Climate Resilient Agribusiness for Tomorrow

Many financial institutions are aware that the impact of climate change poses a risk for the food & agribusiness sector, therefore affecting their loan portfolio. However, they often lack the knowledge, risk appetite and skills to address climate change within their credit policies and product offering. This is why a consortium of SNV, CGIAR, Wageningen University & Research (WUR), Agriterra and Rabo Partnerships is partnering with national business champions in Kenya, Tanzania and Uganda to drive Climate Smart Agriculture forward.

The partnership, called CRAFT (Climate Resilient Agribusiness for Tomorrow) aims to improve the overall climate resilience of agribusiness value chains and to increase productivity. Within this context, the role of Rabo Partnerships is demonstrating to financial institutions in the three above-mentioned African countries that climate change will have an impact on their loan and investment portfolio, credit processes, policies and product design. The ultimate goal is to assist these financial institutions to increase investments in climate smart solutions.

Financial institutions should have the ambition to contribute to the development of the F&A sector in a sustainable way. But how can they connect the goal of long term, sustainable sector development with the short term incentive to achieve a positive financial return? From its extensive experience in financing the F&A sector worldwide, Rabobank has collected valuable knowledge around this topic. We recognize that enabling farmers’ transition towards more climate resilient business models requires a systematic approach. What does this look like in practise?

Once sustainability is embedded into the strategic perspective of the bank, the first step towards operationalization is to identify the sweet spots: which F&A sector(s) can be identified as value drivers based on sustainability potential and the risk-adjusted return on investment?
For instance in Uganda, dfcu Bank wants to strengthen its position in the F&A sector and become the F&A market leader by focusing on 5 sectors – coffee, dairy, maize, rice and edible oils. Within the edible oils sector, the sunflower sector has made significant contributions to the country’s socioeconomic development. Sunflower production is profitable, with around 240.000 hectares of land currently under sunflower production, and this number keeps increasing. To fully understand the sector and to transition towards a high performing, climate resilient portfolio, Rabo Partnerships will assist dfcu Bank with mapping the sunflower sector. The analysis will also take into account the sustainability information provided by WUR, and we make sure to transform this data into actionable insights for the bank.

At the same time, CRAFT also works bottom up, reaching out to the farmers and providing them with training on more sustainable agricultural practises. Via CRAFT, it was possible to reach out to farmers in remote districts of Uganda such as Lamwo, Pader and Omoro. In these districts, farmers historically depended on traditional (non-sustainable) agricultural practises such as slashing and burning of vegetation, burning charcoal and planting traditional crops using retained seeds. “Through CRAFT, we have trained over 6.500 farmers in the best agricultural practices through the farmer field training, introduced [them to] improved sunflower seed varieties and trained them in climate smart practices. We have also been encouraging the planting of fruit trees like lemons, oranges and tangerines that will generate extra income during the year”, explains Chris Lutara, CEO of Global Traders Limited.

Back at the bank, after selecting the right sector, the next step is to think about which segment to address. This could be the entire value chain from farm to fork, but it could also mean targeting a particular part of the chain that serves as an ideal entry point. To return to the example of the sunflower value chain in Uganda, in this case we identified that the main actors include smallholder farmers that produce local varieties and sell them to local millers, as well as farmers who have contracts with the main oil seed processors. Therefore, dfcu Bank’s business proposition in this case should focus on farmers and farmer organizations, offering green finance solutions tailored specifically to their needs.

The final vital step towards implementation on a client level is understanding the client journey and identifying potential transition pathways that are specific for the sector and/or region. Where do the selected clients and prospects need support to transition to more sustainable and climate resilient business models? We will assist dfcu with their ambition to become part of the regional sunflower ecosystem by identifying key entry points and creating connections with the main players and enablers in the region. The bank can then identify the right opportunities, develop targeted solutions that boost the development of the sector, and become “thought leader” in the sector.