Smallholder Financing: Meeting Demand Between Harvests

For smallholder farms—usually those supporting a single family—expenses come early in the season before the planting while income arrives only several months later with the harvest. How, then, can these farmers access the cash they need to plant their crops and, more importantly, to survive between harvests?

That basic question has been the burden of millions of smallholder farmers in Africa. It’s also why access to financial services—especially credit—is crucial to their survival. Yet only a minuscule amount of commercial lending goes to rural areas, even though that is where a majority of the continent’s population resides and works.

Time Warp

As I reported in my book, The Last Hunger Season, African smallholder farmers toil in a time warp, working in pretty much the same conditions as their grandparents. What’s more, their yields are essentially the same. As a result, many of these farmers are unable to grow enough food to feed their families throughout the year. Year after year, they endure the misery of a hunger season—the time between when the food from the previous harvest runs out and the next harvest comes in.

Access to credit—and, thus, access to seeds, soil nutrients, equipment, extension advice, and improved technology—can help change that. That’s what I learned from the farmers I followed over the course of a year while researching The Last Hunger Season.

Zipporah Biketi was one of them. When I first met Zipporah near the west Kenya town of Bungoma, she told me her family was already deep into the hunger season just a few months after the harvest. With little money and no access to credit, she only had enough maize seeds to plant one-quarter of the acre of farmland beside her house. Her harvest was barely two 90-kilogram bags, which was sufficient for only a couple of months. She was rationing food in her family; meals were shrinking from three a day, to two, then one. Some days they had nothing for nourishment beyond a cup of tea.

Farming in Malawi Farming in Malawi

Photo Credit: Paolo Patruno

One Acre Fund

That’s when Zipporah decided to join One Acre Fund, a social enterprise founded by Andrew Youn while he was a Northwestern University MBA student. Youn and his team provided a “market bundle” of seeds, micro-dosing of fertilizer, the latest farming advice, and micro-financing to pay for it all. The loans were equivalent to about $45 for a half-acre of inputs and $85 for one acre.

Zipporah had seen how some of her neighbors had benefited from the program. With the credit package, she was able to obtain the inputs to plant her entire acre. She diligently tended her maize and watched in amazement how tall and strong it grew throughout the season. She applied the same diligence to paying off the loan, putting aside a little bit each week. When the harvest came, she couldn’t believe her eyes. The yield was 20 bags of maize—a ten-fold increase over the previous year.

A miracle harvest, she called it.

Living “And” Lives

But this was no isolated miracle. Today, One Acre farmers in several African countries have benefitted from similar credit programs. Their experience illustrates that, through relatively small interventions, smallholder farmers can go from living “neither/nor” lives—in which they can neither feed their families throughout the year, nor provide education or adequate health care for their children—to living what I would call “and” lives.

When I visited Zipporah again recently, she told me that they had conquered the hunger season. By ensuring that her family’s most basic needs were met, they in turn have been able to focus on improving their lives in other ways—putting the finishing touches on a new house made of solid bricks and a metal roof (replacing the old mud-and-sticks house with a thatched roof that leaked in the rain); and buying seeds for a second planting season, which has already yielded a cornucopia of vegetables, and better nutrition for her children, and diversified income.

All of these benefits have Zipporah and her husband planning for a new chicken-raising business and saving for their oldest child’s upcoming high school fees.

Bridging the Gap

Despite these successes, though, other smallholder farmers remain vulnerable to forces beyond their control. Leonida Wanyama, another One Acre farmer, tripled her maize yield in one season, but the price for maize fell to a seasonal low due to a market surplus. Just a couple of months after the harvest, Leonida was forced to sell all her maize to come up with cash to pay the first installment of high school tuition for her son, Gideon.

For Leonida and others like her, access to a broader range of financial services—such as education loans—might enable them to keep their maize for several more months, when they can sell it at a considerably higher price, pay off their loans, and have extra money to plow back into their farming.

In all cases, demand for financial services among smallholder farmers remains higher than their ability to access these services—a reality that calls for more creative solutions to meeting their financial needs. Understanding these needs is a key theme of The Last Hunger Season and a first step toward providing vital credit, savings, and insurance products that can help smallholder farmers hedge against the risks of extreme poverty. Key questions that need to be answered include: Will commercial lenders embrace these farmers as worthy clients? Can microfinance organizations alone fill the credit gap? Will governments and development practitioners continue to reverse the neglect of smallholder farmers and recognize their value in securing the global food chain?

Roger Thurow is a senior fellow for global agricultural development at The Chicago Council on Global Affairs. He is the author of The Last Hunger Season – A Year in an African Farm Community on the Brink of Change and Enough: Why the World’s Poorest Starve in an Age of Plenty.

This blog post is part of a series on understanding demand for smallholder financing, which brings together a range of perspectives on farming households' array of financial services needs. Read the rest of the posts in the series here.


24 January 2014 Submitted by Paul Zangue (not verified)

support farmers with seed and fertilizers is very helpful approach for poors. It can increase production. But the problem of availability of cash remain. some time after harvest many farmer face cash problem and are obliged to sell. This situation drop the prize and fluctuation of prize between harvest period- low prize period- and planting period- high prize period - can be twice.Farmer never benefit this fluctuation. micro finance and partners can look the way to use crop as warrant/ collateral so that all farmer will not sell at the same period and regulate stock on the market. there are also structural problem as storage and transformation and critical size of production. Before the expansion of micro finance in rural erea, partner use to point lack of local organization as main contrinst to carry this sort of strategy. Now with expansion of micro finance in rural area it seem as they offer possibility

26 January 2014 Submitted by Tsewele john (not verified)

Microfinance institutions should collaborate on a joint win-win initiative to bring lasting solutions to the issue of poverty presented above. In sub saharan africa, the cost of living differ from one country to another. Elsewhere as indicated; less than USD50 can help farmers go out of poverty, depending on the living standards and costs. In some other like Cameroon, such amount can not really meet up the needs of a farmer. In the course of farm preparation, the farmer needs to feed well so as to replenish energy lost. he has to meet up with other social obligations that tie him to his society.
Advice should be that, farmers should adopt simple agroforestry techniques that will enable them do multiple cropping that allows for different crops to be planted on the same farm unit with different maturity periods. Cooperatives should be created to work with microfinance institutions where loans are given to members during all the farming chains meaning before planting, during planting and management, harvesting and treatment stages. The cooperative stores the goods in a storage house financed by the MFI and later seeks for potential buyers that will buy the goods at appointed time at a higher prize. Doing this, there is possibility for market products all the time; in quality and quantity, attracting potential buyers with good offers.This partnership between the cooperative and the MFI is the only approach that can bring long lasting solutions to farmers problems. this is evident by the fact that, farmers will work with ease, solving most of their minor problems, knowing that there will be cash if demanded and market if produced thereby increasing their impetus to work. It goes all along to ascertain the pool option in the value chain approach where forces from the market attract regulations to be respected at every level of supply or demand chains.

26 January 2014 Submitted by victor hernandez (not verified)

There is what is called "comprador" in Philippine rural and agricultural areas. "Compradores" act as provider of credit (for almost everything a household needs, such as, seeds, fertilizer, and pesticides), and buyer of the farmer's agricultural produce funded by the comprador. The comprador also accomodates request for emergency needs such as to meet medicines and hospital needs of household members, and for school expenses. Even for some house repair. This is some kind of a 'social contract betrween the farmer and the comprador. Loyalty in this contract is paramount. The idea is for the farmers to pledge all his produce to the comprador in exchange for these credit facilities. The comprador is able to recover the capital lent and some profit when the comprador sells the produce to a buyer in the open market.Once the farmer renege on his pledge, it will be very hard for him to get credit from other compradores in the area.
The system works for almost in perpetuity. The catch is the comprador has the say on at what price he will buy the produce from the farmer. The other side is that, once the farmer sense that his comprador will not be fair to him in terms of pricing, and in terms of the probability that he will get the financing for the next cropping to harvest cycle, he will delive his produce to another comprador who is willing to provide financing for the next cycle. That is why loyalty to each other is very important in this "social contract".

28 January 2014 Submitted by Paul Zangue (not verified)

Dear Hernandez,
compradores seem to be a response of informal lender to farmer need of cash. since it is informal, any kind of abuse is possible. Farmer need cash and compradores is likely the only solution for now. To get them out of comprador trap, new financial products have to be developed by micro finance institutions or farmers organizations. Before the wide expand of micro finance, some lenders all over the developing countries were behaved like compradores. With the low rate of loan and better conditions offer by micro finances, these kind of credit with high interest rate and strong conditions are limited. In many rural erea there is no micro finance and some time no farmers organization unfortunately.
I think that government, NGO, and private sector have important role to propose alternative solution to these farmers. It is clear that with such system of exploitation, these farmers are condemned to remain poor for ever. Micro finance is much of time limit to loan and credit. They should extend their services to others. A study of poor behavior and needs and compradores system can be a case study to suggest new financial services to farmers.

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