Cash is king in Agribusiness. Here is why.
Unlike other sectors such as Oil and Gas, that have sweet access to finance, sourcing funds for an agribusiness remains a hard nut to crack. Credit to the agricultural sector was 3.26% and 3.36% of total credit to the private sector in 2016 and 2017 respectively (NBS).
Farming operations flourish with efficient finance. An unhindered flow of cash is required to procure farm inputs, grow crops or rear animals, process produce, distribute to the markets and protect against other inherent agribusiness risks, among others. Because of the risk perception being higher at the upstream segment of the agribusiness, only few firms receive credits at reasonable terms to carry out their activities from institutions. For these lucky players that are equipped with superior financial arsenals, delivery expectations are usually high. When they fail, the food value-chain is stressed: prices soar as supply falls.
Risks frustrate capital accretion, and agribusinesses are perceived to contain risks. Public-private initiatives such as NIRSAL have the mandate to ensure agricultural value-chains are fundable. These bodies introduce risk-cutting measures to unlock funding. This will reduce exposure of agro-consumers to rising prices, thereby diminishing the depth of hunger and malnutrition in the process. Losses can only be imagined if one does not consider possible threats to the success of one’s agribusiness venture. Finance is accessible to the extent that enough information is available as regards the safety of the funds invested.