Growing economies with agriculture
A strategy outlined by Oikocredit aims to expand its agricultural portfolio of projects outside micro- finance to 30% over the next five years. An integral part of this objective is to expand financing to agricultural projects. The agricultural strategy, which was launched in 2010, focuses on developing countries with a significant potential for development through agricultural projects.
Several elements make up the strategy, including extending the scope for pre-export financing. This means lending to cooperatives or companies that export commodities like coffee, cocoa, or cotton by buying products from farmers and bringing them to the market.
‘These organizations help small farmers sell their products in Europe or the US, and assist them in securing an income. But they have limited funds to buy from farmers in order to export the agricultural commodities overseas,’ said Oikocredit director Loans and Investments Florian Grohs. ‘The time between buying the harvested coffee beans, and getting the money for the coffee they’ve sold to an international buyer, can be bridged with an Oikocredit loan.’
Expanding an organization’s potential to deal with organizational and operational tasks also plays a vital role in strengthening Oikocredit’s agricultural portfolio. Partnerships already exist with NGOs including Agriterra and ICCO who work to consult with agricultural partners on practical issues.
‘Often our cooperative partners have difficulty with the financing and accounting side of their operations. For example, the coop is made up of groups of farmers with little formal education, accompanied by a volunteer board, and might be having trouble finding an experienced manager,’ said Mr Grohs. ‘So we hire consultants to look at how we can help them in their financial operations and deal more effectively with international buyers.’
Environmental sustainability is another high priority for the industry, with farming techniques and climate change presenting challenges. While demand for organic produce has grown in the West, traditional farming techniques still make up the overwhelming majority of farming methods in developing countries.
‘The reality is that there are very few organic farms in developing countries at the moment; around 1% or maybe even less. That’s why we work with as many agricultural producers as we can, encouraging transitions to organic where feasible.’
Extra measures in the form of training and education serve to decrease the risk agricultural projects are known to face. ‘The potential of the agricultural sector is very large and it faces risks,’ said Grohs. ‘But weighing the risk against the potential to improve the lives of small farmers and their families, the decision to forge ahead with our agricultural strategy is clear.’