be approached from an entire value chain perspective, such that any intended support factors in the entire value chain from production to the retail stage, as well as the final consumer. “Financing of the sector must be approached from a value chain perspective. So if you are looking at agribusiness then, your focus is on production all the way to the retailer,” he said.

He added that: “Agriculture in Ghana only looks at crops, forestry, and fishing, but it leaves out some key actors. For example, if you need somebody to moves maize from Bawku to Accra, and that is the only work that person does. That person must be seen as actor in the agriculture value chain.”

Of all the problems confronting agribusiness players in the country, Mr. Ahiaku believes the absence of a ready market is the most pressing one among them all.

On why most banks still shy away agriculture, he said that has to do with the market risk. “With the market risk, I am talking about the farmer being sure that when he produces, it will be bought. So if a farmer comes to me for funding, the question I will be asking him is: ‘how are you going to sell it?’ If he tells me my maize is going to be bought by Guinness Ghana Breweries Limited, or is going to be bought Accra Breweries Limited, then that sought of settles the market aspect.

“How to move the product? That is my next concern. We need to learn from other countries. For example in Nigeria, in order to deal with the problems of marketing in Nigeria, the government took a conscious effort to support tomato farmers with a dryer and that changed the financing of tomato entirely.

In Turkey, they had a problem with paddy rice. The government identified a private sector investor and gave him support to come up with a mill and that changed the quality of the rice. So if government comes in to assist farmers deal with some of these issues, the sector will become attractive for financing,” he argued.

Commenting on Barclays’ activities in the sector, he said 11 percent of the bank’s loan book went into financing agribusinesses, above the required 10 percent threshold.

Over the years, Barclays Bank has also injected millions of dollars into financing a host of businesses along the agriculture value chain notably, a GH¢4 million support to a poultry concern which benefitted 1,200 farmers as at last year, he explained.

“We also supported Guinness Ghana’s aggregators in the sorghum value chain up North. What we did was to provide financing for the aggregators – the people who go round the farm gates to buy from the farmers’, before transporting it to Guinness Ghana,” he stated.

“It is our passion for financing the sector which has led us to into working with bodies like FAGRO because we believe it is another way of getting to people in the agricultural value chain and telling our agri-financing story in a bigger way than we are doing.

According to data from the USAID Financing Ghanaian Agriculture Project (USAID-FinGAP), Barclays is currently the largest agricultural financier to the maize, soya and rice value chain, with about US$57 million worth of deals.


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