Importance of Agricultural Financing

You need to have good access to finance when it comes to expanding the agricultural sector. There are certain risks involved when lending agricultural loans such as loss of production due to pests, diseases, floods, droughts etc. However, there are certain opportunities in investing in the agricultural sector as well.

Many farmers look for funds or loans from lending institutions and investment specialists such as Merricks Capital in order to carry out their business operations. It is important to select a company that has a good team on board. For example, Merricks Capital has experienced professionals on their agriculture investment team such as Andrew Torrington who is the managing director along with Geoff Davis, Dan O’Donoghue, Georgia Devenish, James Murfett and Ben Pham. It is important that both you and the lender understand the challenges in the agricultural sector. For example, the infrastructure in rural areas is weak compared to urban areas which will lead to more transaction costs. And production can be impacted due to natural hazards or inability of the farmer to provide collateral. So many financial institutions tend to take a step back due to these increased risk factors. Also, in certain developing countries, the financial sector may not have advanced enough in order to support the industry.

A farmer will have to look for funding in different stages of production. It can be difficult for a small scale farming operation to procure funding as funding institutions look for a sound track record. Therefore, this is usually available for large scale farming operations only. There are many areas in the agricultural sector that require support from research and development to small scale operations.  When you are a small scale farmer, you will need funding for expanding your production or diversifying their products and services. For example, there will be need for marketing in order to get the word out about their products and services. Also there are basic necessities such as the requirement to purchase fertilisers, seeds, equipment etc. Agrifinancing can help improve infrastructure required for farming in rural communities thereby strengthening the overall agricultural sector in the country. For example, electricity, supply of water, irrigation systems, telecommunication, transportation systems are needed for agricultural advancement.

Agricultural financing can also help to improve the research and development sector which will provide more information for farmers to thrive. This is what contributes to innovative agricultural technology that boosts efficiency along with advanced processes. In more developed countries, you can find many financial institutions that offer funding solutions for farmers and entrepreneurs in the field. This allows farmers to finance agricultural equipment, machinery etc. There are also credit guarantee schemes where a part of the default risk of the loan is covered by a scheme especially when it comes to those without proper access to credit. If default occurs, the value of the guarantee will be recovered by the lender. In developing countries, micro-financing is popular. There are different types of assets that will be accepted by the lender as collateral.