Agriculture has been changing rapidly from one of fragmented production and marketing relationships toward integrated market systems, or chains.
The agricultural value chain includes the full range of activities and participants involved in moving agricultural products from input suppliers to farmers’ fields, and ultimately, to consumers’ tables. Each stakeholder or process in the chain has a link to the next for the processes to form a viable chain.
Agribusiness investors face the challenges of inaccessible and expensive loan products, inflexible credit facilities that do not complement the agribusiness dynamics, and lack of knowledge about the sector on the part of the financiers.
Financiers, on the other hand, extend fewer credit facilities to this sector than other sectors like construction and manufacturing.
There remains then, a disconnect between supply and demand that can begin to be rectified when all players in this sector have adequate knowledge and appreciate these dynamics. Understanding value chain finance can improve the overall effectiveness of those providing and requiring agricultural financing.
It can improve the quality and efficiency of financing agricultural chains by identifying financing needs for strengthening the chain; tailoring financial products to fit the needs of the participants in the chain; reducing financial transaction costs through direct discount repayments and delivery of financial services; using value chain linkages and knowledge of the chain to mitigate risks of the chain and its partners.
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