As Agriculture Touches Everyone, Financing Innovation Is Vital

How far does the impact of our decisions reach? The answer to this question is immeasurable for those who work in agriculture. Being members of one of the foundational sectors of our civilization comes with a responsibility that goes beyond what we can immediately perceive.

The agriculture industry not only provides our food, but it also has the highest potential for employment worldwide and can significantly reduce CO2 emissions. This is among the oldest and most traditional sectors globally, mainly inherited by small-scale producers who satisfy around 70% of the world's food demand.

According to data from the United Nations, the land area devoted to agriculture is approximately 5,000 million hectares (Mha) worldwide, which accounts for 38% of the world's land surface. About one-third is used as arable land, while the remaining two-thirds are pastures and grazing land. Surprisingly, covering such a vast amount of land is insufficient to meet the growing demand for food, which is increasing due to the rising global population.

According to BBVA in 2022: "Agriculture is the economic sector that employs the most people in the world and the main source of food and income for many people living in poverty. Therefore, investing in agriculture is not only one of the most effective strategies to improve food security and promote sustainability, but it is also essential for the economic development of many countries." 

The context in which agriculture operates is complex, with social and environmental factors seemingly working against ideal conditions for prosperous development. However, for those of us who spend our time in this sector, there is no choice but to plan and have the vision of innovative pioneers to face the present and future challenges.

Any innovation, however, will remain in the realm of ideas if there is no resource to support and sustain it. This is where the economic factor becomes indispensable for the survival of business models transitioning toward sustainable agriculture. Therefore, below are some approaches that can be taken when seeking financing for agricultural projects:

Agricultural Loans and Credit: For people involved in agriculture, the traditional banking system is a feasible option, but it can also be costly. Various banks provide farmers with specific loans and credits, and some focus on sector-specific projects. These options can include acquiring land, equipment, inputs, and agricultural technologies.

Government Support: Due to the impact and context of the sector, many competent institutions in each country offer grants and assistance to support farmers in various areas, such as infrastructure modernization, adoption of sustainable practices, and agricultural research and development.

Private Investors: Investment funds and venture capitalists may consider financing innovative agricultural ventures with growth potential. In such cases, the business structure of the project should be formal and strong enough to ensure accountability to all parties involved.

Crowdfunding: In recent years, crowdfunding has become increasingly popular. Like the previous point, having a strong and formal business structure that promotes transparency is essential. One of the advantages of using this option is the potential to receive scalable financing through donations, loans, or direct investments from the online community.

International Development Programs: International organizations and NGOs frequently implement programs for agricultural development, which involve providing funding and training to farmers in developing countries.

"Responsible investment significantly contributes to the improvement of sustainable livelihoods, especially for small-scale producers and members of marginalized and vulnerable groups, by creating decent employment for all those working in agriculture and food, eradicating poverty, promoting social and gender equality, eliminating the worst forms of child labor, fostering social participation and inclusion, increasing economic growth, and, therefore, achieving sustainable development," stated the UN’s Food and Agriculture Organization (FAO) in 2022.

To tackle agriculture's environmental, economic, and social challenges, innovation must be prioritized as the demand for food and the global population increases. Agricultural entrepreneurs have the opportunity to utilize different financing sources to implement practices that contribute to achieving these goals.

Fortunately, the agricultural sector in Mexico has significant support from public or public-private entities, including SADER, FIRA, FIRCO, and FOCIR. However, in terms of innovation, more is needed to meet the needs of corporate structures. Therefore, considering alternative financing routes such as crowdfunding can be an option for scaling business operations.

The agriculture sector has traditionally operated informally, but it now needs support to maintain its productivity. 

Factors such as weather conditions, crop spoilage, and fluctuating sale prices make it difficult to predict outcomes during planting. This unpredictability can lead to farmers struggling to repay loans if their productivity falls short. Thus, it is essential to identify, calculate, and manage these risks actively to ensure the sector's success. Professionalization within the industry is also necessary to provide transparent and reliable data flow. These measures are crucial for the prosperity of agriculture in our society. In the face of fluctuating agricultural prices, staple food shortages, and climate change risks, providing inclusive rural financing is crucial for rural development.