Blended finance: Closing the gap for Africa’s smallholder farmers

South Africa’s agricultural sector is thriving, with 44% of exports currently flowing into African markets. Paul Makube, senior agricultural economist at FNB Commercial, says while the AfCFTA has reduced trade barriers, physical infrastructure remains a critical bottleneck.

South Africa’s agricultural trade performance tells an impressive story. Currently, approximately 44% of this country’s agricultural exports flow into African markets, making the continent our leading destination for agricultural products. The African Continental Free Trade Area (AfCFTA) is designed to amplify this opportunity for all African countries through deepened intra-African trade.

While the need for tariff reductions and trade agreements has been largely addressed through AfCFTA’s signatories, the real transformation will come from investing in the physical infrastructure and technology needed to move products more efficiently across borders.

For example, much of South Africa’s agricultural produce destined for other African markets still travels by sea rather than overland, which highlights the infrastructure challenges and heightened expense still facing those who want to trade with their African neighbours.

That said, improving regional trade isn’t simply about selling more products across borders. It’s fundamentally about building resilience against climate shocks and production volatility that still leave many African nations vulnerable to food insecurity.

When farmers lack access to improved infrastructure, their produce often spoils before reaching markets. When countries can’t reliably produce enough to feed themselves, they become dependent on imports and vulnerable to global price shocks.

The inputs imperative

Beyond the need for an improved trade ecosystem, Africa’s agricultural yields remain relatively low, with limited access to fertiliser and seed a significant contributing factor. Building fertiliser production capacity on the continent would reduce dependency on vulnerable global supply chains and improve accessibility for smallholder farmers. It would also create much-needed employment opportunities throughout the agri value chain.

Access to climate-resilient, disease-tolerant and higher-yielding seed varieties offers another crucial pathway to greater food security. These technologies can help farmers weather increasingly frequent climate threats, but they must be affordable and accompanied by the knowledge to use them effectively.

The value of innovative finance for Africa’s agricultural future

Even if we achieve improved infrastructure and access to better inputs, these advances can only fully take hold if the fundamental financing challenge facing African agriculture is also addressed. This requires rethinking how we assess and share risk. Traditional commercial lending often struggles with agricultural production cycles and the unique risks facing smallholder farmers.

The answer lies in blended finance mechanisms bringing together development finance institutions and commercial banks to create sustainable, patient capital structures.

These risk-sharing arrangements recognise that supporting agricultural transformation is an investment in food security, economic development, and climate resilience. When farmers access appropriate financing, they can adopt improved technologies and develop consistent production capacity that makes them more attractive to commercial lenders – a virtuous cycle requiring intentional intervention.

This is where the three pillars truly converge. Innovation and improved inputs mean little if farmers can’t afford them. Better yields remain theoretical without financing to invest. And even sophisticated technologies won’t achieve their potential if products can’t reach markets efficiently. The transformation of African agriculture demands coordinated advancement across all three fronts simultaneously.

A global responsibility

Importantly, Africa’s agri transformation isn’t solely an African challenge. Many G20 economies maintain substantial agricultural subsidies while imposing tariffs that make it difficult for African producers to compete in international markets. Lowering these barriers and opening access to developed markets would allow African countries to reinvest trade income in the very technologies and infrastructure needed to boost production and improve food security.

This isn’t about preferential treatment; it’s about fair conditions that recognise developmental needs. When African farmers can compete fairly in global markets, they generate income that flows back into technology adoption, infrastructure development and food security, with benefits extending far beyond individual farms or countries.

Ultimately, while Africa’s agricultural transformation requires coordinated advancement across trade infrastructure, innovative inputs and appropriate financing, the solutions will come at the speed required when the world recognises that the continent’s agricultural potential isn’t just a problem to be solved; it’s an opportunity to be realised.

The framework to implement this solution is in place, the opportunities are evident, and the imperative has never been more urgent. Now comes the work of implementation, coordination and sustained investment in Africa’s agricultural future.

Paul Makube is a senior agricultural economist at FNB Commercial. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.