Financing agricultural mechanisation

Mechanisation is an important component of agricultural modernisation. However, especially in the context of smallholders, it can prove to be a very difficult venture – also owing to a lack of financial resources. In order to identify solutions to this problem, the German Development Institute (DIE), together with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), organised an expert round table on “Agricultural mechanisation and adapted financial solutions" in November 2016.

Mechanisation potentially encompasses many elements, from soil preparation through sowing, ridging, weeding and harvesting to post-harvest operations, water pumping and the transportation of bulky and heavy items and products on-farm and to the market. It is almost indispensable for the development of economically, socially and ecologically sustainable agriculture since it allows for larger farm units with higher labour productivity providing sufficient income to escape poverty, it facilitates decent working conditions, and it allows the realisation of agro-ecological technologies with bulk transportation of organic matter. In addition, it creates new value chains and jobs around machinery sale and maintenance. Young people, particularly if educated, are unlikely to stay in agriculture if it is not at least partially mechanised. This is why the African Union, in its vision 2063 “the Africa we want”, declares in its first of seven ambitions that “the hand hoe will be banished by 2025” – maybe overambitious, but highly symbolic.

However, in many cases, mechanisation requires special financial products and support packages because is is expensive and beyond the means of most smallholder farmers. Often, their farms are too small for individual mechanisation – then a group solution or a service provider may be the only alternatives. Mechanisation requires long-term capital, credits or leasing arrangements. Often mechanisation concepts have to consider the entire farm. Thus, mechanisation credit is beyond the typical micro-finance, seasonal credits which are at best accessible for smallholder farmers, frequently in the frame of value-chain finance. In addition, without a package of additional activities and inputs, farmers may be unable to utilise the mechanisation potential fully, which endangers the profitability of the investment and thus the repayment of the credit or lease. A steady cash flow is required, and in addition to stable production, that requires stable market access. All this demands carefully co-ordinated technical, organisational and financial services and structures. In poor rural areas, these are often unavailable or deficient, making successful mechanisation a challenging, complex endeavour.

These complexities may explain why in Latin America and in parts of Asia mechanisation has made huge advances, while in sub-Saharan Africa (SSA), hardly any progress has been made. On the contrary, there are indications of retrogression. While in other world regions particular farm structures and non-farm processes have facilitated mechanisation, in SSA, where agriculture must be the motor of economic development and cannot rely on many of the external structures and processes, different strategies must be developed. This does, however, not exclude learning from experiences elsewhere. But care has to be taken to not simplify and over-generalise them. This was exactly the approach of the workshop.

Several presentations and rounds of discussions shed light on the status-quo of agricultural mechanisation in sub-Saharan Africa and financing options and innovations, and contrasted it with the progress of agricultural mechanisation in Germany after the Second World War. Participants brainstormed in parallel working groups whether it is possible to derive recommendations for the current need for mechanisation in sub-Saharan Africa from the agricultural mechanisation developments in Germany, and if so, what this would mean for the German SEWOH (see Box) initiative. Rather than developing blue-prints, specific conditions for specific pending projects such as leasing, co-operatives or private mechanisation service providers were discussed.

The export round table was organised within the context of the Special Initiative One World – No Hunger (SEWOH) of Germany’s Federal Ministry for Economic Cooperation and Development (BMZ). It was the second workshop of the knowledge platform ‘AgriFiP’ (Agricultural Finance in Practice) initiated by the same organisations plus KfW, the German Development Bank, which seeks to bring together the experiences of German organisations both in Germany and abroad in terms of modernising and financing farming.

Michael Brüntrup, DIE, Bonn/Germany

More information: DIE study on financial solutions for agricultural mechanisation in sub-Saharan Africa

Rural 21 issue on rural mechanisation