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

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.