Digital payments expand opportunities for agricultural payment recipients
Paying farmers directly into an account with a bank or a digital financial service provider (such as a mobile money operator) has the potential to catalyze greater financial inclusion, enabling farmers and agricultural buyers to invest and save more at lower costs.4 We refer to direct payments made into or out of an account as a digital payment.
One report on the Ghanaian cocoa market estimated a potential 14 percent loss of annual revenues from theft alone for purchasing companies paying in cash. In contrast, paying farmers digitally reduces the risk of theft and the logistics costs associated with payment delivery. Digital payments also improve traceability, such that purchasing companies have records of and transparency into where their commodities come from. This builds confidence that their agricultural products are ethically sourced and grown to high quality standards. It can also allow for easier traceability in the event of a food-borne outbreak.
Payment recipients also benefit from receiving their payments digitally. It saves them the time and expense of traveling to collect their payment, lowers the risk of theft, and enables easier and more flexible use of the money. It also increases user transparency by allowing agricultural producers to document their income streams and build a credit history, which lenders can use to underwrite credit for new inputs, such as seeds and fertilizer, or equipment.
Digital payments have specific agriculture-related benefits as well. Most agricultural producers harvest their crops just once or twice a year, creating a large influx of income that they must stretch to cover expenses until the next harvest. While 61 percent of the agricultural payment recipients in Sub-Saharan Africa saved in the year prior to the Global Findex 2021 survey, just over a quarter of them did so formally. Having an account, ideally one with design features that create incentives to save, can help agricultural payment recipients more efficiently smooth their consumption throughout the year.
Research furthermore shows that having an account and receiving digital payments is associated with recipients learning to use their account without assistance, saving more, and developing greater resilience to income shocks—critical given how vulnerable agricultural producers are to weather events and climate change.
Most farmers in Africa still receive cash payments, but there are many opportunities to digitize
The benefits of receiving digital payments are clear. Accordingly, there has been much progress towards digitalization of other types of payments, including private sector wages and government payments. There has not been the same progress toward digitalizing agricultural payments. That is likely due to multiple barriers, which vary by the specific context for an economy.
One barrier has to do with the buyer and the broader agricultural supply chain. Many farmers in Sub-Saharan Africa sell through relatively informal, local markets. Only an estimated 20 percent participate in formal value chains involving governments or private buyers.5 These represent the most immediate opportunities for payment digitalization, given that the broader trade ecosystem is digitalized.
Whether buyers can digitalize payments varies based on the degree of payment digitalization already underway in their economy, and the share of adults who are banked or digitally connected. In Sub-Saharan Africa there have been only modest changes toward digitalization over the past decade, according to Global Findex data from 2014, 2017, and 2021/2022. There is a great deal of nuance by economy, however.
Consider the contrast, for example, between the Democratic Republic of Congo, where 81 percent of agricultural income earners are paid only in cash, and Kenya, where 34 percent are. The predominance of cash in the Democratic Republic of Congo may be related to the fact that the economy has a relatively high 39 percent share of adults receiving agricultural payments, and relatively low 27 percent of adults with accounts. The rate of agricultural payment digitalization remains unchanged since 2014.
In contrast, Kenya was an early adopter of mobile money payments and has a relatively high account ownership rate at about 80 percent of adults, well above the 49 percent average for the region and enabled by a diverse financial system, including both banks and mobile money providers. Kenya also has wholesale buyers who have invested in payments digitalization in their supply chains. Some newer organizations have even opted to pay all of their famers digitally, citing that the benefits outweigh the costs even from the start.6 Since 2014, agricultural payment recipients have transitioned from most receiving cash to most receiving digital payments—around 63 percent as of 2021.
The takeaway is that the specific context of agricultural dominance, financial inclusion, and digital connectivity warrant a distinct approach to payment digitalization that addresses the demands and barriers in each market.
Account ownership and mobile phone access are foundational for payment digitalization
Account ownership is a prerequisite for receiving digital payments, and widespread account ownership in an economy correlates with higher-than-average agricultural payment digitalization. While some economies with high levels of agricultural payments, like Ghana, Kenya, and Uganda have account ownership rates above the regional average, most adults receiving agricultural payments in cash do not have an account (Figure 2).
Efforts to increase agricultural payment digitalization must be coupled with those to increase account ownership. For example, 62 percent of adults receiving agriculture payments only in cash live in rural areas, where brick-and-mortar institutions may not operate at all, or only with a few branches spread at far distances. Customers may face safety risks traveling with cash to make deposits and withdrawals. It may also take time away from income-generating activities.
