Profit And Purpose Are Key To Long-Term Agri Success In South Africa

Author: Marlene Louw, Senior Agricultural Economist, Absa Group

A conversion to new farming techniques to produce in a more sustainable manner and implementing efficiency gains often requires large investments which warrant specialised funding instruments and therefore innovative green finance solutions are required to facilitate the process.

In recent years several new methods to finance green projects have been developed, including green bonds, green banks, and village funds. We understand the key role we must play in funding green financing solutions and in doing so, channelling capital, and extending credit that supports innovative sustainable environmental initiatives.

Absa is the leading funder of agriculture projects in South Africa and has built up a team of industry specialists who can help deliver sustainable solutions which bring together profits and purpose.  To achieve this, the industry must explore sustainable solutions, such as offering better credit conditions for agricultural producers and other market stakeholders within the food manufacturing and distribution chain.  Innovative climate financing could support stakeholders in funding innovations that implement good environmental practices, while disseminating information about the long-term benefits of clean energy to save our planet for the future.

While the country has a rich heritage of innovation and entrepreneurship in this sector, it can no longer be business as usual. As a signatory to the United Nations Environmental Program and UN Principles for Responsible Banking, we as Absa CIB are pleased to see and for part of the robust discussions that are taking place between agri-sector executives and industry stakeholders.

The 2022 United Nations Climate Change Conference (COP 27) has increased the awareness of climate adaptation and mitigation strategies across the globe. A strong drive to reach climate goals is emerging in the South African financial industry.

The message from consumers in developed and developing countries is loud and clear – they want to live more sustainably. For example, an industry report released in May 2021 by the World Economic Forum suggests that the market for sustainably sourced goods in the UK has increased by almost four-fold in the last 20-odd years, and a survey done in China in 2021 noted 41% of consumers preferred eco-friendly products.

Locally, research suggests that 53% of consumers regard environmental considerations as “very important” when making food choices.

Efficiency gains in production practices are one of the first elements to ensure that agricultural production reduces its impact on the environment and farming practices are more sustainable.

Simple but effective interventions that serve as examples include netting that limits evaporation in irrigated orchards and precision farming that allows for the precise application of inputs to limit the effect of farming and production on the environment.

Similarly we are seeing the rise of new farming techniques including aquaponics and hydroponics which are transforming the ways that primary agriculture reduces its impact on the environment. The global hydroponics market is estimated to be worth around $3bn and growing at nearly 20% per annum and in South Africa this is already a billion Rand per year market.

The call from consumers, combined with legislative changes, such as the implementation of the “Green Deal” in the European Union, are forcing agricultural producers and value chains to position themselves to actively contribute to sustainability and climate goals. In fact, the EU with its “Farm to Fork” strategy and Green Deal policy framework are positioning this continent to become the first to reach net-zero.

Since a substantial share of South Africa’s agricultural exports are destined for the EU market, producers will be ill advised not to take note of the climate related regulation that is being implemented.

The good news is that South African banks and financiers have an appetite for innovation.

Sustainable farming means not only meeting the needs of the present but also taking into consideration the future, keeping innovation in mind. Primary farmers and agri-processors need to find ways to balance near-term profitability with longer-term environmental considerations.