Empower small scale producers to reduce food insecurity

Weathering multiple shocks is a political and economic fundamental.  Extreme weather, viruses, regional wars and volatile food prices are having a detrimental impact on food security. According to the latest figures from the UN’s State of Food Security and Nutrition in the World 2024 (SOFI 2024), hunger has been increasing since 2019, with 733 million people worldwide suffering from food insecurity in 2023.

Weather extremes are now one of major drivers of acute food insecurity and responsible for pushing 73 million people into hunger in 2023 alone.

El Niño is an example of a climate shock with devastating consequences in Malawi and Zambia. Both countries are facing massive food shortages caused by an insufficient maize harvest due to drought. Yet, this crisis could have been avoided.

First, with more resources, farmers would be less dependent on rain for their crop cultivation. Second, with fair regional trade, Zambia and Malawi could have benefited from the surplus maize production in neighbouring countries. And third, with better competition, farmers and small businesses in Zambia and Malawi, would be able to negotiate better prices and enter more markets.

A vibrant small business sector needs fair and competitive markets. Unfortunately, this is not yet the case in Africa where food and agriculture markets face extreme levels of concentration, from the inputs used by producers to the final products sold to consumers. Local producers are squeezed upstream and downstream by companies that control prices and market share.

This situation is exacerbated by weak competition regimes. Our research shows that only 26 out of 48 countries in sub-Saharan Africa have competition laws and institutions in place, with the majority less than 10 years old, with some not yet operational.

Finance is a big challenge for small agrifood businesses, especially those at the forefront of food security who supply local consumers.  These businesses working in local currencies rely heavily on local institutions for working capital.  However, these local institutions do little business with small agrifood businesses, perceiving them as risky and transaction heavy for loans of small value.

This problem is not only due the conservative mindset of banks but rather to the rules that govern them. After the 2008 global financial crisis, the Basel III framework requires banks to maintain a capital adequacy ratio representing 8.5 % of their risk-weighted assets to guard against potential losses.

But most developing country central banks require higher ratios – for example, 12% for public banks and 9% for commercial banks in India. The International Financial Reporting Standards (IFRS9) require banks to anticipate the expected credit losses from loans and maintain buffers.