The Covid-19 pandemic and runaway inflation blamed on the Ukraine-Russia war have dealt a double blow to global economies and businesses. Enterprises that rely heavily on imported raw materials have been forced to pay more and wait for longer for deliveries as a result of the marked global appreciation of the value of the US dollar.

Supply chain disruptions and increases in freight, insurance, and logistic service charges means a conveyor-belt kind of adverse price effect where manufacturers pass on the biting cost to distributors, distributors to wholesalers and eventually to retailers whose only recompense is to increase retail prices for their goods.

The Kenya Association of Manufacturers says sea freight costs have risen by 37 per cent, with delays in the supply of imported raw and intermediate materials used in local manufacturing. Rising costs calls for an urgent review of contingent plans among stakeholders to ensure the smooth flow of goods and services is not disrupted.

How can banks chip in to reduce challenges arising from delayed deliveries, rising transport and storage costs?

Given the importance of Russia and Ukraine in the global supply chain for fertiliser, cereals, and oil seeds, the Food and Agriculture Organisation (FAO) predicts that global prices will remain high in the coming months. As a result, more people will face severe food shortages as production declines due to reduced fertiliser use. Reduced local food supply means increased import demand for food items, causing prices to rise even further. With the country currently suffering from a drought that has left more than 3.5 million people facing starvation, millions of heads of livestock dead, and massive crop failure, a call to action would entail the involvement of financial institutions to provide much-needed funds to fund immediate proactive measures to reverse the deteriorating situation.

Given the complex and multifaceted nature of Kenya’s agricultural sector, the best solution to Kenya’s food crisis is a home-grown solution in which all parties actively participate in enhancing efficiencies within their units while reaching out to other partners to enable them to fulfil their respective various tasks.

According to the World Bank, global food demand will increase by 70 per cent by 2050, requiring at least $80 billion in annual investments across all value chains to meet this demand. The majority of these funds, which must come from the private sector needs to go toward modernising farming activities through mechanisation, the adoption of climate-smart technologies and increased processing to reduce post-harvest losses.

Agriculture loans and investment portfolios are currently disproportionately low in relation to the agricultural sector’s contribution to Gross Domestic Product (GDP). Financial  institutions and institutional investors have traditionally provided the sector with very limited resources. Agriculture accounts for 3.3 per cent of gross loans offered by local banks.

Banks can help to strengthen agriculture finance markets by re-tooling themselves through continuous investment in agribusiness knowledge to better understand emerging risks and co-create solutions with sector players. This includes ensuring suitability and climate change aspects and risks are addressed and mitigated to drive responsible financing as the continent seeks to achieve agricultural transformation.

Absa Bank Kenya, on its part, has embedded agribusiness as one of the growth pillars in its overall business strategy and a dedicated Agribusiness team supported by an Agri-specialist to advise the bank and its customers on various aspects. The bank takes a value chain approach, actively providing solutions for input providers, primary producers, aggregators, and agro-industry players.

With Kenya’s agriculture sector projected to grow by 6.3% in 2022, efforts to increase lending to this critical segment of the economy will need to be enhanced. To stem runaway food losses and reduced production for a better Kenya, more players in the financial sector must propose solutions that speak directly to agri-aggregator challenges. More than ever, financial institutions must shift their investments to sustainable agriculture and agri-food industries.

—Simon Kinuthia is the Head of Agribusiness at Absa Bank Kenya PLC