With the agriculture sector’s 33-million smallholder farmers contributing 70% of Africa’s food supply, it is pertinent that more innovative financing mechanisms are created as the continent increasingly faces challenges of climate change, low productivity and conflict.

Financial services provider African Risk Capacity (ARC) has called on policymakers to better assess the needs of farmers on the continent and enhance access to funding – if they expect Africa to meet the Malabo Commitment to end hunger by 2025 or the Sustainable Development Goals by 2030.

To this end, private-sector engagement and collaborative efforts, including strategic partnerships will be key to making an impact, ARC states.

Africa produces many principal grains and other diverse crops, including rubber, cocoa and flowers, but owing to climate phenomena such as extreme weather events, including tropical cyclones, floods and droughts, crops are being decimated at an unprecedented scale.

“The resilience of the land and its ability to adapt are being pushed to their limits. This while the demands on this vital resource is reaching critical thresholds,” ARC notes, adding that climate change also modifies the properties of soil chemically and physically, leading to more land degradation.

Land degradation is already a major issue in Africa and many farmers cannot afford to mitigate it.

African agricultural transformation institution Agra estimates that land degradation costs farmers up to $1 400 a year.

According to global research partnership Consultative Group on International Agricultural Research, 65%, or 494-million hectares, of soil is currently degraded in Africa, which leads to major yield gaps ranging from as low as 2% to more than 50%.

This is concerning since 83% of sub-Saharan Africans rely on land for their livelihood.

ARC emphasises the need for substantial investment in Africa’s agriculture sector, but admits that visible impacts of climate change have made investors wary.

Other funding impediments also exist, including default risks and political risks.

“Giving farmers access to the right financial resources to address land degradation and climate change challenges would result in more progress being made towards achieving objectives of the African Union Agenda 2063, including transformation of African agriculture and food security,” ARC says.

The company adds that its work is testament to the impact that can be created through addressing farmers’ specific needs and forging strategic partnerships.

ARC provides insurance to small and medium-sized enterprises in Africa through micro or meso products. This insurance helps to avoid the accumulation of risks for farmers when they are experiencing severe droughts.

This enables more access to finance from banks owing to lower risk profiles.

ARC has also worked with governments to better manage natural disasters by using parametric insurance.

By capacitating African farmers to unlock more development potential, local farmers can ensure better global food security in light of current conflicts in the world, as well as tap into Africa’s arable land that remains uncultivated.

With escalating climate risks, innovative financing solutions such as parametric insurance have significant potential to safeguard farmers’ livelihoods and drive development across Africa. However, more investment in this space and policy reforms are necessary to scale up climate risk management and empower Africa’s farmers, ARC states.

It adds that despite governments having allocated at least 10% of their national budgets to agriculture and rural development, under the Comprehensive African Agricultural Development Programme of the African Union, this may not be enough.

ARC stresses the need for governments to assist farmers further through subsidising climate insurance.

In this regard, private-sector involvement could also drive more investment and innovation to address challenges in the agriculture industry.