Unveiling the future of Agribanking: Nedbank
Discover the future of agricultural banking through insights shared by John Hudson, National Head of Agriculture at Nedbank Commercial Banking.
Discover the future of agricultural banking through insights shared by John Hudson, National Head of Agriculture at Nedbank Commercial Banking. Amid challenges like supply chain disruptions and geopolitical tensions, the South African agriculture sector has shown resilience, achieving record export levels. Hudson highlights Nedbank's role in promoting sustainable practices, offering affordable financing for climate resilience and raising awareness about the business case for sustainable farming. Learn more in the interview below, which is a part of our ‘Seeding success: Unveiling the future of Agri banking” series, focusing on understanding the unique challenges faced by farmers in different regions and how innovative approaches are being adopted to address these challenges.
Could you briefly provide insights into the agricultural banking landscape in your region, highlighting any unique challenges the industry has to cope with?
The South African agriculture sector is one of the few in SA that have thrived since the Covid-19 pandemic, because of high commodity prices and high export activity, with agricultural exports reaching a new record of $12.8 billion (R234 billion) in 2022. Despite the good run, the lingering impact of the pandemic (supply chain disruptions) and the Russia-Ukraine war have resulted in a very challenging operating environment for South African agriculture, with elevated risk and financial pressure. This is exacerbated by relentless electricity blackouts, higher interest rates, crumbling infrastructure, service delivery failures and global geopolitical tensions – all of which are pushing the sector to the brink. According to Statistics South Africa, agricultural output fell by a substantial 12.3% in the first quarter of 2023 and the latest Agbiz/IDC Agribusiness Confidence Index has recorded the lowest reading for the past two quarters since the second quarter of 2020.
How does your bank support the adoption of sustainable and environmentally friendly practices among farmers through financial incentives, guidance or education?
As financiers, Nedbank believes that, through lending, we can drive change. So, Nedbank has developed affordable sustainability financing across a spectrum of requirements including energy security, water efficiency, shade netting, soil health, and waste and recycling. Our tailored sustainability funding enables clients to prioritize climate resilience, reduce risk and improve efficiencies in their business. Among others, we offer extended terms matched to the payback period of the equipment financed, cash flow neutrality where future cash flow improvements are considered, and opportunities to qualify for tax incentives where applicable.
But we also believe that our role goes beyond simply financing the transition: we use our banking expertise and understanding of the sector to raise awareness about climate risk and the business case for sustainable farming, and we have frank discussions with our clients to advise them on future-proofing their businesses and to package funding solutions specific to their needs.
Does Nedbank establish or build partnerships with agricultural associations and government agencies to foster sustainable growth in the agri sector? If so, can you specify?
For us at Nedbank, partnerships with important players in the agricultural sector are essential. Our decades-long partnership with WWF-SA, for example, has seen us involved in many innovative projects to help solve some of the greatest socio-environmental challenges in South Africa. These include water stewardship initiatives, engaging in stewardship work on privately owned land to protect ecological assets, and restoring fynbos (natural shrubland) for honeybee forage and critical habitat for local animals and insects. We’ve also partnered with Forests for Life to restore ecosystems and degraded forest areas to mitigate the impact of climate change, support our water resources and protect habitats for bees and other creatures. From a water efficiency perspective, we have partnered with Agrico which provides a range of irrigation equipment in South Africa, and likewise from an alternative energy perspective we have a collaboration with Hohm Energy.
Of course, sustainability also means transforming the agriculture sector by empowering emerging black farmers with the support, insights, and expertise they need to thrive as commercial farmers. So we have partnered with South African Partners in Agri Land Solutions (SA PALS) to facilitate transformation in the agricultural sector through a funding program in enterprise development to provide training, mentorships, specialist advisory support and capacity building for farmers throughout the industry. The aim of this collaboration is to build sustainable agriculture practices and approaches through sound business principles, legal structures, and training.
We are also in the process of establishing partnerships with commodity associations such as Hortgro (horticulture) and Vinpro (grapes and wine) and are busy engaging the government on the Blended Finance Scheme which essentially looks to blend grant funding and commercial debt for emerging farmers.
Could you share examples of successful innovative projects or initiatives implemented by your bank? Feel free to highlight the ones that leverage technological advancements such as digitization, AI, and data analytics in agricultural banking. Were these developed in-house or through external partnerships/JV's?
In line with our commitment to utilizing innovation and technology to lead in transforming the agricultural sector towards a sustainable future, Nedbank focuses on partnering with leaders in this field. Examples of these partnerships include:
• Nedbank has held a significant minority equity interest in South African aerial data analytics specialist Aerobotics since its launch. Aerobotics’ leaf-by-leaf drone scouting app, Aeroview, uses computer vision and sophisticated agronomic and yield models to extract insights from aerial imagery and detect the exact problems impacting crops quickly and accurately, without the grower having to set foot in the orchard. Aerobotics recently added a new water stress analysis feature to the Aeroview platform, in response to worldwide water challenges, and its Yield Insights product provides best-in-class tree and fruit insights to sample and intelligently extrapolate citrus size and weight estimates based on drone imagery and artificial intelligence, thus providing predictions earlier in the season.
• Nedbank Agriculture has also partnered with newly launched transparent track-and-trace data agritech company neXgro SA, which is a virtual platform that enables producers to retain control over their product throughout the entire food production value ecosystem, charge better prices, and trade directly with trusted role players in the value ecosystem.
• Nedbank’s own Avo B2B e-commerce platform helps industry role players with working capital optimization. In an environment where most farmers are cash-strapped, the possibility of lending solutions that aim to support production input costs is a very welcome development for the sector.
• As mentioned in the previous answer, we also have irrigation and solar installation financing partnerships with Agrico and Hohm Energy respectively.
In addition to supporting farmers, how does your bank approach and support the broader digital agriculture ecosystem, including food and agri supply chain companies and agtech firms?
Nedbank is continually investing in its own digital capabilities with a ‘digital first, first in digital’ mindset. Our own Nedbank Avo B2B offering is a good example of what we can offer, and we are investigating how this can be of benefit to the agricultural sector. Our partnership with neXgro SA is another good example of collaboration with an external partner, and as a bank we are continually exploring opportunities in the digital ecosystem environment.
What are Nedbank’s key priorities in the agricultural sector for the next 2-3 years, particularly in terms of sustainable agriculture, digitalization, and addressing the challenges faced by smaller farmers?
I’d like to say that Nedbank views agriculture as a long-term investment which plays a vital role in our economy – not only in terms of economic activity, exports and job creation, but importantly in ensuring food security. A vibrant, competitive and inclusive agricultural sector is paramount for South Africa, and we continually seek to enhance and innovate our offering to South African farmers and agribusinesses through innovative technologies, the forging of partnerships, new product development and a relationship-based approach. Understanding the sector and our clients’ businesses, both from an opportunity and a risk perspective, is important – and this, among other factors, includes a focus on climate resilience and transformation.
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