Blog » To Avoid Food Insecurity, Keep Finance Flowing
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.
By Panos Varangis, Juan Buchenau, Diego Arias, and Toshiaki Ono
See the blog at World Bank Blogs.