By James Anyanzwa
About 450 million smallholder farmers globally, who face poor market linkages, could overcome these impediments through producer organisations, a new study has shown.
The Citi Foundation and Dalberg Global Development Advisors study says small plots and low productivity leave smallholders more vulnerable to risk than large farmers, who can better diversify their crops and spread capital improvements over larger areas.
The study dubbed ‘Catalyzing Smallholder Agricultural Finance’ also found out that
“Smallholders might overcome these impediments through producer organizations, but most smallholders are dispersed and non-aggregated,” says report.
The study says smallholder farmers are poorly linked to markets and lack credit.
In addition smallholder-farming practices are not productive due to lack of access to resources for optimal inputs, such as high-performing seeds, fertilizer, irrigation, and machinery. Most rely on manual family labour.
The report reveals that the vast majority of smallholders lack access to finance for a variety of reasons, often interrelated.
Smallholders typically lack financial literacy and poorly defined property rights often prevent the use of cultivated land as collateral.
The cost of credit in developing countries is high.
“Without access to credit, most smallholders are confined to sub-optimal inputs and methods, and therefore to low productivity,” says report.
And constrained by low productivity and an inability to invest in their property, smallholders sometimes resort to shorter-term measures such as illegal logging, slash-and- burn agriculture, and intensive monoculture that impair the viability of the ecosystems they depend on.
“Access to appropriate credit could empower smallholders to help meet the growing global demand for food –while improving smallholder livelihoods, safeguarding the environment, and spreading benefits throughout the value chain,” says report.
The study shows that belonging to a producer organization is one way that smallholders can access finance, certifications, and technical assistance, and although the smallholder’s input costs increase, so do his prices, yields, productivity, and profits. It is estimated that total global demand for smallholder financing may be $450 billion.
Agricultural social lending aims to catalyze broader financing opportunities for smallholder producer organizations.
“Over time, as social lenders prove that producer organizations are bankable and that purchase contracts can be used as collateral, other local banks or financial institutions may enter the market,” says report.
