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 werenâ€™t problems enough, African farmers are also penalized by usually having to sell their produce immediately after harvest â€” 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 farmersâ€™ 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.FAOâ€™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 â€” 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 â€” by between 44 and 120 percent.
â€œIf done properly, warrantage allows farmers to grow more food and increase their income,â€ says FAO Rural Finance expert Ake Olofsson.