AGRI-FINANCE AND SUSTAINABLE PRODUCE: BRIDGING THE GAP BETWEEN FARMERS AND FINANCIAL SYSTEMS
Abstract
The global food and agribusiness industry is in the midst of major changes, and the pace of change seems to be increasing. Evidence suggests that productivity in the agricultural sector can benefit from better access to financial instruments tailored to the needs of farmers and agribusinesses. Policy makers can take a series of steps to make this happen. Changes suggest three fundamental critical financial issues for the sector: Firstly, investing in rural financial infrastructure can overcome the information asymmetries that discourage financial providers from serving agricultural firms. The availability of public databases on agricultural and weather statistics would allow lenders and insurers to distinguish good clients from bad ones more precisely and monitor their actions. Governments have a comparative advantage in providing information to help lenders or insurers identify their risks and price them accordingly. Secondly, strengthening property rights and contract enforcement can open up access to important financial products to farmers and agribusinesses. Thirdly, governments should abstain from paternalistic policies that discourage financial providers from entering the market and that distort the incentives for farmers and firms. Public subsidies directed at agriculture should be carefully considered because they provide inappropriate incentives for farmers to invest in unprofitable farming activities. While certain subsidized insurance products could be justified on the basis of achieving the higher take-up of these products and allowing users to understand their value, subsidies that do not involve proper assessments of the quality or feasibility of projects should be avoided. The focus of this paper is the synopsis and application of conceptual/theoretical frameworks that can be used in financial decision making and analyzing the implications and consequences of future agribusiness with special reference to India.
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