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Developing risk management strategies for smallholders

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How to address risk factors for smallholders in participating in sustainable agricultural intensification

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What are the key risk factors for smallholders in participating in sustainable agricultural intensification, and what risk management strategies (RMS) can be put in place to manage them? That is the research question that this project addresses; specifically, the project focuses on increasing smallholders’ access to inputs and participation in the development of commercial value chains.

Smallholder access and participation are limited by systemic investment risks which result in market failures that discourage the investment required for commercialisation. The objective of the project, therefore, is to develop and test inclusive business models that reduce these systemic risks and that can be scaled-out to stimulate broad-based growth.

Ethiopia and Malawi were selected for the project because they share obvious similarities (rainfed systems, drought-prone, high food insecurity) but also have important contrasts in political economy, market organisation, and gender norms that will help generate lessons in how institutions and policy affect risk management and the potential for sustainable agricultural intensification.

Challenges

Smallholder farmers in Malawi and in Ethiopia face myriad risks. Erratic weather conditions resulting from global climate change, unpredictable market prices, limited support from extension services, and lack of access to quality certified seeds make crop production a high-risk investment for farmers.

In order to reduce risks and improve livelihood, smallholders need to increase household income from agricultural production. Farmers can receive higher prices for their harvest, if they produce high quality crops by using quality certified seeds, and if they increase their bargaining power by marketing collectively as opposed to selling to traders individually. The project therefore designed a 'replicable business model' to facilitate access to certified seeds and to encourage collective marketing. The model is being tested in village cooperatives in Malawi and in Ethiopia over the course of three years.

The project selected pigeon pea in Malawi and teff in Ethiopia, both of which have several positive attributes and great market potential. Both crops can fetch good prices on the market, are highly nutritious and widely consumed in the two countries. The project is working in Phalombe district in Malawi and in Amhara region in Ethiopia.

Our approach

Our approach builds on the rich knowledge-base of risk-management and value chain development in smallholder agriculture.  For each type of systemic risk, we identify innovative risk management strategies (RMS): technology RMS that reduce the risk of natural shocks and increase yield stability, and institutional RMS that reduce price risks, economic coordination risks, and opportunism risks. We have used gender analysis to compare incentives for adoption of innovative RMS between men and women, and to ensure that commercialisation includes women and poorer smallholders.

The replicable business model that is being tested by the project is essentially a seed revolving fund that ensures continued access to certified seeds and enables the cooperative to market production collectively. During the first year, the project provided two kilograms of quality certified seeds to 300 cooperative members. The recipient farmers planted the seeds, harvested the crop, and returned four kilograms of harvest back to the cooperative – that is, twice the quantity of the seeds received. The cooperative collected and stored the harvest and waited for the right time for prices to increase to sell in bulk at a good price. After selling the crop, they purchased certified seeds again and distributed them among cooperative members. The business model will not require further project input or funding after the first year, because the cooperative will be able to purchase fresh certified seeds every year from selling high quality produce.

Outcomes

Key outputs from the project include, for each country:

  • a scoping study;
  • a participatory value chain analysis;
  • action plans for an inclusive business model that addresses systemic risks;
  • gender analyses of incentives for adoption of innovative RMS, using experimental games;
  • analysis of social inclusion;
  • lessons from action research; and
  • a final report that synthesises experience and key lessons with the business model over two crop seasons.

Lessons are communicated through short video clips, blogs, and working papers for specific research platforms.