Augustin Baharanyi, the Director for Planning at the Ministry of Agriculture in the Democratic Republic of Congo is discussing with his colleagues at the Ministries of Planning and Finance how exactly and for how long COVID-19 will affect the economy and the agrifood system, which is a critical economic and social sector, and what the world we live in will look like until medical solutions, be it a cure or a vaccination, are effective and widely available. All these are critical questions that many public sector officials are struggling with as they design policy responses under a scenario of huge uncertainty.

Governments, like the one Mr. Baharanyi works for, have been trying to mitigate the impact of COVID-19 on their country’s economy and some are now in the process of starting to emerge from shutdowns gradually and very cautiously. Measures so far aim to preserve jobs during the hibernation period of the lockdown, supporting the real sector as much as possible, in hopes that the situation will return to new normal and economic activities will ramp up soon. These shutdowns and the hibernation of private sector activity are having important impact on the financial sector.

There are signs that the agriculture loan portfolios may be somewhat less impacted than the loan portfolios in other sectors, as the results of a small survey of financial institutions serving agriculture indicates. Financial institutions seem to have liquidity, which is hard to deploy with so much uncertainty in the real sector in absence of further public interventions in the form of guarantees and/or of lines of credit. At the same time, several solutions are being proposed that would not have been considered before COVID-19, which include providing public equity to firms, and even to go as far as to nationalize systemically important enterprises. The big question is whether firms that were doing well and were viable before the pandemic will be able to face the new realities in a “new normal” world? Answers to this question will likely be sector specific, with some sectors of the economy likely to see higher business “mortality” rates compared to others.

How will agriculture, farmers and agribusinesses fare? While people can live without most other goods and services, they will always need food. But on the other hand, agriculture is not immune from what is happening in the broader economy. As the economic recession starts hurting household income, overall food demand, especially high value products, will drop. Furthermore, food production and distribution systems are already under serious strains, with agro-logistic marketing disruptions happening due to sanitary restrictions, social distancing, and labor shortages. The shutdown of restaurants, hotels, bars, resorts, event venues, etc. along with closure of food processing plants and farmer markets in several countries has fundamentally changed the way food is processed, distributed, and consumed. Food consumption has moved now to home consumption and away from out of home consumption. Demand for some foods that are more likely to be consumed outside home, such as shellfish, fish, etc. is seeing collapse in its demand. With the gradual opening of the economies, this will start changing again, likely shifting gradually towards out of home consumption, but with measures of social distancing still in place, even during recovery. How many establishments will be able to afford serving half of less of their capacity?

Food distribution during COVID-19 has shifted more towards retail outlets and ecommerce platforms are emerging to facilitate the P2P transactions (from the farm to the consumer’s table) which also needs adaptation of the logistics: smaller packages, smaller quantities to transport, etc. Food processing plants and food markets are having to be retrofitted for social distancing and new sanitary standards. Business plans, investments, and financing would need to adapt to these new norms. And there may be some new opportunities emerging for financing new contact-less processes and transactions, logistics infrastructure, and e-commerce platforms. Early indications also point to warehouse or inventory finance increasing in importance as concerns over food availability are leading to higher demand for food stocks.

There is some information on the supply side of agriculture, where farmers report some negative impacts on their activities, mainly due to movement restrictions of labor to farms, rising prices for inputs (also due to devaluation in some currencies), and loss of household incomes and shutting down of some markets where to sell their products. On the other hand, agro-dealers report more significant disruptions due to COVID-19 in sourcing and distributing inputs to farmers, reduced access to trade credit and bank credit, and with shorter repayment periods being requested. What these early anecdotal indicators may imply is that at least on the supply side, especially for the staple food production, farmers and agro-dealers that were viable before COVID-19, will likely to be viable under the “new normal”, particularly if they continue accessing adequate finance during the pandemic.

Supporting trade finance and availability of credit for agriculture and food processing inputs will become critical to maintain food supplies as we move to the next crop season and enable moving food from surplus areas of the world to food deficit areas. Within countries, finance would need to enable and facilitate the retrofitting to sanitary and social distancing measures and the shift in logistics and distribution that accompany changes in where food is consumed and how is distributed. For example, as the case of China has already shown, the rise of e-commerce platforms goes hand in hand with epayment systems and financing.

Finance to agriculture needs to be timely available at critical times of the crop year to enable activities for input purchases, planting, harvesting, post-harvest processing, trading, distribution, etc. to continue and adapt. If such funding is not available, disruptions can happen anywhere in the food value chain which can translate to less food on the table and to increase food insecurity. So far there are not specific responses to COVID-19 by governments dedicated to agriculture finance beyond the economy and financial sector-wide policy measures, such as MSMEs. So, given the uncertainty that policy makers like Mr. Baharanyi and his colleagues are facing these days, it is clear that the priority should be to ensure that financial resources continue to flow to agriculture during and after the pandemic. Finance can go a long way in reducing food system disruptions, adapting the food supply chain to the new sanitary standards and keeping the cost of food affordable for the most vulnerable populations. It is also crucially important that the flow of such finance is continually monitored. In addition to monitoring the activities banks, it is of special relevance that the situation and activities of public banks, financial cooperatives, MFIs and of value chain firms engaged in financing are subject to a close follow up, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.

By Panos Varangis, Juan Buchenau, Diego Arias and Toshiaki Ono

Coronavirus and Cooperative Financial Institutions, an agenda for the future

The pandemic is affecting severely ample segments of the global population, including members of Cooperative Financial Institutions as well as the cooperatives themselves, exposing their strengths and weaknesses; and, also, opening opportunities and challenges that should be addressed in an “agenda for the future”.

On the positive side, many well-managed financial cooperatives have proven in past crises in several countries to be reliable partners of their members, who oftentimes are not considered viable customers by commercial banks. Such strong financial cooperatives have even been able to weather situations such as the great recession better than commercial banks in some countries, reflecting the trust of their members in the financial institutions they own.*)  In these cases, financial cooperatives have maintained and even attracted deposits from other institutions during the crisis. This in turn has allowed them to support their members with financing at a time, when commercial banks withdraw from serving their customers at the smaller end.

Another set of financial cooperatives lack on the other side the capacity to deal with situations like the current pandemic, especially in cases in which they do not have access to a financial safety net that can provide support. In similar fashion to other financial entities, these financial cooperatives see their financial situation deteriorate as their members face difficulties repaying their loans and as they are forced to withdraw their savings to cope with lower income and remittance flows. In contrast to banks, which in many countries can use funds from the Central Bank to address shortages in liquidity, financial cooperatives only have access to such funds in few countries. In addition, the deposits of their members are rarely covered with deposit insurance (see blog by Dave Grace, ICURN), and members may lose their money, if their cooperative were to be closed. This situation is likely to affect several financial cooperatives, especially if they were already struggling before the pandemic. In such cases the authorities will face the challenge of having to support processes of merger and acquisitions of the failing entities or, alternatively, of fostering processes for their orderly liquidation that minimize losses for the member-depositors.

The pandemic clearly highlights the importance of existing relations and institutions on which can be relied in times of trouble. This seems true for individuals and for all kind of micro and small businesses, including farms. People and micro/small businesses can be better supported in dealing with emergencies like this one, if they already have accounts and a credit history that can be leveraged to grant new loans, something that may be especially valuable in a situation, in which it is difficult to perform loan appraisals. Financial cooperatives on the other side also need to rely on existing facilities to access liquidity and funding to overcome the effects of systemic events (such as pandemics) on their portfolio (and on their equity) which are caused by payment moratoria, by the need to reschedule loans, and by loan defaults while they require at the same time resources to support existing viable clients overcome the storm. Both situations show the importance of further investments in the future to grow their member base, and to enhance the stability of the cooperative institutions through better regulatory and supervisory frameworks that allow them in time to access the funds available to the other financial entities, as well as through strong financial safety nets on which they can rely in times of trouble.

In the times of pandemics like COVID-19 reliance on efficient ways to assess loans and distribute money without physical contact becomes critical.  Several commercial banks are moving to automated systems for loan processing without visits to clients and to the disbursement of loans into e-wallets or bank accounts that can be accessed through digital means.  Commercial banks do this for existing clients, for now, so having a pre-existing relation with a bank or a financial institution becomes crucial.  At the same time, digital accounts enable a faster and more efficient distribution of G2P payments during a crisis such as COVID-19.   The need for digital payment channels becomes even more important as these channels are critical to support the rapidly evolving e-commerce platforms that sustain economic activity and commerce during pandemics.   Financial cooperatives in many countries must catch up also in this regard, investing in technologies to that allow them to modernize the way, in which they interact with their members and clients and that furthermore can help them use new e-commerce platforms to sell their produce and purchase goods they need (e.g. inputs, etc.). Given that small isolated financial cooperatives cannot be expected to develop their own digital delivery platforms, this route will likely increase the relevance of federations and other apex entities as aggregators that can partner with other providers and that can help also smaller financial cooperatives enter the digital market.

*) See: ILO, Resilience in a Downturn: The power of financial cooperatives, March 2013; available at:  https://www.ilo.org/empent/Publications/WCMS_207768/lang--es/index.htm

Blog drafted by Juan Buchenau, Panos Varangis (both World Bank) and Bjorn Schrijver (Rabo Partnerships, Netherlands).

As lockdowns in response to the coronavirus (COVID-19) curtail economic activity around the world, the agricultural sector seems to be less affected than other industries, at first glance. Yet enterprises in the sector are far from immune to what is happening in the broader economy. Agricultural production and distribution systems are under serious strain—with logistics and marketing disruptions caused by widespread sanitary restrictions, social distancing measures, and labor shortages.

Ensuring that financial resources continue to flow to the agricultural sector is crucial during the pandemic and as countries recover from it, with firms adapting to a new normal. If such funding is not available, disruptions can happen anywhere in the food value chain—which would translate into less food on the table and increased food insecurity.

The shutdown of restaurants, hotels, bars, and event venues has rapidly and fundamentally changed the way food is processed, distributed, and consumed. People are eating more meals at home than out, drastically reducing demand for kinds of food usually consumed in restaurants, like fish or shellfish. At the same time, the closure of food processing plants and farmers’ markets in some countries is hampering supply.

COVID-19 is imposing major changes in food distribution. Because demand has shifted to retail outlets, e-commerce platforms are emerging to facilitate transactions between farmers and final consumers. This is leading to changes to logistics and marketing. One example is the growing demand for food in smaller packages, for family or individual consumption.

Meanwhile, in their operations, food processing plants and food markets need to be retrofitted to comply with social distancing requirements and new sanitary standards.

But as farmers and companies change their business plans and investments, financing must also adapt to these new norms. New contactless processes and transactions, logistics infrastructure, and e-commerce platforms demand substantial capital—and might lead to other investment needs, such as e-payment systems, for example. Early indications point to the increasing importance of warehouse finance as concerns over food availability are leading to higher demand for food stocks.

Supporting trade finance and credit for agriculture and food processing will become critical to move food from global surplus areas to deficit areas while maintaining food supplies as the next crop season starts in some countries.  Farmers and companies operating in the sector rely on finance to purchase inputs as well as plant, harvest, process, trade, and distribute. Yet governments’ responses to COVID-19 are not focusing on agriculture finance, apart from some financial sector-wide policy measures, such as those specific to micro, small, and medium-sized enterprises (MSMEs).

It is equally important that finance flow is continually monitored and focused not only on commercial banks, but directed especially to public banks, financial cooperatives, and microfinance institutions, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.

Finance will be instrumental in reducing food system disruptions, adapting food supply chains to new sanitary requirements, and keeping food affordable for the most vulnerable people. 

By Panos Varangis, Juan Buchenau, Diego Arias, and Toshiaki Ono 

See the blog at World Bank Blogs. 

By Panos Varangis, Juan Buchenau, Diego Arias, and Toshiaki Ono 

As lockdowns in response to the coronavirus (COVID-19) curtail economic activity around the world, the agricultural sector seems to be less affected than other industries, at first glance. Yet enterprises in the sector are far from immune to what is happening in the broader economy. Agricultural production and distribution systems are under serious strain—with logistics and marketing disruptions caused by widespread sanitary restrictions, social distancing measures, and labor shortages.

Ensuring that financial resources continue to flow to the agricultural sector is crucial during the pandemic and as countries recover from it, with firms adapting to a new normal. If such funding is not available, disruptions can happen anywhere in the food value chain—which would translate into less food on the table and increased food insecurity.

The shutdown of restaurants, hotels, bars, and event venues has rapidly and fundamentally changed the way food is processed, distributed, and consumed. People are eating more meals at home than out, drastically reducing demand for kinds of food usually consumed in restaurants, like fish or shellfish. At the same time, the closure of food processing plants and farmers’ markets in some countries is hampering supply.

COVID-19 is imposing major changes in food distribution. Because demand has shifted to retail outlets, e-commerce platforms are emerging to facilitate transactions between farmers and final consumers. This is leading to changes to logistics and marketing. One example is the growing demand for food in smaller packages, for family or individual consumption.

Meanwhile, in their operations, food processing plants and food markets need to be retrofitted to comply with social distancing requirements and new sanitary standards.

But as farmers and companies change their business plans and investments, financing must also adapt to these new norms. New contactless processes and transactions, logistics infrastructure, and e-commerce platforms demand substantial capital—and might lead to other investment needs, such as e-payment systems, for example. Early indications point to the increasing importance of warehouse finance as concerns over food availability are leading to higher demand for food stocks.

Supporting trade finance and credit for agriculture and food processing will become critical to move food from global surplus areas to deficit areas while maintaining food supplies as the next crop season starts in some countries.  Farmers and companies operating in the sector rely on finance to purchase inputs as well as plant, harvest, process, trade, and distribute. Yet governments’ responses to COVID-19 are not focusing on agriculture finance, apart from some financial sector-wide policy measures, such as those specific to micro, small, and medium-sized enterprises (MSMEs).

It is equally important that finance flow is continually monitored and focused not only on commercial banks, but directed especially to public banks, financial cooperatives, and microfinance institutions, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.

Finance will be instrumental in reducing food system disruptions, adapting food supply chains to new sanitary requirements, and keeping food affordable for the most vulnerable people. 

See the blog at World Bank Blogs. 

By Panos Varangis, Juan Buchenau, Diego Arias, and Toshiaki Ono 

As lockdowns in response to the coronavirus (COVID-19) curtail economic activity around the world, the agricultural sector seems to be less affected than other industries, at first glance. Yet enterprises in the sector are far from immune to what is happening in the broader economy. Agricultural production and distribution systems are under serious strain—with logistics and marketing disruptions caused by widespread sanitary restrictions, social distancing measures, and labor shortages.

Ensuring that financial resources continue to flow to the agricultural sector is crucial during the pandemic and as countries recover from it, with firms adapting to a new normal. If such funding is not available, disruptions can happen anywhere in the food value chain—which would translate into less food on the table and increased food insecurity.

The shutdown of restaurants, hotels, bars, and event venues has rapidly and fundamentally changed the way food is processed, distributed, and consumed. People are eating more meals at home than out, drastically reducing demand for kinds of food usually consumed in restaurants, like fish or shellfish. At the same time, the closure of food processing plants and farmers’ markets in some countries is hampering supply.

COVID-19 is imposing major changes in food distribution. Because demand has shifted to retail outlets, e-commerce platforms are emerging to facilitate transactions between farmers and final consumers. This is leading to changes to logistics and marketing. One example is the growing demand for food in smaller packages, for family or individual consumption.

Meanwhile, in their operations, food processing plants and food markets need to be retrofitted to comply with social distancing requirements and new sanitary standards.

But as farmers and companies change their business plans and investments, financing must also adapt to these new norms. New contactless processes and transactions, logistics infrastructure, and e-commerce platforms demand substantial capital—and might lead to other investment needs, such as e-payment systems, for example. Early indications point to the increasing importance of warehouse finance as concerns over food availability are leading to higher demand for food stocks.

Supporting trade finance and credit for agriculture and food processing will become critical to move food from global surplus areas to deficit areas while maintaining food supplies as the next crop season starts in some countries.  Farmers and companies operating in the sector rely on finance to purchase inputs as well as plant, harvest, process, trade, and distribute. Yet governments’ responses to COVID-19 are not focusing on agriculture finance, apart from some financial sector-wide policy measures, such as those specific to micro, small, and medium-sized enterprises (MSMEs).

It is equally important that finance flow is continually monitored and focused not only on commercial banks, but directed especially to public banks, financial cooperatives, and microfinance institutions, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.

Finance will be instrumental in reducing food system disruptions, adapting food supply chains to new sanitary requirements, and keeping food affordable for the most vulnerable people. 

See the blog at World Bank Blogs. 

By Panos Varangis, Juan Buchenau, Diego Arias, and Toshiaki Ono 

As lockdowns in response to the coronavirus (COVID-19) curtail economic activity around the world, the agricultural sector seems to be less affected than other industries, at first glance. Yet enterprises in the sector are far from immune to what is happening in the broader economy. Agricultural production and distribution systems are under serious strain—with logistics and marketing disruptions caused by widespread sanitary restrictions, social distancing measures, and labor shortages.

Ensuring that financial resources continue to flow to the agricultural sector is crucial during the pandemic and as countries recover from it, with firms adapting to a new normal. If such funding is not available, disruptions can happen anywhere in the food value chain—which would translate into less food on the table and increased food insecurity.

The shutdown of restaurants, hotels, bars, and event venues has rapidly and fundamentally changed the way food is processed, distributed, and consumed. People are eating more meals at home than out, drastically reducing demand for kinds of food usually consumed in restaurants, like fish or shellfish. At the same time, the closure of food processing plants and farmers’ markets in some countries is hampering supply.

COVID-19 is imposing major changes in food distribution. Because demand has shifted to retail outlets, e-commerce platforms are emerging to facilitate transactions between farmers and final consumers. This is leading to changes to logistics and marketing. One example is the growing demand for food in smaller packages, for family or individual consumption.

Meanwhile, in their operations, food processing plants and food markets need to be retrofitted to comply with social distancing requirements and new sanitary standards.

But as farmers and companies change their business plans and investments, financing must also adapt to these new norms. New contactless processes and transactions, logistics infrastructure, and e-commerce platforms demand substantial capital—and might lead to other investment needs, such as e-payment systems, for example. Early indications point to the increasing importance of warehouse finance as concerns over food availability are leading to higher demand for food stocks.

Supporting trade finance and credit for agriculture and food processing will become critical to move food from global surplus areas to deficit areas while maintaining food supplies as the next crop season starts in some countries.  Farmers and companies operating in the sector rely on finance to purchase inputs as well as plant, harvest, process, trade, and distribute. Yet governments’ responses to COVID-19 are not focusing on agriculture finance, apart from some financial sector-wide policy measures, such as those specific to micro, small, and medium-sized enterprises (MSMEs).

It is equally important that finance flow is continually monitored and focused not only on commercial banks, but directed especially to public banks, financial cooperatives, and microfinance institutions, as these entities are the main providers of finance to smallholder farms and agricultural MSMEs.

Finance will be instrumental in reducing food system disruptions, adapting food supply chains to new sanitary requirements, and keeping food affordable for the most vulnerable people. 

See the blog at World Bank Blogs. 

• Practical difficulties such as lack of statistical data, the diversity of Nigerian agriculture, the complexities and ambiguities of land tenure, the need for credit to pay premiums.
• Secondly is the problem of  enough administrative personnel and the lack of adequate resources to finance insurance schemes or to reduce farming risks especially pests and diseases.

My understanding from the report I read is that members of the Agriculture and Rural Development working group of the international Scaling Up community of practice held a virtual meeting to discuss these questions and how scaling-up innovations could help to recover from the current crisis and mitigate future ones. Issues to discussed are; 

• Impact of COVID-19 on the rural poor and on food security in developing countries. 
• How crisis can be moderated.
• What positive breakthroughs could be provoked by this shock to move us into a better new normal life.
• How can donors and implementing organizations do to support low and middle-income countries during and beyond this crisis.

By Panos Varangis, Juan Buchenau and Toshi Ono

Agriculture Finance Team
Finance, Competitiveness and Innovation

Agriculture and agribusiness constitute a significant percentage of employment and still a sizable proportion of GDP in many developing economies, particularly in lower income countries. Incoming reports indicate that COVID-19 could have a significant impact on agriculture and MSME (Micro, Small and Medium Enterprise) agribusinesses through disruptions to the logistics, distribution, and production of food. At the same time, COVID-19 can be expected to further reduce the supply of finance to agriculture by adding to the challenges it faces among other things due to a) the heterogeneity and dispersion of farmers and MSME agribusinesses, b) the seasonal nature of production, c) the bulky finance requirements, and d) its exposure to political interventions. The timing of any financial support has to consider agriculture production cycles and logistics. This is critical to ensure continuous food production and distribution to consumers. Financing, even more than before, needs to look at the whole value chain, from farm to fork.

• Practical difficulties such as lack of statistical data, the diversity of Nigerian agriculture, the complexities and ambiguities of land tenure, the need for credit to pay premiums.
• Secondly is the problem of  enough administrative personnel and the lack of adequate resources to finance insurance schemes or to reduce farming risks especially pests and diseases.