From farm to finance: Financing challenges along agricultural value chains

This is the fifth post on challenges along agricultural value chains in a series highlighting five priority areas for financial inclusion in Africa. See the fourth post here.

In 2025, J-PAL Finance Sector Co-Chairs Emily Breza and Emanuele Colonnelli convened a group of researchers in Nairobi, Kenya with J-PAL Affiliated Professor Christopher Woodruff and Private Enterprise Development in Low-Income Countries (PEDL) to engage with finance-sector stakeholders and advance the research agenda on inclusive finance for development. These discussions highlighted five priority areas for financial inclusion in Africa, including AI and finance, building venture markets, high-growth entrepreneurship, forex risk and local capital, and agricultural value chains. 
 

The financing problem in agricultural value chains

Agriculture provides employment, income, and food security for much of Africa’s population. Agricultural value chains can help increase productivity by connecting remote farmers to new markets—for both inputs and consumers—and by providing transport, trading, storage, processing, and packaging.

However, agricultural value chains face several unique financing challenges. Seasonality makes cash flow a challenge throughout the chain: farmers need to pay for inputs like seeds, fertilizer, and labor many months before harvest; traders and other intermediaries often buy crops long before they can sell them (see our policy insight on agriculture credit). 

Large capital investments are unavoidable for many activities, such as transport and processing. Moreover, an increase in these capital requirements with scale makes the typical Venture Capital model–built around looking for vast scaling at low marginal cost–harder to support  (see our second blog post). Risks are both large and highly linked across farmers and intermediaries: droughts, floods, and price swings affect many actors at once, making insurance difficult to provide, and making lenders subject to widespread default. In addition, farmers and intermediaries often lack the formal assets they can use as collateral to obtain loans.

Our conversations in Nairobi highlighted how financing gaps hold back investment in technologies and more advanced value chain activities, and what forms of capital, insurance, and verification are needed to help agricultural value chains function more effectively. Better understanding these dynamics has important implications for productivity and raising income for farmers.

The current landscape of finance research in agricultural value chains

Access to working capital and liquidity is a challenge at nearly every stage of agricultural value chains, made worse by long production cycles and reflected in widespread payment delays.

Many traditional lenders are reluctant to finance agricultural businesses because farmers, traders, and small processors lack collateral. This inability to obtain loans leaves many businesses without the liquidity they need to operate—a theme that emerged in our conversations with VestedWorld. To address these challenges, Financing for Agri-SMEs in Africa, a “fund-of-funds” managed by Investisseurs & Partenaires, provides “catalytic capital” to promising agri-businesses with a long-term horizon, with the goal of reducing risk for subsequent investors and hence crowd-in additional investment. However, more evidence is needed to test the effectiveness of such financing vehicles.

Other potential solutions include asset-based finance, whereby the financed capital itself acts as collateral, which has successfully expanded access to loans in several recent studies (e.g., in Pakistan and Kenya) and is used by Baridi, a Kenya-based firm supplying milk coolers and cold rooms to small farmers. Warehouse receipts, which allow farmers and traders to borrow against stored crops, are another avenue, although evidence on their effectiveness is inconsistent, and building confidence in quality measurement and reporting remains difficult (see evidence from Sierra Leone and Burkina Faso).

Intermediaries like traders or aggregators may prefer to provide financing to their suppliers because the farmers value their relationships with them. In addition, intermediaries hold relevant information about the farmers and local markets and are in regular contact with them, which eases last-mile delivery.

Moreover, while intermediaries with revenues in foreign currency face heightened commodity price risk, they have an easier time securing bank loans, and hence can pass this preferential access to finance up the value chain (to learn more, see our fourth blog post). This vertically-integrated model has been adopted, for example, by FarmWorks–a domestic aggregator and distributor of fresh food–and Kathy’s Fresh–a supplier of fresh produce and juices to Kenyan supermarkets–two agri-business companies that receive investment capital from VestedWorld.

Intermediaries often provide financing through interlinked contracts—advancing cash or inputs and recovering repayment through crop deliveries. However, while providing financing can give intermediaries the leverage to lock in suppliers, it can also encourage strategic default and become unsustainable as markets become more competitive (see our policy insight on market access for farmers).

Outside of agriculture, the fintech firm Pezesha has overcome some of these supply-chain financing challenges by relying on AI to develop risk models. However, more work is needed to understand how this model can be translated into agribusinesses. Moreover, intermediaries tend to be credit-constrained themselves, which was noted during a meeting in Nairobi with Ketha, who highlighted the constraint, especially for aggregators.

Another challenge across agricultural value chains is issues of trust and quality verification, which both increase financing costs and decrease returns to quality. In principle, digital tools offer a potential way forward.

Digitizing inventory records and issuing electronic receipts can improve transparency and make warehouse systems more credible. When quality and transactions are reliably documented, products and invoices become easier to verify and, in some cases, easier to use as collateral. Ketha noted that this kind of end-to-end traceability reduces information gaps between buyers, sellers, and lenders by making quality and volumes verifiable at each step, and that AI chatbots make it easy for intermediaries to identify highly performing suppliers using the data. Vertical integration can play a similar role by reducing risk and keeping quality control within one organization.

Finally, AI offers unique opportunities to overcome some of these trust issues. For example, the reinsurance company ZEP-RE discussed a pilot project using AI-based muzzle recognition techniques to help reduce the risk of fraud in cattle insurance contracts.

Beyond financing, traceability can also support quality upgrading. For instance, digital milk‑testing systems in Kenya reduced watering-down and increased milk quality, and group‑based incentives improved milk quality in India. These examples suggest that better verification can reinforce both financial access and production incentives.

Ensuring quality is also key for perishable goods, a high-value-added but challenging sector, with an important role for technologies that help to preserve quality and reduce post-harvest losses. We met multiple companies from the sector, including Baridi, which supplies off-grid solar cold rooms and bulk-milk coolers to livestock, dairy, horticulture, and fish farmers, and VestedWorld, which has invested in Kathy’s Fresh and FarmWorks.

Insurance can play an important complementary role by reducing risk and easing some of these financing constraints (to learn more, see our first blog post and our policy insight on weather index insurance). Insuring farmers may increase their investments, benefitting intermediaries, who can supply farmers with insurance products they actually take up (e.g., evidence from Kenya and Ghana). Insuring intermediaries against price, weather, or storage risks can lower lenders’ exposure and in turn make it easier for intermediaries to access credit.

Existing research on price insurance in Benin and Nicaragua offers a starting point, but more work is needed to understand how insurance products targeted at intermediaries can align incentives, improve investment, and support upgrading across agricultural value chains. ZEP-RE, a reinsurance company headquartered in Nairobi, told us about a pilot project combining remote sensing data with AI to improve predictions of droughts, enabling claims to be distributed promptly, and another project reducing the scope for fraud in insurance claims.  
 

The need for further research: What we do not know yet

From our conversations with practitioners and our ongoing work, three knowledge gaps stand out. These gaps are central to understanding how financing and information flow through agricultural value chains, measuring how different actors react, and how better liquidity at different points could strengthen the entire system—from farmers to traders to consumers.

First, how does improving access to finance for intermediaries affect value chains? Do benefits pass through to other actors?

If intermediaries, like aggregators or traders, get access to more capital, how does that affect farmers, pricing, and the functioning of the value chain overall? Does pass-through differ when intermediaries receive loans in foreign currency? If insurance is provided to the intermediary, does the risk reduction pass through to farmers in the form of better prices, more stable demand, or improved contract terms?

Second, can we harness value chain relationships to reduce financial market imperfections through improved information and enforcement?

Are intermediaries in a privileged position to finance their suppliers? If so, can third parties harness this relationship to inject additional financing to the value chain?

Third, how can we improve digital traceability and verification tools?

What types of digital traceability and verification systems are most effective at building trust and accountability among farmers, intermediaries, and lenders? Under what conditions do these tools translate into greater access to credit, lower financing costs, and sustained improvements in quality? How do institutional features, such as regulation and governance of data, shape their impact?

Access to finance is a foundational driver of inclusive and sustainable economic development. By expanding access to financial services, enabling innovation, and facilitating market participation, finance can empower households and firms, reduce poverty, and unlock growth opportunities. Over the past decade, J-PAL and its affiliated research network have built a substantial body of evidence on digital financial services, credit, credit constraints for specific to farmers, market access for farmers, weather index insurance, and other dimensions of financial inclusion. Building on this, J-PAL’s Finance policy team supports new research and synthesizes findings across studies to inform policymakers and financial institutions. Subscribe to receive updates.

* We would like to thank all finance-sector stakeholders we were able to meet in Nairobi for their insights and openness: Antler East Africa, Baridi, Beyond Capital Ventures, British International Investments (BII) in Kenya, Central Bank of Kenya, Enza Capital, Equity Bank Kenya, FASA - Financing for Agricultural SMEs in Africa Fund, Fleetsimplify, Flourish Ventures, IETP - Investisseurs et Partenaires, IFC Kenya, Ketha Africa, Kukua, NALA, NCBA Bank Kenya Plc, Norfund, Onafriq, Proparco, Pure Infrastructure Ltd, Qhala, Sayuni Capital, Stanford Seed East Africa, TLCom Capital, TLG Capital, Untapped Global, VestedWorld, ZEP-RE (PTA Reinsurance Company), and 4C Group.