Kiva Innovations: Growing agricultural economies, starting with small farms

Farmers all over the American Midwest are taking the extraordinary measure of chopping down their crops to use as hay for cattle. The weather could affect up to 40% of this year’s total corn and soybean yields. In response, the Farm Service Agency (FSA) and USDA have rolled out a joint emergency loan program to help farmers through these tough times. Families are automatically eligible for low-interest loans if they live in federally-designated disaster areas.

The program is complex and somewhat controversial. It has also breathed new life into the vested interests on both sides of the Farm Bill debate. Still, most would agree that helping families cope with extraordinary threats to their livelihoods is a good thing.

Imagine for a second, if you will, how a farmer with no insurance, no other crops and no emergency relief could cope with a disaster of this magnitude. How would you feed your family in this situation?

In my last blog on agricultural finance, I discussed how uneven seasonal incomes leave farmers vulnerable to unpredictability. By and large, industrialized countries have developed programs to help mitigate these shocks. But in developing countries, these programs either don’t exist or are limited in scope. Farmers all over the world are effectively forced to walk a tightrope without a safety net. They’ve had to learn how to balance.


Kiva borrower Josefina, a farmer and shop owner in the Philippines.

Rural families determine their strategies for survival in the context of inefficient markets. Lack of training and access to water, land titles, and technology undermine productivity and diminish the quality of crops. These forces converge to limit a farmer’s ability to sell products and generate income.

Providing farmers with flexible financing options is a giant leap in the right direction. And developing technology to help link them to better markets gets us a few miles further down the road. But lasting change requires long-term investment in local communities to stimulate a productive and sustainable agricultural sector.

The first step: Admitting we have a problem

Since the 1960’s, the international community has seen smallholder farmers as the key to unlocking growth in developing economies. The rationale for this approach is embedded in the standard development model championed by the World Bank. It has three parts: first, poverty alleviation and growth must start with agriculture; second, small farms are highly efficient ways to organize agricultural labor; and third, improvements in technology and markets will enhance this process. Development economists argue that once this potential is tapped, economic growth will follow. After all, it worked in China.

But, small farmers aren’t all the same. And neither are economies. Rice growers in the Philippines don’t necessarily face the same market challenges as maize farmers in South Africa. As a result, focusing on neutral technologies to increase the productivity of small farms has worked in some cases and failed in others.

Flexible tools are needed to address obstacles to development based on specific country contexts. These tools are being forged by responsible companies and nonprofits that are motivated to remake the model. The process has led many to enter new and somewhat uncomfortable territory.

Big, bad, scary farms

Nonprofits and large international corporations have never made for comfortable bedfellows, and the agricultural sector is no exception. Imagine Monsanto execs and Friends of the Earth staff sitting down for a coffee -- awkward. Vitriol aside, large-scale farming has proved a compelling engine for growth in emerging economies. Brazil comes to mind. Unregulated, large-scale expansion has also led to environmental degradation and excessive pollution. All are accelerators of climate change.

Yet, the issues that inhibit small farms are resolved by increasing their scale. Large farms are able to secure land titles and access better storage and processing facilities. They also have better links to markets, financing and technology. The key is figuring out why larger farms have access to these benefits and smaller farms do not. Surprisingly, as it turns out, it has less to do with the size of the farm and more to do with their institutionalization.

Size matters

The key advantage to size is commercialization. Big farms are not always good at getting new products to market. But they do have formalized structures that allow them to streamline access. As heterogeneous growers, smallholder farms often lack this type of formal organization. For years, cooperatives have leveraged strength in numbers to muscle into markets. Still, there remains tremendous scope for large scale farms as commercial enterprises to work with smaller farms to create economies of scale in growing, processing and marketing.

One of Kiva’s prospective Field Partners offers an innovative solution. Across four African countries, the organization is working to help smallholder farmers institutionalize. They achieve this by linking local cooperatives to nearby agribusinesses to expand access to inputs, financing and markets.

At once, the organization is harnessing the efficiency of small-scale farm labor and binding it to the power of large-scale farms. It is effectively growing local economies of scale by promoting partnerships up and down the supply chain. As a result, small farmers are able to access better infrastructure (storage, irrigation, power etc.), technology (high yield varieties, fertilizers, mechanized tools etc.), credit (long-term, low interest financing) and markets (links to international buyers).

At Kiva, we are always looking to expand our horizons to tap into the latest, best practices in microfinance. Studies suggest that traditional models for promoting small-scale development in agriculture are stalling, particularly in Africa. We believe that partners that innovate to responsibly fix these shortcomings are worth our support. As are the millions of farmers working to feed the world.

Ian Matthews is an intern on Kiva’s Strategic Initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with companies and organizations innovating to support farmers as they grow.