12 April 2010, Rome - An ingenious financing scheme designed by FAO to allow African smallholder farmers to make more money is to be scaled up in Niger, where it was pioneered, and extended to Burkina Faso, Mali and Senegal.
As though pests, weeds and weather weren’t problems enough, African farmers are also penalized by usually having to sell their produce immediately after harvest — when everyone else is selling and prices are lowest.
FAO found a solution while working on a project designed to help smallholders in Niger form farmers’ groups so they could get better deals when purchasing inputs like seeds and fertilizer.
A major hurdle soon emerged, however. Whether as individuals or groups, the farmers had no money to spend.
FAO’s solution was to introduce into the project a version of warrantage, or inventory credit system, used by European farmers in the 19th century. Under the warrantage system farmers, rather than selling their harvest at once, can use it as collateral to obtain credit from a bank.
In the Niger project, started in 1999, in return for a bank loan the farmers left their produce in a locked warehouse with keys held by both the bank and their group. The credit gave the smallholders the means to buy essential inputs for the next planting and also allowed them to hold on to the produce until the lean season — when food stocks start to run low and prices climb.
At that point they redeemed their produce from the warehouse, sold their crop, repaid their loan and pocketed the difference. Using part of the credit to finance other income-generating activities, many farmers managed to repay the loans even before selling their crop.
A study of the Niger project carried out last December found that participating farmers had been able to increase their income by between 19 and 113 percent in six months. And since they were able to buy better seeds and fertilizer their yields went up — by between 44 and 120 percent.
Everyone stands to gain
“If done properly, warrantage allows farmers to grow more food and increase their income,” says FAO Rural Finance expert Ake Olofsson. “Everyone stands to gain, including the banks who are happy because they make money too.”
But, he warns, it is not a one-size-fits-all solution. Specifically, three elements have to be in place: a well functioning farmer’s association, an interested local bank or other financial institution, and a safe place where to store the produce. Crucially too, the crop used to guarantee loans must be non perishable and its price must have a proven record of rising in the months after harvest. Finally, agricultural produce as a guarantee for a bank loan needs to be recognised by the banking legislation of the country concerned.
In the Niger project millet, rice and peanuts were all used as collateral. But a number of other crops, including such horticulture products such as onions, garlic, dried tomatoes and dried peppers could also be used.
The Niger project is now being scaled up to cover the whole country. In Burkina Faso, Mali and Senegal farmers will also soon be participating in warrantage schemes.
“It shows that growing more food is not the only way of increasing poor farmers’ food security,” says Olofsson. “Simple, storage-based credit systems can also play an important role in improving their livelihoods.”