Modern agricultural practices and new technologies have transformed the productivity and lives of large farmers. But the companies and organisations offering these innovations often struggle to reach small farmers for a variety of reasons, including lack of cash, unpredictability of financing and farmers’ vulnerability if harvests fail.
However, some companies and organisations have sustainably increased the incomes and livelihoods of millions of smallholder farmers by sourcing produce from them or selling products to them.
What do these pioneers tell us? In a study which compares the performance of 15 successful companies and organisations worldwide, the consulting firm Hystra has drawn several surprising insights. Here are a few lessons from its report Smallholder Farmers and Business.
Technology drives productivity and impact
Farmers can increase their net yearly incomes by 80%- 140% when they have access to productivity-enhancing technologies such as improved seeds, micro-irrigation systems or improved cow breeds. In contrast, interventions focused exclusively on “fixing” dysfunctional markets and redistributing value in the supply chain (such as replacing informal traders, improving market access and passing on price premiums) only increased farmers’ incomes by 20%-60%.
Providing technologies also puts farmers in the drivers’ seat: it empowers them with the means to improve their productivity and income.
Farmers do not fear risk, they fear being locked in
Much has been written about smallholder farmers’ risk aversion when considering new practices and technologies. However, when looking deeper into what drives farmers’ adoption rates, what matters is not the size of investment required, the attractiveness of possible returns or the provision of guarantees. Instead, it is the reversibility of their decision.
Organisations and companies that struggle to reach small farmers typically offer “one-way-tickets”, which means that it’s difficult for farmers to change their minds about the product or service they have adopted if it’s not successful. In contrast, organisations that enjoy rapid and widespread adoption typically avoid engaging farmers in long-term commitments.
One example relates to offering farmers to switch from maize to soya for a season (or as long as soya brings higher prices) – versus investing in cocoa seedlings, which take years to become productive.
As the table above illustrates, insurance alone does not effectively address farmers’ concerns. Farmers do not merely seek protection against drought and disease: it is the irreversibility of proposed changes that deters them. .
Early adopters or “the enlightened middle”
When launching a new project, it seems intuitive to focus on enrolling the larger and more successful farmers first. They have the means and chances to succeed, while smaller farmers are more vulnerable to failure.
However, the ideal early adopters are those in the “enlightened middle” – farmers resilient enough to invest in new practices, crops and technologies, but not prosperous enough to be satisfied with the status quo. Ideally, these farmers also engage with their communities (ie. as teachers), which makes them likely to share their success with others.
After early adopters are chosen, organisations should invest in their success through tailored and intensive support. For example, the BASF Samruddhi programme sells quality inputs to soya farmers and supports them by providing intensive training to the first farmers it targets in a village for two full planting seasons. Demonstration and word-of-mouth from satisfied early adopters is a powerful tool for enrolling more farmers. Inversely, dissatisfied farmers are sure to spread bad publicity that will slow local expansion.
Increase loyalty and unlock value
Offering a wide range of benefits to farmers gives organisations and companies a unique competitive advantage, making them irreplaceable to farmers’ livelihoods. By becoming essential to farmers’ success, farmers choose to work with them repeatedly. This creates a virtuous circle whereby both farmers and organisations invest more each year into each other’s success. While smallholder farmers invest in more expensive productivity-enhancing inputs and produce more crops for sale, the organisations earn enough to develop even more distinctive, holistic and varied suites of products and services.
One such example is JAIN, which began by selling micro-irrigation systems and expanded into complementary agricultural products and services. It now produces and sells improved seeds, purchases produce from contracted farmers at guaranteed prices, processes crops through its own factories, uses biogas digesters to power its factories, converts the waste into fertilizer and sells the fertiliser to farmers. This approach has benefited both JAIN’s 200,000 contracted farmers – many of whom have increased their annual incomes by between $500 (£328) and $4,000 (£2,630) – and the company, which has increased its revenue while decreasing its operating costs. In 2014, JAIN had $1bn (£65m) in turnover.
How to reach scale and impact
While it’s tempting to work through intermediaries such as cooperatives to quickly reach scale at a lower cost, there are downsides too. Organisations working through intermediaries often suffer from a lack of control and poor proximity. For example, the Kenyan social business Juhudi Kilimo initially partnered with cooperative banks to channel loans to farmers. While this allowed them to offer cheaper credit, the co-operatives were often late in repaying loans and Juhudi Kilimo lacked the direct relationships with farmers to address this. The company had to discontinue the scheme and manage loans directly.
Juhudi Kilimo now helps farmers form small groups, which makes peer learning easier. In addition, each member’s loan is guaranteed by the savings of the other members, reducing default rates to only 3%. ECA – an agriculture company sourcing maize from smallholder Mozambican farmers – often finds that farmers’ groups have already formed when it moves into a new area. Khyati Foods in India started enrolling farmers in its organic certification programme through intermediaries, but could not reach the level of loyalty required to complete the three-year conversion process. After switching to a more hands-on approach with groups of 30 farmers, it now retains 100% of farmers who enroll.
Interested? More information on these issues as well as insights on creating wealth all along the value chain, running cost-efficient operations and sharing value with farmers can be found in Hystra’s newly released report. This report was prepared with support from the Swiss Agency for Development and Cooperation, the Danone Ecosystem Fund, responsAbility Investments AG and the C&A Foundation.
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