Key challenges: Access to finance and management capacities
PURE systems, e.g. solar irrigation pumps and solar cold rooms, are very cost-effective compared to diesel-powered systems, but they have high upfront costs, which smallholder farmers can usually not afford. At the same time, banks are often reluctant to provide loans to farmers for investments in assets, due to many risks which are perceived by the finance institutes.
And farmer groups/cooperatives, which are potentially interested in having a solar-powered cold room, to store perishable products and, thus, to reduce post-harvest losses and increase farmer income, have often not the required capacities and competencies to successfully manage the asset.
Consequently, government institutions, donors and NGOs still drive the market, by purchasing systems and installing them in the framework of pilot projects. Commercial sales are very limited, which limits the deployment.
Possible solution: Engaging the private sector for investment and/or management
The commercialization of PURE systems requires to unlock private finance. For this purpose, risks have to be mitigated.
Opportunities are e.g.
- Local agro-companies, e.g. those with outgrowing schemes/ contract farming schemes and with interest in a steady, high-quality supply of products, could be engaged to invest in PURE on the level of farmers and farmer groups. Another driver could be the reduction of costs, as the decentralization of (pre-) processing such as drying and pulping reduces the transportation costs of agro-companies; and depending on the crop, a shorter time until processing increases the quality of products.
- Suppliers and distributors of PURE systems, e.g. in countries with a strong entrepreneurship spirit, include attractive schemes such as leasing and supplier credits. These schemes allow the clients to pay off the system over a longer period. In this case, the suppliers also support their clients (farmers and farmer groups) in managing the asset (e.g. marketing of cooled products, facilitating off-taking contracts etc.), to minimize the risk, that revenues are not enough to pay off the system. In some SSA countries, some suppliers/ distributors apply a fee-for-service model, by investing themselves in PURE systems on the farmer level and by operating them.
Both agro-companies and PURE suppliers/ distributors have better access to debt finance if needed. A cooperation of both stakeholders is also an option: While the PURE supplier/ distributor could play the role of an investor (fee-for-service), the agro-company could play the role of managing and operating the asset.
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