Smallholder Agriculture: A Critical Factor in Poverty Reduction and Food Security in Africa

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    Feb 24, 2012

    The majority of the poor and food insecure in Africa live in rural areas, and most of them depend on agriculture for their livelihoods. More than 30 percent of the people in sub-Saharan Africa are chronically hungry and are small farmers. Experts tell us that the population in Africa is expected to double by 2050, and African nations will have to double their food production just to keep pace with population growth. For the last 20 years, however, food production in Africa has lagged behind population growth, and the source of the problem has been low productivity on Africa’s farms.

    There is broad agreement among agriculture economists that growth in agriculture produces the highest level of improvements for the poorest people, especially in agriculture-based economies. The World Bank notes that “Overall GDP growth originating in agriculture has proven to be, on average, two to four times as effective in raising incomes of the poor as growth generated in non-agricultural sectors.” To support broad-based poverty reduction and food security in Africa, smallholder agriculture must be a central investment focus. For this effort to succeed, gender must be a priority. In Africa, 80 percent of the small farmers are women.

    Q1: Are smallholder farmers credit worthy?

    A1: Because many smallholder farmers are using their land for subsistence production, there is a common belief that farmers are not capable of repaying loans. The majority of commercial banks are loath to lend to smallholder farmers, and even many microfinance organizations do not offer agriculture loan products. According to the Common Market for Eastern and Southern Africa (COMESA), only 0.25 percent of total bank lending in the region goes to smallholder farmers.

    However, farmers offer exciting growth potential for the microfinance industry. For example, One Acre Fund currently provides credit to over 125,000 smallholder farmers in East Africa. Each farmer takes a loan of roughly $70, and over 98 percent of them repay their loans. These farmers pay an interest rate of 15 percent (noncompounding). In fact, loan revenue from farmers now covers over 80 percent of One Acre Fund’s field operations costs. Microfinancing for small farmers is growing across the developing world. BASIX in India and BRAC in Bangladesh, for example, are also using innovative new methods for bringing financial services to smallholder farmers.

    Q2: Do smallholder farmers have access to agriculture inputs? Is that enough?

    A2: Smallholder farmers in sub-Saharan Africa often lack access to quality seed and fertilizer. Many policymakers assume that if farmers had access to inputs from a local agro-dealer, they would be able to successfully increase their yields.

    In reality, access is not enough. Access to inputs without training can be detrimental. If a farmer misapplies fertilizer, the yield can remain stagnant or even decrease. As a result, the increased expenditure on fertilizer can actually result in decreased profitability.

    Farmers can only adopt new technologies like seed and fertilizer successfully if they receive clear, tangible instruction on how to use those new technologies correctly. Academic research shows that providing credit for fertilizer increases fertilizer application rates by 16.2 kilograms per acre. However, if a farmer is not close to an extension service provider, fertilizer application rates decrease. Combining the distribution of inputs with credit and training is necessary for the sustainable increase of smallholder productivity. Additionally, smallholder farmers often have limited capital to travel to receive training or agriculture education. In these cases, it is helpful for organizations to train farmers in the fields where they work.

    Q3: Should agriculture development projects target men or women?

    A3: For a long time, the development community thought of men when it thought of farming. In recent years, the pendulum has swung the other way after evidence emerged that women are substantively involved in agriculture work. The agriculture development community now has started to focus almost exclusively on helping women farmers. While it is true that women do most of the work in the agriculture sector, men also contribute a significant amount of labor, according to the World Bank. It is important, therefore, to engage men and women jointly and offer services to both.

    Farmer participation should be considered household participation. This household approach has proved effective. For example, it has allowed One Acre Fund, to grow from 38 farmers in Kenya to more than 125,000 farmers in Kenya, Rwanda, and Burundi in just six years. In the One Acre Fund approach, men often sign loan contracts, their wives attend training sessions, and both men and women participate in planting, fertilizer application, and harvest.

    Q4: Are mobile phones the silver-bullet solution to increasing smallholder farmer incomes?

    A4: There is a lot of hype surrounding the use of mobile phones to communicate with smallholder farmers. An Accenture study claims that mobile phones could increase the incomes of smallholder farmers around the world by $138 billion by 2020.

    Information and communications technology (ICT) can supplement the value chain in certain ways, but it cannot replace the value chain. Farmers need access to four things: inputs, finance, training, and markets. The current ICT innovations try to address one of these four areas: training, in some instances, or markets, in other instances. For an ICT innovation to be successful, it must be combined with services that address the rest of the value chain. An ICT market innovation can only be successful if smallholder farmers have access to the inputs, finance, and training they need to produce high crop yields. An ICT training solution can only be successful if smallholder farmers have access to the inputs and finance they need to plant and access to the markets they need to successfully sell their surplus crop after harvest.

    Though mobile phone applications offer exciting new ways of communicating with rural smallholder farmers, agriculture policymakers must invest in all parts of the smallholder farmer value chain. Without investing in agriculture financing, the development of high-quality input suppliers, face-to-face extension services, and rural road infrastructure, ICT innovations will fail to have their promised impact.

    Q5: Will warehouse receipt systems solve storage and market access problems for smallholder farmers?

    A5: Smallholder farmers lose between 10 and 40 percent of their crop due to post-harvest losses from disease, pest infestation, or rotting. There is a widespread belief that the solution for eliminating these losses is large-scale warehouse storage, paired with a warehouse receipt system that allows farmers to take a bank loan against their stored crop.

    Warehouse receipt systems are very important for the agriculture sector. In fact, warehouse receipt systems have been successful in developed countries like the United States, as well as in developing countries like Uganda. For farmers with easy access to a paved road, capital for transporting their surplus crop, and a crop volume that is large enough to justify paying storage fees, a warehouse receipt system is a great financial instrument.

    In many countries, however, these larger farmers are not the primary producers of staple food crop. In Kenya, over 70 percent of maize is produced by smallholder farmers. These farmers find it difficult to take effective advantage of a warehouse receipt system. Most do not produce enough surplus crop to qualify for a warehouse receipt, which generally involves a 10-ton minimum.

    Household or village-level storage is a viable alternative to large-scale warehouse storage for smallholder farmers. If farmers have access to simple storage tools (e.g., actellic dust, storage bags) and training on how to store safely, household-level storage can be a cost-effective and simple method for smallholder farmers to safely store their crop surpluses and reduce post-harvest crop loss.

    William J. Garvelink is a senior adviser with the Project on U.S. Leadership in Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Stephanie Hanson is director of policy and outreach at One Acre Fund, headquartered in Bungoma, Kenya. Kristin Wedding is a fellow with the CSIS Global Food Security Project.