Sustainable growth for smallholder farmers

The climate crisis is becoming an ever-larger threat. That is why Rabo Foundation has chosen to utilize its position as an impact financier to help the hundreds of organizations. Which in turn reach millions of farmers on three continents, to become more resilient against climate change. To that end, environmental impact has become an essential component of our strategy for 2020-2025. We finance more projects, investigate how we can enhance our impact, and learn how we can fulfil our role better. Part of this is a training course for our staff that we developed with Wageningen University & Research. In this way, we increase our knowledge, which will result in better interventions, insight and impact.

Over the next few decades, farmers will become even more vital to supply our ever-growing demand for food. Our approach to sustainably strengthen farmers’ cooperatives has been a success, but it is too small in scale to address all of the global challenges. So we will have to increase our impact. One way to do that is by investing in innovation and data, with an essential role for fintech and agtech.

Agtech can provide farmers with extra information, like soil conditions via satellite data, to improve and increase their production. And fintech can change the relationship between banks and farmers. Financing smallholder farmers is too complicated and expensive for many banks, for example because they have difficulty visiting the farms to get an impression of their financial health. Data and apps can help with that, and banks can even help banks earn more money by reducing transaction costs. We want to bring these technologies and innovations together.

Our employees in Africa, Asia and Latin America are vital for achieving our impact. They know the culture, speak the language and live nearby. During the pandemic, it became even more clear to us how valuable these people are. They were close at hand when we needed them, and when the pandemic permitted. Our partners in places where our staff were present locally did much better than the areas where we weren’t present in person.

We have a wealth of knowledge and expertise for the benefit of our partners at our headquarters in Utrecht, of course, but the project countries are all in different phases of economic development. And the economic and political situation in Myanmar, for example, can’t be compared to that in Mexico. So every region needs its own individual approach. Plus, having local staff means we can do more while travelling less, which helps reduce our CO2 emissions. So we will be reinforcing our efforts on the three continents by hiring more local representatives.

The growing demand for food means that farmers will have to increase their production. But to change our global food supply system, the agricultural sector needs funding. Local banks can provide that funding, but they are often hesitant to do so because of the high-risk profile of many farmers’ organizations.

Blended finance can help bring the risk of agriculture financing back to an acceptable level for commercial banks. In these cases, Rabo Foundation provides the first loan. That means we assume a significant portion of the risk in a project, which then allows us to combine our financing with commercial investments. In many cases, we issue a guarantee and accept a ‘first loss’. That creates a leverage effect, and a relatively small investment helps to bring in a much larger amount. Plus, it introduces commercial parties to new sectors, and makes room for ‘green finance’. In the process, our funding encourages sustainable developments, and even a small player can have a big impact in partnership with other organizations.

Customer Due Diligence (CDD) is a hot topic around the world right now. But it can sometimes be difficult to apply for our organization. Because how can you verify the identity of a smallholder farmer who doesn’t own a passport? We’re also active in ‘high-risk countries’ like Myanmar or Nicaragua. Good CDD can help our partners though. It helps us talk to cooperatives about the risks of money laundering or drug smuggling, for example. And successful CDD helps make organizations easier to finance: a reliable investigation and a track record makes them more interesting for standard banks.

So we do due diligence to help our partners, so that we can monitor their cash flows and ensure that the organizations can become financially health - and stay that way. So since 2021, we’ve had a full-time team of three people who work on CDD every day.