Magazine article New African

Big Potential in Smallholder Farmers: Combined, They Are the Largest Contributor to Food Security and Employment in Sub-Saharan Africa, but Smallholders Are Often Absent from Policy Debates about Agricultural Development

Magazine article New African

Big Potential in Smallholder Farmers: Combined, They Are the Largest Contributor to Food Security and Employment in Sub-Saharan Africa, but Smallholders Are Often Absent from Policy Debates about Agricultural Development

Article excerpt

Smallholders make up the majority of African participation in agriculture, and as such play a vital economic, social and environmental role across the continent. As much as 90 percent of all agricultural output in sub-Saharan Africa is produced on smallholdings, and there are at least 33 million smallholders active in the region. However, as well as being the largest source of produce and employment, smallholdings are among the most fragile of enterprises, vulnerable to changes in price and in weather conditions and least able to absorb environmental or economic shocks.

The sheer scale of the smallholder populations makes them economically critical - in many countries in Africa, even those with hard commodity export sectors, agriculture still makes up more than half of the total gross domestic product.

And yet, despite being central to economic and development objectives, smallholders have in many cases struggled to obtain financing from commercial sources. Few are seen as genuine entrepreneurs, fewer still have access to collateral, consistent access to markets or the kind of financial training that allows them to approach banks for loans. Banks, even if they have finance available, rarely have bricks-and-mortar branch networks in rural areas. Transaction costs are far too high, and profits too slim, to allow them to easily access smallholders. According to figures from the Common Market for Eastern and Southern Africa, only around 0.25 per cent of total bank lending goes to smallholder farmers.

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"What we have found in many countries is that there is considerable liquidity, but that the risk appetite of commercial banks to lend to the agricultural sector is very low," Samuel Eremie, Officer-in-Charge for the Regional Director of the East and Southern Africa Division of the International Fund for Agricultural Development says. "What we appreciate is that the commercial banks know little or nothing about the agricultural sector. All they see is small, scattered farmers whose credit records they do not have. So they are very reluctant normally to lend to them."

IFAD, along with partners, including AGRA, are working on ways to build business capacity within smallholder communities, and to help the banks themselves to understand the sector. By increasing the financial and business management of individual farmers and cooperative organisations, development partners are able to reduce the risk taken on by commercial banks. Building the technical capacity of smallholders can increase their yields and reduce their vulnerability to shocks, while improving and stabilising market access for smallholders also increases their potential revenues and gives them more commercial predictability. Together, these make smallholders and cooperatives a safer bet for banks.

More recently, Eremie says, IFAD and others have been looking at how technological innovation, particularly the spread of mobile financial services and banking, can be harnessed to reduce the transactional costs for banks who are interested in supporting the rural economy.

Larger commercial farmers experience fewer of these restrictions, and are often able to access capital markets to expand, build infrastructure and invest in equipment or inputs. The past decade has also seen an increase in the number of large, often international land and farming deals that promise to bring scale to the continent's agriculture. For several of the governments in the region, improving the competitiveness of soft commodity producers remains a major focus, and in some cases this has translated into major initiatives, such as the agricultural corridor programmes in Eastern and Southern Africa that combine financing and infrastructure from a number of development and commercial partners. …

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