Agricultural and forestry value chains

Tailored financial products for smallholder farmers and small-scale forest owners 

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ADA strives to improve the livelihoods of smallholder farmers and small-scale forest owners through increased resilience as well as facilitated access to markets and appropriate financial services. To this end, ADA connects value chain actors and provides technical assistance to promote sustainable agricultural and forestry practices.

While crop yields are expected to decline in the coming years due to deteriorating climatic conditions and land degradation, the agricultural sector is also a major contributor to climate change due to unsustainable management of land (monoculture, use of chemical fertilisers and pesticides), forests (deforestation) and livestock (overgrazing). Nevertheless, the agricultural and forestry sectors are crucial for the livelihood of smallholders, food security and environmental protection.

To increase the productivity and resilience of the sector, farmers, forest owners and other actors in agricultural, agri-food and forestry value chains in developing countries need access to appropriate financial services.

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However, many microfinance institutions (MFIs) lack the resources and tools for managing agricultural and forestry loans but also shy away from the operational costs and perceived high risks, making it difficult for farmers and forest owners to obtain financing to improve their production practices and access new markets. Limited structured value chains for staple crops is often another reason for limited funding by financial institutions. 

To overcome these challenges, ADA’s support for small-scale producers is threefold: 

—  ADA puts in place technical assistance projects that help producers to increase productivity and sustainability through best practices. 

—  ADA strives to develop agricultural and forestry financing services with MFIs, mainly to facilitate farmers’ and forest owners’ access to financing. 

—  ADA strengthens the links between different value chain actors to facilitate market access for farmers, forest owners and processors so that they can sell their products at a fair price.

Strengthening value chains to improve market access for small producers

In order to address structural weaknesses, ADA favours an approach that focuses on integrating smallholders into the value chains of both the agricultural and forestry sectors. Upstream of production, the emphasis is on ensuring that smallholders have access to the resources they need, such as quality seeds and inputs and efficient tools and equipment, to increase the productivity of their activities. Support to encourage the adoption of good production practices also helps to improve the quality and viability of their activities. Similarly, downstream, ADA focuses on the needs of buyers (wholesalers) and end consumers to ensure more efficient access to markets for products.

The value chain approach favoured by ADA thus aims to strengthen collaboration and relationships between all the players involved in the agricultural and forestry production chain: this includes suppliers of inputs, such as seeds, fertilisers and equipment; small-scale farmers and foresters/producers; organisations specialising in building innovative technical skills, particularly for climate-smart agricultural practices and sustainable forest management; processors who convert raw materials into finished products; buyers (wholesalers) and end consumers.

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As well as strengthening the production chain, the approach aims to consolidate the financing chain by involving all the financial institutions capable of providing appropriate financing solutions, not only to smallholders, but also to input/plant suppliers, processors and wholesalers.

In this context, ADA set up several innovative pilot projects in 2022 to connect suppliers and buyers and to complement financial services with digital and capacity-building solutions.

The tested solutions include entrepreneurial capacity building programmes for SMEs, agricultural index insurance, training in adequate practices and a marketing platform for agricultural products.

Taking into account the specific needs of small-scale foresters

In addition, ADA is setting up a fully-fledged multiannual programme for strengthening forestry value chains. Under this programme, ADA aims to connect different actors and to provide tailored financing and training to different types of forestry professionals such as forest owners and micro to medium-sized wood-processing businesses.

SSNUP: an international smallholder farmer support programme coordinated by ADA

SSNUP (Smallholder Safety Net Upscaling Programme) aims at increasing the productivity and resilience of smallholder farmers in Africa, Latin America and Asia. SSNUP co-finances technical assistance projects designed and set up by impact investors to support smallholder farmers and value chain actors such as SMEs, agricultural cooperatives, MFIs and other agricultural financial intermediaries. These projects can range from developing index insurance to promoting climate-smart and agroecological farming.

In addition to the expected positive effects on the resilience and productivity of small-scale farmers, the medium-term aim of strengthening other players in the value chains via these projects is to stimulate private investment in these countries’ agricultural sectors, thereby promoting their sustainable development.

F2.0: an online platform to give smallholder farmers and cooperatives easier access to financing

ADA’s F2.0 online platform connects smallholder farmers and cooperatives with MFIs to give them access to tailored and efficient agricultural financing. In addition, streamlined input and stock management increases the profitability of the cooperatives, strengthens income security for farmers and reduces risk for the MFIs.

Smart agriculture: promoting the use of climate-resilient farming techniques

ADA encourages vulnerable smallholders to adopt environmentally friendly practices. Together with its MFI partners, ADA designs green loans to promote sustainable agriculture and provides their farmer clients with the necessary training. 

Climate finance: mobilising international investments for increasing the resilience of vulnerable populations to climate change 

ADA strives to channel international climate funding and impact investment flows to the people who need it most – vulnerable smallholder farmers in developing countries. For example, ADA is part of the consortium of the Climate finance: mobilising international investments for increasing the resilience of vulnerable populations to climate change. As part of the preparatory phase, ADA conducted market research and needs assessments and sought out partners to develop green financial products that address the needs of vulnerable communities.