Smallholder farmers are a significant part of the agricultural landscape in many parts of the world, but they tend to be more prevalent in certain regions particularly in low-income countries where a significant number of people work and live off the land. In 2022, DFC provided $50 million in equity to Aqua Capital Fund II that targets business development for enterprises in Latin America focused on agriculture and food value chains, especially in improved agricultural yield, water management, distribution, and job creation and particularly in rural areas.. Other support should include technology, training, and educational programs that position smallholder farmers to develop sustainable, economically sound agricultural production. Agrifinance is a critical part of IFC's strategic priority to support agriculture in emerging markets, helping to Bread for the World has advocated for continued and increased U.S. funding for IFAD because it is an influential partner in financing agricultural and rural development. Smallholder farms are fragmented and often have limited access to inputs, new agricultural technologies, and financing. motivations of MFIs that venture into agricultural finance, Adaptation addresses the impact of climate change. Second, DFIs need to embrace localization, as agriculture is a hyperlocal sector. August 1, 2022 How can we improve access to finance for smallholder coffee farmers? learning efforts through diverse partnerships to obtain The project aims to increase productivity by enabling timely access to and appropriate fertilizer use by smallholder farmers. Crop production remains low in Africa because the majority of food producers are smallholder farmers who lack access These actions include switching to other crops better suited to climate-related land changes, expanding the use of drought-tolerant crop varieties, and using dry direct-seeding technology for rice. Many MFIs and banks see potential growth from extending financial services to these unbanked clients, but their traditional approaches must be adapted to capitalize on opportunities in rural . Marrying this with grant-based technical assistance will be important to help smallholder farmers provide the necessary skills and knowledge to qualify for loans and other financing. By one estimate, smallholders in Africa, Latin America, and Asia face a $170 billion funding gap. Such an approach would enable them to develop a pipeline of investment projects and identify ways to create financial products that can address the unique constraints smallholder farmers face in accessing finance. Finally, there are also cultural barriers among farmersmany of whom are reluctant to take on loans or other financial exposure. Providing smallholder farmers with greater access to finance is critical to implementing climate-smart agriculture. Financing is central to smallholders gaining access to these inputs. Financial services for smallholder farmers and rural MSMEs are critical to achieving financial inclusion goals. An orchestrated approach to due diligence while partnering to serve cooperatives can reduce both the time required for lending and the lending risks. In the third post, guest bloggers Chris Georgen andGabriella Skoff (Topl) explore how blockchain can help smallholder farmers get access to finance. Kenyas agricultural sector is the countrys largest source (58.6 percent) of total emissions.7Climate-smart agriculture in Kenya, CIAT, CGIAR, and The World Bank, October 2015. TEMU - ACCESS TO CREDIT AND ITS EFFECT ON THE ADOPTION OF AGRICULTURAL TECHNOLOGIES 4. We identified several cross-cutting approaches that could help scale priority measures (Table 4). However, smallholder farmers do not always have adequate resources at the start of the planting season to buy the required inputs. Some DFIssuch as the Dutch Entrepreneurial Development Bank, known by its Dutch acronym as FMOalready have a strong portfolio of investments in agriculture and smallholder farmers. 10 Citations 4 Altmetric Abstract Agriculture remains the mainstay of most economies in Africa, accounting for 37% of gross domestic product (GDP), nearly 60% of export earnings, and over 76% of employment. We identified 33 climate adaptation and mitigation measures through a comprehensive literature review to determine measures that have been tested withor are actively being implemented bysmallholder farmers in different countries and that have been demonstrated to be effective. We believe that such partnerships could become the new norm when it comes to providing financial services that are customized specifically for farmers living in the most rural areas, who would otherwise be excluded. International Tea Day 2023: Supporting smallholder tea producers is an integral part in the transformation of agrifood systems. KHALID S.M, A.E. In 16 years, One Acre Fund has reached 3 million farmers and helped increase farmers income by $3.60 per $1 invested by the organization. While we focus on carbon emissions and climate adaptation in this article, it is important to note that these measures also have important nature-related benefits. The results highlight not only areas of commonality across smallholder systems but also the importance of a differentiated approach by country and subnational region. AgriData Portal is made up of two brands - AG Fund, a digital platform . But by 2050, the areas currently providing 70 percent of the value of crop production will be victim to severe or extreme aridity and heat stress.. Since 1978 . Smallholder farmers are also vital stewards of ecosystems. Written by: But about 75 percent can adopt at least threeand the more measures they adopt, the more likely that greater climate resilience could be achieved. evidence of microfinance institution (MFI) involvement in The lack of financing for climate adaptation is representative of the way countries overlook smallholder farmers overall. Others are using financial innovation to support climate-smart agriculture and resilience. 1616 Rhode Island Avenue, NW They are also key to global food security. In India, given its large crop production (and rice production, in particular), rice- and crop-based measures account for nine of the ten priority measures. This amount meets less than 3 percent of the estimated total smallholder financing demand, which is calculated to be $450bn globally. According to research by the Mastercard Foundation, the total financial market for smallholder farmers is estimated to provide $50 billion in credit per year, with $14 billion from formal financial institutions, $17 billion from value chain actors, and $25 billion by informal or community-based organizations. Smallholder farmers play a significant role in environmental sustainability and conservation efforts by engaging in agroforestry, crop diversification, composting, and other environmentally-friendly practices. Successful projects have shown that if smallholder farmers have access to improved inputsseeds, fertilizer, knowledge, and trainingit can increase yields and raise their incomes. This was determined by calculating the area of farmland where measures could technically be implementedor calculating the number of livestock heads for which measures could be implemented based on the theoretical scale of adoption described aboveand multiplying it by expected GHG reduction potential per hectare or per livestock head based on findings from research trials. Chris Georgen Maize (corn), for example, is the most important grain crop in Africa. Financial services for smallholder farmers and rural MSMEs are critical to achieving financial inclusion goals. However, as previously mentioned, we identified more than 30 measures smallholder farmers can pursue for adaptation and mitigation. [emailprotected]. The approach also significantly reduced the amount of chemical fertilizer required to achieve the same yields by returning nutrients to the soil.10Dao Trong Hung et al., Rice-residue management practices of smallholder farms in Vietnam and their effects on nutrient fluxes in the soil-plant system, Sustainability, March 2019, Volume 11, Number 6. As data becomes more accessible with the digitalization of agricultural value chains, tech-enabled data-sharing partnerships have emerged that can optimize service delivery and improve access to finance for smallholder farmers and their cooperatives. Alternative credit systems powered by BlockchainAs new applications for blockchains arise, the transformative, cross-sectoral power this technology holds becomes ever clearer. They grow and harvest crops that are abundant in their homeland and vital to local food systems. Simply put, smallholder farmers are facing many challenges that could make achieving this unattainable. they were implemented, with a specific focus on agricultural 1 Opportunity International's ("Opportunity") own experience in Africa indicates that most farmers are operating at just 40 percent of their potential capacity. This helps them amplify their reach and impact in a manner that is commercially viable. These growers play a key role in providing nutritious food to their local communities, maintaining ecosystems, and furthering sustainable agriculture. Definitions for what constitutes a smallholder can vary and not only be based on size but factors such as involvement of family in labor, harvesting techniques, and economic profitability. This gap is caused by several reasons. Similar to One Acre Fund, Babban Gona provides training, financial credit, and improved inputs. But many measures have both adaptation and mitigation benefits. Smallholder farmers are top of the list of those excluded from access to formal borrowing. The company aims to empower smallholder farmers by addressing their access to markets and financing, through technology. Palm oil contract farming, a pre-harvest agreement between palm oil farmers and transnational processors and traders, facilitates smallholder participation in global agro-commodities markets, improves smallholder livelihoods, and . Would you like to help? Conor M. Savoy is a senior fellow with the Project on Prosperity and Development at the Center for Strategic and International Studies in Washington, D.C. Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. STUDY HYPOTHESES There is limited accessibility of formal credits in rural Zanzibar and smallholder farmers who are relatively poor tend to be marginalized. "Agriculture is key to inclusive economic growth and rural poverty . Making crops more resilient to drought risk, The food and agriculture sectors transition to net zero: Production reform and demand shifts. It examines the role of microfinance in the development of smallholder farming. #GESILearningForum #GenderEquality #SocialInclusion . Production itself is then dominated by a few huge multinationals like Mars, Ferrero or Mondalez, who maintain near-total control over the value set for a farmers cacao crops. Nonetheless, resilience is likely to increase for any farmer who adopts multiple measures. To facilitate agricultural solutions to overcome malnutrition, IITA - CGIAR, through funding from Global Alliance for Improved Nutrition (GAIN), is implementing the "Strengthening Nutrition in Priority Staples (SNIPS)" project. Impact was measured using GHG-emission-reduction potential. International Finance Corporation (IFC) has been engaged for several years in learning efforts through diverse partnerships to obtain insights into the challenges of agricultural finance. Crop2Cash provides smallholder farmers with access to formal financing for agricultural inputs and enables them to receive digital payments, as well as access to other digital financial services such as access to credit. Providing better resources for these farmers can start with increasing funding opportunities. As a result, one of the largest mitigation opportunities15Paulina Alejandra Pontifes et al., Land use/land cover change and extreme climatic events in the arid and semi-arid ecoregions of Mexico, Atmsfera, August 2018, Volume 31, Number 4. lies in regenerative rangeland management. See Media Page for more interview, contact, and citation details. Yet not only do they face risks from climate change, poor infrastructure, financial disparities but they are also experiencing hunger at disproportionate rates. Financial institutions also frequently do not have a physical presence near where smallholder farmers work. The project, which is being implemented by the African Fertiliser and Agro-Industry Partnership (AFAP), will help to increase agricultural productivity and food . We face big challenges to help the worlds poorest people and ensure that everyone sees benefits from economic growth. The Ethical Trading Initiative (ETI) Smallholder Guidelines further details the distinctive characteristics of smallholders as farms that: Smallholder farmers are an invaluable asset to the global food economy. For other crops, greater use of a combination of six tillage, residue management, and intercropping practices in legumericewheat cropping systems in India resulted in the lowest emissions. Claims like this enable bean-to-bar companies to charge a premium for their products, a higher price which consumers have shown they are willing to pay. Dr. Heber Brown, a new board member at Bread for the World, recently preached on the Our bowl and table logo represents what we do. Adoption of adaptation and mitigation measures among smallholder farmers is complex. Our work is informed by a geospatial analysis of climate risk in key smallholder markets; an extensive review of current technologies and tools that smallholder farmers can deploy to adapt to and mitigate climate change; and a prioritization of those measures based on agroecological and farming systems in different countries. With their dedication to providing nutritious and often affordable food for their local communities and families, smallholder farmers help reduce hunger. Moreover, climate change will affect land suitability for crop production, and by 2050, India could lose 450,000 square kilometers of land for rice crops. This helps protect against erosion caused by heavy rains or windstorms that can destroy topsoil if left unprotected for too long. TrappedStill, the impact of a blockchain-powered bean-to-bar industry is not nearly enough. These include reducing land-use change, decreasing nutrient runoff into waterways by moderating fertilizer application, and adopting integrated pest management practices. Zai pits are shallow bowls filled with compost or manure in which crops are planted, allowing more water to soak into the soil and trapping silt and organic matter that would have washed away. First, local financial institutions in these geographies generally do not want to provide financing to smallholders. Upgrade your browser to improve your experience. Feasibility was evaluated based on three criteria: cost (a qualitative assessment of whether the measure is capital intensive; requires an increase in operational expenses, including labor or inputs; or is cost neutral); capabilities required to implement a measure (an assessment of whether the measure required a single agronomic practice change with standard technical assistance or a more complex multiprocess change with specialized support); and access to market (a sliding scale, with good market access defined as a one-day round trip, four hours each way, from the nearest large market center). In China, for example, the government changed its subsidy policies to discourage use of chemical fertilizer for specific crops and encourage the adoption of organic fertilizer substitutes, with a particular focus on reducing nitrogen overapplication. Other systemic factors that can hold smallholders back include gender inequality, low access to healthcare, unsafe water, and poor sanitation conditions. The proportion of IFAD-supported projects that include work on market access has increased dramatically over the years - from 3 per cent in 1999 to more than 75 per cent in 2014. All Rights Reserved. Access to financeLet us consider how blockchain technology can empower farmers by providing them a path forward from within this system. lending to these segments feasible, and what restricts their Various service providers seeking to serve the same set of farmers often see inefficiencies in the onboarding process if their processes are not aligned. All Rights Reserved. They often lack sufficient funds, work with improper infrastructure, or are vulnerable to the whims of supply chains that can favor large-scale farmers. But they illustrate some powerful initiatives stakeholders can pursue to support the scaling of adoption of adaptation and mitigation measures among smallholder farmers. USAID's collaboration with Corteva builds on the Agency's work under AGRI-Ukraine, which has already provided more than 13,728 Ukrainian farmers with seeds, fertilizers, crop protection, access to finance, and other assistance, in total supporting approximately 29 percent of the country's registered agriculture enterprises. Paulina Alejandra Pontifes et al., Land use/land cover change and extreme climatic events in the arid and semi-arid ecoregions of Mexico,, Xiaoxi Wang et al., Reforming Chinas fertilizer policies: Implications for nitrogen pollution reduction and food security,. Agroforestry alone represents the largest opportunity, with a mitigation opportunity seven times that of the next most impactful measure of incorporating rice straw into soils.14We define agroforestry as land suitable for trees to grow in a range of grass- and crop-based systems and with a tree density of 45 or more trees per hectare. For the DFC this would mean a greater use of concessional finance to de-risk investments in this space. The vast majority of the formal financial sector ($9 billion) is provided by state banks largely active in Asia, where governments have provided them with a mandate to support the agricultural sector. Finally, DFIs can also provide financing to investment funds that target the agriculture sector. Climate change has also played a role, as the increase in severe weather events and less predictable patterns can negatively impact harvests. For adaptation, almost every smallholder farmer can adopt at least one on-farm adaptation measure. Download Innovations for data-sharing in agricultural partnerships for the full report. We identified more than 30 measures smallholder farmers can adopt to help adapt to and mitigate climate change. For example, fertilizer application rates are more than five times higher in India than in Ethiopia, which means that soil- and fertilizer-related mitigation measures are much more applicable in India.13Fertilizer consumption (kilograms per hectare of arable land), The World Bank, accessed December 20, 2022. Connectivity Project a $380 million IDA-financed regional project between Mozambique and Malawi and a new $300 million Access to Finance & Economic Opportunities Project . Box 96416, Washington, DC 20090-6416, advocating for the expansion and reauthorization. These measures are also important for countries with large smallholder populations and those that are making low-carbon pathway commitments, given that they will likely need to help farmers transition to less carbon-intensive agriculture. financing commercial and semi-commercial smallholders
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