Farming has never been very easy as a way of life. The agriculture industry can be quite volatile and that has been a fact known since ages. In recent times, agricultural businesses, and the industry as a whole has been facing a lot of challenges. From the onset of the COVID-19 pandemic to a range of other factors like volatile weather, inexplicably low commodity prices, and increased competition have led to a decline in agriculture-related profits, across the globe.
This is where agricultural finance comes in as a vital aspect for agricultural operations. Agribusiness can manage a series of complex financial realities with the help of agriculture finance. Agricultural finance plays a vital role in assessing the impacts of several local and global factors on an agricultural operation. In modern day agricultural operations, agricultural finance is an extremely essential aspect and helps in a range of ways starting from cash flow management to handling debts and a lot more.
In the next part of this article, we will discuss agricultural finance in detail and discuss the five reasons why agricultural finance is extremely essential in the modern day agriculture industry.
What Actually Is Agricultural Finance?
The term agricultural finance can be defined as the study, examination, and analysis of various financial aspects of an agriculture business. There are numerous aspects connected with the financial elements of agri businesses including things like agricultural production and disposal.
Talking about the financial aspects of agricultural operations or farm businesses, it covers a wide range of elements which include the estimated capital required for an agriculture business, how the required funds are raised, as well as the plan of using the money. Agricultural finance is basically a segment of agricultural economics.
Agricultural economics is broad-spectrum and the field encompasses the provision of bank services, financial farm units, and their financial management. With a dynamic shift in lifestyles, global economies and international trade operations, it is imperative to utilize agricultural finance to ensure that an agribusiness operates successfully and profitably.
Types of Agricultural Finance-
Agricultural finance can be widely classified into two categories:
- Macro agricultural finance
- Micro agricultural finance
To define macro agricultural finance, it is a vast and diverse field that covers the different sources of fundings available for agricultural businesses in the economy. It also covers various regulations, laws, lending procedures, as well as monitoring and controlling procedures of different agricultural institutions.
It covers the overall credit demand of the agricultural sector as well as the ways of utilizing the total available credit for the agricultural sector, and the various terms and conditions based upon which credit is available in the sector.
Micro agricultural finance, on the other hand, encompasses the aspects of financial management of a single agricultural business.
5 Reasons Why Agricultural Finance Is Essential In 2024:
As we have already discussed, it is now clear that macro agricultural finance is associated with aggregate agricultural financing. It encompasses all aspects of finance of agriculture as a part of the industry. Meanwhile, microfinance is associated with the finance of individual farm businesses.
That being said, there are numerous reasons why agricultural finance is extremely essential in today’s time. With a shift in the dynamics of the agricultural sector, agricultural finance has become more important than ever. Here are the five most prominent reasons why agriculture finance is extremely essential in 2024.
Debt Optimization-
The first thing where agricultural finance comes into play is optimization of debt. For all kinds of businesses, debt plays a crucial role in operations and management, helping in cyclical ups and downs of enterprises. The essentiality of debt ranges from short-term loans that might help in just covering imminent needs like a week’s payroll to long-term loans that may help in business expansion or acquiring capital equipment.
Agriculture finance helps keeps your debt in control and is essential to balance your debt load and payments, to ensure that they don’t spiral out of control. As a matter of fact, farm debt levels have increased to a great extent in recent times. This is due to the fact that loans are now available at lower lending rates, and along with that, the rising farm values has made them more accessible. Agricultural finance will help farmers to assess the role of debt role in their financial life. It will help in better utilization of the funds and also reduce the amount of debt.
Coping With The Rise In Demand-
While the agricultural sector has seen a downtrend in terms of profit in the past couple of years, it is estimated that it will soon face a steep rise in demands. Food demand is expected to rise by as much as 60% by the year 2050. While the agricultural sector is already facing challenges in meeting the current demands, it will be a big task in meeting these rising demands in the near future.
Agricultural finance can help in better financial management that can help increase operational efficiency and productivity in the sector. From investing in sustainable technologies to climate-smart agriculture, there can be various ways to enhance the sector’s productivity with the help of agriculture finance.
Easing It Out For Financial Institutions-
Financial institutions face various challenges when trying to finance the agricultural sector. Agricultural finance can be a solution to ease out the process for these institutions. Be it something like traveling to remote areas or managing weather risks, and other aspects of farming, agricultural finance can pave a way for sustainable financing. It can also help reduce price volatility and lenders’ credit risk.
Better Access To Resources –
Most people coming to the agricultural sector come from underprivileged backgrounds and rural areas with limited resources. Agricultural finance can help such people to access resources more easily and quickly. This will encourage more people to take interest and start their own ventures in the sector.
Less Environmental Impact-
Last but not the least, agricultural finance can help increase productivity of the sector while reducing their environmental impact with the help of modern assessment and analysis and the implementation of more sustainable modern technology.
Ending Note –
In today’s time, agricultural finance is extremely essential for the growth and sustainability of the agricultural sector as a whole. Be it a single agricultural enterprise or the entire sector as a part of the economy, agricultural finance can be of great importance in 2024!