Smallholder farmers across the world are threatened by uncertainty: often, there are several stages of the production value chain between farm and consumer, meaning that high food costs for consumers are not resulting in higher incomes for farmers. Smallholder farmers are often either unable to access markets for their produce or face prohibitive costs in attempting to do so, which not only compromises their own income prospects but also disrupts produce supplies, exacerbating food insecurity fears in many developing countries. Furthermore, producing on small scales places farmers in a weak bargaining position and makes them risk averse.
An approach to stabilizing the smallholder usually centers on improved financing: farm investments in inputs are used to stabilize their incomes by enhancing outputs. But limited and ineffectively packaged agri-finance services mean that recent enthusiasm for microfinance and micro-insurance products for the global poor have seen limited penetration in agricultural markets. A dramatic gap in finance supply exists in agricultural markets due to a general lack of producer organizations, low levels of financial literacy, and low productivity; all of which make it incredibly difficult for smallholders to finance loans, and create high barriers of entry for potential financiers. There remains a need to strengthen smallholders’ position, particularly in reference to consumers.
One step towards doing this involves the development of more robust aggregation and association schemes. Increasingly, the private sector is helping to spur these associations with large scale commercial food producers playing a large role in market stabilization. Multinational giants like Walmart have committed to supporting local farmer programs, providing farmers with the commercial security they need to take more production risks that could lead to higher quality yields in larger quantities. Similarly, Land O’ Lakes, Inc. has built their global business model on the strength of farmer cooperatives. Programs like this are promising but produce aggregation need not be this large to offer farmers: there is yet more potential in small-scale cooperative models.
At the local level, innovative modifications to traditional farmer associations offer exciting promise. Community supported agriculture (CSA) schemes have become increasingly popular but high costs of establishment may make them unfeasible alternatives for many vulnerable smallholders. Seattle’s Pike Place Market is responding to this worry by piloting a CSA scheme that makes room for underfinanced smallholders. Pooling the available produce of the Washington family farms that they partner with, Pike Place is offering its members more diverse produce bags than a traditional CSA might be able to. Additionally, by sourcing produce from a range of different farmers, each farmer gains access to a revenue stream that may have otherwise been inaccessible – particularly in the case of their smallest producers. A shared producer community supported model could offer a lot of promise for the growth of the scheme in developing countries as well.
Extreme poverty and heightened climate vulnerability mean that smallholders in developing countries are even more vulnerable to market fluctuations. According to a recent report, smallholder poverty is exacerbated by the existence of a number of binding constraints on production, including: a lack of access to market information; low market regulation; and limited access to training and skills building opportunities. Incomplete farmer cooperation compounds these problems, which contributes to the general unavailability of agricultural microfinance. A community supported agriculture model deployed in developing markets could make significant contributions to strengthening association groups among farmers, as was suggested by a study conducted in Ghana. Aggregating produce and guaranteeing revenue can also help buffer smallholders against inconsistent business regulations and poor contract-enforcement that are the result of regulatory gaps in much of the developing world. Furthermore, it is possible that a cooperative model for produce delivery could also help promote knowledge sharing between farmers.
A community supported model would build on an already strong case for collective action among farmers, and could better relate the ends of the agricultural production value chain by developing and delivering risk-mitigation products. Thinking about the ways by which we can support the formation of collaborative and farmer-focused market relationships promises to be a productive starting space for improving smallholder outcomes.
The Global Food and Agriculture Program aims to inform the development of US policy on global agricultural development and food security by raising awareness and providing resources, information, and policy analysis to the US Administration, Congress, and interested experts and organizations.
The Global Food and Agriculture Program is housed within the Chicago Council on Global Affairs, an independent, nonpartisan organization that provides insight – and influences the public discourse – on critical global issues. The Council on Global Affairs convenes leading global voices and conducts independent research to bring clarity and offer solutions to challenges and opportunities across the globe. The Council is committed to engaging the public and raising global awareness of issues that transcend borders and transform how people, business, and governments engage the world.
Support for the Global Food and Agriculture Program is generously provided by the Bill & Melinda Gates Foundation.
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The Hunger and Undernutrition Blog, Humanitas Global Development
International Food Policy Research Institute News, IFPRI
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