Examining the Effects of Crop Price Insurance for Farmers in Ghana

Policy Issue:

Many small-scale farmers in the developing world face significant income uncertainty, and rural farmers who live from harvest to harvest don’t have much room for error. Variables beyond the farmers’ control, such as fluctuating crop prices, can make a significant difference in how much a family earns for the year.  Farmers may be unwilling to take on additional risks by borrowing and making long-term investments due this uncertainty. This reluctance is thought to contribute to the decision of many farmers not to invest in technologies such as hybrid seeds, fertilizer, or irrigation that could potentially improve crop yields. Many lenders are also extremely wary of extending credit to farmers, fearful that they will inherit the risks inherent to farming. Crop price insurance could help solve this problem, reducing the risk to farmers and providing them with encouragement to make investments in their farms. Lenders, too, may feel more confident in lending to farmers with greater income certainty, facilitating even more capital investments.

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Context of the Evaluation:

In Ghana, 50 percent of the rural population lives in poverty. In the Eastern Region where Mumuadu Rural Bank (MRB) operates, an estimated 70 percent of households make a living in the agricultural sector, but agricultural loans make up only 2 percent of the bank’s loan portfolio. Focus groups with maize and eggplant farmers in the area revealed that farmers were hesitant to borrow for fear that fluctuations in crop prices could force them to default. Rainfall fluctuations, typically an important source of risk for farmers, are not a great concern in this part of Ghana. The prices offered for traded crops, however, do fluctuate greatly. Information gathered in baseline surveys suggested that there was a potential but untapped market for crop price insurance: farmers in the area served by MRB expressed that they would be willing to pay to guarantee a certain minimum crop price. Despite this encouraging baseline finding, banks and insurance providers face the challenge that insurance is not a commonly understood concept among farmers in the region.

Details of Intervention:

Researchers developed an agricultural loan product in coordination with MRB that had an insurance component that partially indemnified farmers against low crop prices. Specifically, if crop prices at harvest dropped below a set price floor (the 10th percentile of historical prices for eggplant and the 7th percentile for historical maize prices), the bank would forgive 50 percent of the loan and interest payments. Borrowers were not required to pay any premium for the insurance product. The goal of incorporating insurance into the loan product was to reduce farmers’ risk in borrowing to invest in agriculture inputs. The intervention targeted maize and eggplant farmers in particular because the crops are both commonly grown in the region and subject to volatile (but historically well documented) prices.
 
Standard Mumuadu procedure is to invite farmers to meet in a group with Mumuadu employees to discuss the bank’s financial services, and to encourage farmers to come to a branch to apply for a loan. The average loan size is approximately US$159, which represents a significant change in cash flow for the borrower. For this project, Mumuadu employees approached community leaders to obtain a list of all maize and eggplant farmers in the village. The same community leaders then invited farmers to attend one of the bank’s information sessions. Farmers on the list were randomly assigned to one of four groups, each of which received a variation on the Mumuadu marketing pitch. The four groups were:

  1. Farmers who were offered the standard Mumuadu loan product;
  2. Farmers who were offered the Mumuadu loan product with complimentary crop price insurance;
  3. Farmers who received financial literacy training, before being offered the standard Mumuadu loan product;
  4. Farmers who received financial literacy training, before being offered the Mumuadu loan product with complimentary crop price insurance.

Prior to the marketing of the loans, Mumuadu employees conducted a survey of the farmers, gathering information relating to their credit history, risk perception, financial management skills, and cognitive ability. An analysis of baseline data, bank administrative data, and a followup survey that focused on farmer investment decisions allowed researchers to draw conclusions on the effect of crop price insurance on borrower behavior and agricultural investment in Ghana.

Results:

Take up of loans among farmers was quite high, with 86 percent of farmers in the comparison groups choosing to borrow and 92 percent of farmers in the treatment groups taking out a loan.  This high take up across both treatment and control groups made an analysis of the features that predicted take up difficult.  In fact, the researchers found no systematic difference across the treatment and control groups when considering which features predicted borrowing. Overall, those who borrowed tended to be older, with higher scores on tests of cognitive ability.  They were also more likely to have a record of previous borrowing.  

Apart from predictors of borrowing, researchers were interested in whether crop price insurance changed farmers’ investment behavior. There is evidence that it did, but not overwhelmingly. The small sample and high take up across both groups may have played a role in this outcome. Farmers offered the insurance spent 17.9 percentage points more on chemicals than those who had not been offered the product. There was also a trend towards growing more eggplants and less maize among these farmers. Farmers offered the insurance were also between 15 and 25 percent more likely to bring their produce to markets rather than sell to brokers who come to pick up the crop. Anecdotally, it is believed that the so-called “farmgate” sellers offer guaranteed purchase contracts, but at lower prices locked in before harvest. Selling in the market, on the other hand, is a potentially more profitable but riskier option.  

There are a number of potential reasons why the researchers did not find large effects of the crop price insurance product on either or take up or investment, and further research in necessary to determine their roles. It is uncertain, for example, whether farmers truly understood the benefits of the insurance. Farmers may also have been reluctant to make long term investments changes before an insurance product demonstrates an established presence in the area. Alternatively, crop price uncertainty may not be as important of an indicator of investment decisions as previously thought. Further research, with a larger sample size, is needed to better understand the roles of risk, financial literacy, and product design in determining microinsurance impact.

Dean Karlan

Ex-combatant Reintegration in Liberia

For post-conflict societies, the challenges of reintegrating ex-combatants and war-affected youth are likely to far outlast and outsize the formal demobilization, disarmament and reintegration (DDR) of ex-combatants. These programs, conducted in war’s immediate aftermath, form an important part of a policymaker’s post-conflict toolkit. While ex-combatants receive special policy attention, poor and underemployed men are also widely considered a threat to political stability.

Find a more in-depth policy report here. 

Context of the Evaluation:

In Liberia, where the bulk of the population is young, poor, and underemployed, many rural youth continue to make their living through unlawful activities, including unlicensed mining, rubber tapping, or logging. Many of them are ex-combatants, and some remain in loose armed group structures, doing the bidding of their wartime commanders. While the security situation has steadily improved since 2003, the government, the UN, and NGOs fear that these youth are a possible source of instability, particularly in hotspot regions where mining, rubber tapping, or logging and the allure of “fast money” attract young men from around the country. These youth may also be recruited into regional conflicts as mercenaries. Agriculture is and will continue to be a major source of employment and income for rural Liberians. The international NGO Landmine Action (LMA, now known as Action on Armed Violence) runs an innovative and intensive agricultural training program, targeting ex-combatants and other high-risk youth in rural hotspots.

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Description of Intervention:

The LMA program is broader and more intensive than most ex-combatant reintegration programs, and is designed to rectify some of the main failings of prior demobilization programs: it is oriented towards agriculture (the largest source of employment in Liberia); it provides both human and physical capital; and it integrates economic with psychosocial assistance. It also targets youth at natural resource hotspots that presented the most immediate security concerns.

LMA took youth selected for the program to residential agricultural training campuses, where they received 3-4 months of coursework and practical training in agriculture, basic literacy and numeracy training, psychosocial counseling; along with meals, clothing, basic medical care, and personal items. After the training, counselors facilitated graduates' re-entry with access to land in any community of their choice.  Graduates received a package of agricultural tools and supplies, valued at approximately US$200. The program's total cost is approximately $1,250 per youth, excluding the cost of constructing the campuses. The program was designed to give youth a sustainable and legal alternative to illegal resource extraction, ease their reintegration into society, reduce the risk of re-recruitment into crime and insurrection in the future, and to improve security in hotspot communities.

LMA recruited twice as many youth as it had space for in its programs, and researchers randomly assigned half of the youth to treatment (receiving the program), and half to a comparison group (not receiving the program). By comparing these two groups 18 months after the program, researchers can see the effect of the intervention on agricultural livelihoods, shifts from illicit to legal employment, poverty, social integration, aggression, and potential for future instability.  Despite massive migration, 93% of the youth were found at the time of the endline survey. The qualitative study included observation and a series of interviews with 50 of the youth.

Results and Policy Lessons:

Engagement in agriculture: More than a year after completion of the program, program participants are at least a quarter more likely than the control group to be engaged in agriculture, and 37% more likely to have sold crops. Interest in and positive attitudes toward farming are also significantly higher among program participants. 

Illicit activities:The program had little impact on rates of participation in illicit activities like mining, but those who participated in the program do spend fewer hours engaged in illicit activities, as agricultural hours seem to substitute somewhat for hours spent in illicit activities.

Income, expenditures, and wealth:  There was a sizable increase in average wealth from the program, especially in household durable assets, but no change in current income (last week and last month), savings or spending for the average program participant. Overall, the evidence suggests that cash cropping provides periodic windfalls from sales, and that these are mainly invested in durable assets (and not necessarily in agricultural inputs or equipment).  Qualitative observations also suggest that access to markets may have been an important constraint on success.

Social engagement, citizenship, and stability:  There were small but positive improvements across most measures of social engagement, citizenship, and stability. While not all of the estimated impacts are large enough to be statistically significant, they nevertheless suggest a small but broad-based reduction in alienation and some gains in stability. The evidence on aggression and crime, however, does not point to a significant reduction in illegal or aggressive behaviors among program participants.

Interest and mobilization into the election violence in Cote d’Ivoire:Conflict broke out in Cote d’Ivoire shortly before the launch of the program evaluation.  Self reported rates of interest in the violence and mobilization were fairly low among the sample population, but they were especially low among program participants – they tended to report a third less interest in or links to recruiters and recruitment activities. Given the difficulty of shifting such behaviors, these impacts of the program are regarded as extremely promising.

For a policy memo with detailed results, as well as recommendations for reintegration, livelihoods, and poverty alleviation programs in Liberia, please see here.

Jeannie Annan, Chris Blattman

Providing Collateral and Improving Product Market Access for Smallholder Farmers: A Randomized Evaluation of Inventory Credit in Sierra Leone

Policy Issue:

Inter-seasonal fluctuation of agricultural prices is widespread throughout the developing world. For many crops, prices decrease at harvest season, owing to the availability of large quantities of crop, while prices increase in the lean season.  However, small farmers are often unable to benefit from this price increase due to a lack of proper storage facilities and credit constraints. Inventory credit products address both storage and credit constraints by allowing small farmers to store their harvest in a secure warehouse as collateral for a loan. Such products have had successful small-scale test cases in West Africa, including Ghana (Technoserve), Niger (Food and Agriculture Organization) and Mali (World Bank). Yet, to date there have been no rigorous evaluations to assess inventory credit’s cost-effectiveness and sustainability.

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Context of the Evaluation:

In Sierra Leone, palm oil is an essential component of rice consumption and exhibits large and predictable seasonal price changes, creating inter-temporal arbitrage opportunities, which remain largely unexploited by small farmers. Pilot data shows 72% of farmers sell a majority of their output within two months of harvest, despite an expected price increase of over 70% within six months.

The Sierra Leone National Program Coordinating Unit (NPCU) at the Ministry of Agriculture plans to implement a palm oil inventory credit scheme in collaboration with three Rural and Agricultural Banks (RABs). IPA will use the rollout of this program to conduct a randomized evaluation of the intervention.

Details of the Intervention:

The three participating RABs identified 120 communities that would be eligible to receive the inventory credit product. These communities will be randomly assigned to three groups with 40 communities each: The first will receive the inventory credit product, the second will receive assistance with management of a community storage space, but no access to inventory credit, and the third will serve as a comparison group.

In inventory credit communities, farmers will receive harvest time loans in exchange for storing their palm oil as collateral. The loan amount will be 70% of the palm oil’s harvest-time value, or around $5.50 per 5 gallon container of palm oil. The bank will store the collateral in a secure room provided by and located within the community, which will have two locks: the key for one will be controlled by the community; the key for the other will be controlled by bank staff. The banks will provide containers for the storage space, in which the palm oil will be stored. In the lean season (nine months later), when prices are typically more than 50% higher, the banks will assist the farmers with selling the collateral. The bank will recoup its loan and interest. The farmer will keep all additional revenue.

In storage communities, farmers will receive storage containers for the community store space and assistance with management of the space: NPCU staff will control the key to one lock, while the community will control the key to a second one. However, no inventory credit will be offered.

The study seeks to rigorously evaluate this intervention to examine the relation between storage, credit and access to markets for small farmers. The questions it seeks to answer are: a) Do farmers’ take-up the credit product? b) To what degree do farmers modify their sales patterns when using the credit product? c) Does inventory credit affect prices received by farmers in different seasons of the year?

Results:

Results forthcoming. 

Rachel Glennerster, Tavneet Suri

Promoting Adoption of New Rice Varieties: Addressing the Costs of Early Adoption in Sierra Leone

Can improved seed varieties benefit poor farmers in Sierra Leone? Can price subsidies and agricultural extension training lessen the costs of early adoption?

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Policy Issue:

Agricultural productivity has stagnated in much of sub-Saharan Africa, while many other regions of the world have seen dramatic productivity improvements in recent decades. New agricultural technologies, such as high-yielding crop varieties, offer the promise of improving productivity and hence the welfare of farmers. But adoption of these technologies has often been low in countries where dissemination programs have been conducted. First adopters of new technologies play an important role in the spread of technology as they take on the burden of experimentation—testing whether and how a new variety works in local conditions. This is particularly important in much of sub-Saharan Africa where a multiplicity of micro climates within a small area means that experimentation is essential for farmers to learn which crop varieties are best for their particular land. There is also concern that early subsidization to increase adoption of new technologies will lead to expectation of continued subsidies, depressing demand at market prices.

 

Details of the Intervention:

Researchers sought to test whether improved seeds are beneficial for the poor in Sierra Leone and how best to promote uptake given the high costs of early adoption. Early adopters generate a positive externality to surrounding farmers and communities by delivering information on the effectiveness of new varieties and how to make the most of them in local conditions.

Two types of incentives will be tested: (1) a price subsidy scheme allowing farmers to purchase new seeds at a price lower than the market price; and (2) targeted agricultural extension work involving community demonstration plots and practical advice on how to use these seeds. Two types of new seed varieties will be used in the intervention. The first is one of the NERICA varieties and the other is a local variety developed by the Rokupr station, ROK-16, which has proven popular in early participatory variety selection tests.

The first stage of the intervention will pilot the agricultural extension training and subsidy incentives. One treatment arm will receive free seeds and training, and take up and yields will be compared to a comparison group. In the second year, researchers plan to test a more complex set of alternatives involving six treatment arms, each with approximately 35 communities, under three different schemes:

 

Pricing Scheme

T1: Farming households offered ROK-16 variety at 0 percent subsidy (market price).

T2: Farming households offered ROK-16 variety at 50 percent subsidy.

T3: Farming households offered ROK-16 variety at 100 percent subsidy (free).

Training Scheme

T4: Farmers receive a targeted training program without a formal opportunity to purchase the new seeds.

T5: Farmers receive a targeted training program and are offered the chance to purchase ROK-16 seeds at one of the three subsidized prices.

NERICA Scheme

T6: Farmers are offered one upland variety of NERICA rice (NERICA-6) for free (as is currently the practice of the government’s NERICA project) as well as the targeted training program.

The pricing scheme aims to test the hypothesis that a one-time subsidy can reduce the adoption cost for early-adopters and have a long-lasting effect both on the beneficiary and their neighbors. The training scheme aims to reduce the cost of learning by providing information on how well the seed works in the community (through a demonstration plot) and on how to cope with some of new features of the rice. Both ROK-16 and NERICA are included because there is little information on the relative productivity of each variety of seed in upland conditions.

Key outcome variables measured at endline include: (1) the amount of improved rice variety seeds (NERICA and ROK-16) purchased and planted; (2) planting of other rice varieties and other crops; (3) amount of family and hired labor used on the farm; (4) consumption and food security.

 

Results and Policy Lessons:

Study in implementation, results forthcoming.

Jeannie Annan, Rachel Glennerster, Tavneet Suri

Making Networks Work for Policy: Evidence from Agricultural Technology Adoption in Malawi

Researchers evaluate specific strategies to use social networks to overcome information barriers and increase adoption of a new agricultural technology in Malawi.

Policy Issue: 

Crop yields in developing countries are often many times lower than those that could be achieved using readily available technologies and farming techniques, and food security can be a serious problem. Agricultural incomes and food security can depend on farmer adoption of these tools and techniques. Despite a long-standing awareness that adoption of agricultural technologies is low, and that information on using new technology can flow through social networks, there has been little research on how best to harness social networks to promote technology adoption.<--break->

Context of the Evaluation: 

Agriculture is central to Malawi’s economy and national life, comprising 36% of its GDP1 and occupying more than 80% of its workforce2. Tobacco is the leading export crop, followed by tea, sugar and cotton. The staple food crops are maize, cassava and millet, grown by smallholder farmers mostly at the subsistence level. Most rural families have too little land to produce sufficient food and too little income to buy extra. According to some reports, a quarter of the population runs out of food only five months after the harvest.

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Details of the Intervention: 

This study is a follow-up to Promoting Sustainable Farming Practices in Malawi. In partnership with the Malawi Ministry of Agriculture and Food Security, researchers investigated how social networks can be used to overcome information barriers that may prevent farmers from adopting profitable technologies. The project will promote pit planting, a method of planting that has been shown to increase agricultural productivity in many regions of Africa. Malawi has a widespread system of agricultural extension workers  to spread information about agricultural methods and technologies. In this evaluation, well-connected “seed” farmers are partnered with agricultural extension workers to promote adoption of the pit planting technology.

Using a social network census, researchers identified individuals in the community who would be the most effective “seed” farmers based on their positions in their village networks. Which farmers are optimal depends on how much exposure to information is needed to motivate adoption. Villages are randomly divided into one of several treatment groups, with comparison villages receiving the existing extension practices in Malawi.

The first treatment group (“simple contagion”) will utilize four “seed” farmers from within the village, who have the greatest number of social contacts. The second group (“complex contagion”) will select “seed” farmers based on connections to other “seed” farmers. A third treatment group will use geographic location within the village to proxy the social network and mimic the “complex contagion group”, assuming that the network is perfectly correlated with geography. Comparisons of treatment and comparison villages will estimate the potential of social networks to enhance technology adoption, and whether extension efforts need to allow for multiple information sources.

Results and Policy Lessons: 

Results forthcoming.

1 US Department of State, Bureau of African Affairs. “Background Note: Malawi.” January 11, 2011
2 World Vision. “Country Profile: Malawi.”http://worldvision.com.au/Libraries/3_1_2_Country_Profiles_-_Africa/Mala...

Lori Beaman, Jeremy Magruder, Mushfiq Mobarak

Environmental investments on private land: Planting trees in Chipata

Policy Issue:

Financing for carbon offset investments is growing quickly. The voluntary market for carbon offsets traded over 700 million dollars worth of emissions reductions in 2008, a third of which came from land use projects.[1]  These investments have the potential to benefit smallholder farmers, not only by creating revenue from selling carbon credits, but also by incentivizing more climate-resilient agricultural practices and technologies to increase production. Many climate change programs that target smallholder farmers seek to modify current agricultural practices, whether to sequester additional carbon or to improve climate resiliency. Because these changes often impose costs on the farmer, many programs provide upfront inputs or incentives for adopting and complying with the program’s objectives.

However, in spite of a growing number of NGO- and government-led adaptation and climate resilience projects, farmer adoption remains a challenge and concerns persist due to the high cost of inputs, training and monitoring in comparison to the value of the credits earned from sequestered carbon. A more rigorous understanding of the relationship between input costs, compliance incentives and program outcomes may help improve the success and cost effectiveness of both carbon offsets and climate resiliency programs. To date, none of the numerous programs that offer landholders inputs or performance payments have systematically varied contract design to generate causal evidence on the determinants of program success.   This study proposes address this knowledge gap in the context of a program promoting fertilizer trees in Eastern Zambia.

The project implementation is designed to allow the researchers to investigate (a) the role of option value in shaping farmer decisions, and (b) the effect of cost sharing and performance incentives on selection into the project and on long-run performance under the contract.

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Context:

The partner organization, Mitengo Zambia promotes a fertilizer tree (Faidherbia albida), locally known as the masangu tree, both for its carbon sequestration potential and its ability to help farmers adapt to a changing climate.  Faidherbia fixes nitrogen in its leaves, providing benefits to farmers, including better soil fertility, maize yields and resilience to climate change. To grow the tree, seedlings must be purchased and raised, and then planted among low growing crops, weeded and watered. These adoption costs are highest in the first year and tree survival is low.

Mitengo Zambia  has partnered with Dunavant Cotton to investigate the carbon sequestration and soil fertility potential of encouraging agroforestry adoption among Dunavant farmers. Findings from the research phase will be incorporated in program scale-up with Dunavant Zambia Limited, a leading cotton ginning company in Zambia.

Description of the Intervention:

Around 2,000 outgrower farmers associated with Dunavant cotton in Chipata, Eastern Province, Zambia receive training and subsidized inputs (seedlings) for growing Faidherbia on their land. Most Dunavant farmers produce on a small-scale, with a mean landholding size in the study sample of around one hectare, and have access to loans for cotton inputs from Dunavant.  The company organizes the farmers into groups of approximately 15 geographically clustered farmers. Each group has one lead farmer who, under the Dunavant system, is responsible for training his farmer group on cotton production and, under the Mitengo Zambia program, on Faidherbia planting and management.  

Lead farmers organize trainings on Faidherbia for their groups of farmers, which are attended by Mitengo Zambia and IPA staff who assist with administration of the treatments and the baseline survey.

After their training, farmers decide whether to join the program based on two factors:

(1)          Variation in input prices – Farmer groups will be randomly assigned to receive one of four input prices that range from fully subsidized (free) to the cost-recovery price for the implementing organization (approximately $2.50 US). A transport allowance (of $2.50), provided to the YGFs to remunerate any transportation costs of attending the YGL's training, ensures that farmers have enough cash to make a participation decision based on willingness to pay, not on liquidity constraints. Variation in input prices allows researchers to test hypotheses on risk and on cost-sharing. Specifically, how the probability of take-up changes as the input prices increase, controlling for individual characteristics and incentives, will be assessed.

(2)          Variation in incentives – Individuals will be randomly assigned to receive different levels of incentive pay, which farmers are informed of either before or after making their take-up decision. The range of incentives is based on project pilots from the previous year, which ranged from $0 - $30 (0 - 150,000 ZMK). The use of scratch-off cards to reveal the incentives ensures that incentives cannot be manipulated and that the variation is perceived as fair by the participants.  Incentives will be paid after one year, conditional on 70% tree survival.  All farmers received 50 seedlings. The variation in incentives will allow researchers to test the causal effect of incentives, by comparing the probability of take-up and the rate of tree survival for farmers at different incentive levels, controlling for individual characteristics.

At the time of training, farmers receive a detailed baseline household questionnaire that includes modules on demographics, socioeconomic status, agriculture and environmental knowledge. The survey is administered to all farmers who attend the training, regardless of their decision to participate. One year after contracts are initiated, all participating farmers will be visited and the number of surviving trees recorded, an incentive payments delivered on the basis of tree survival.

Results:

Results forthcoming.


[1]Conte, M. and M. Kotchen. Explaining the price of voluntary carbon offsets. Working Paper. (2009)

 

 

Elizabeth Walker, Samuel Bell, Kelsey Jack, Paulina Oliva

Savings, Subsidies and Sustainable Food Security in Mozambique

Policy Issue:

Motivated by the recent escalation in food prices around the world, several countries, including Kenya, Malawi, Rwanda, and Zambia, have implemented large-scale fertilizer subsidy programs to boost food security and small farm productivity. If people are unaware of the benefits of using fertilizer, or do not know how to use it, then subsidies may be a useful tool to give people experience with using fertilizer, and promote adoption. However, a long-standing question is whether one-time or temporary provision of subsidized fertilizer can get households to adopt it long-term, or whether input use and farm production eventually return to previous levels after subsidies are phased out. The key to determining whether provision of subsidies can lead to long-term growth, even after the subsidies are no longer in effect, is to discover if farmer practices change fundamentally, or whether these practices change only (if at all) when subsidies are being offered.

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Context:

Large-scale emigration, economic dependence on South Africa, and a prolonged civil war hindered Mozambique’s development until the mid 1990s. Agriculture accounts for almost 29 percent of the country’s GDP, however agricultural technology adoption has been slow in Mozambique compared to other counties in the region. Most of the farmers interviewed for this study had little or no experience with application of chemical fertilizers and other agro-chemical inputs.

Description of Intervention:

Researchers are investigating the impacts of fertilizer subsidies on smallholder farmers in rural Mozambique, and in particular, whether providing farmers opportunities for savings accounts can help subsidies achieve a greater sustainable impact. Vouchers for fertilizer were distributed randomly to a sample of farmers. In partnership with Banco Oportunidade de Moçambique (BOM), researchers also randomized offers of one of several different savings accounts interventions, to see how the subsidies and savings accounts complemented one-another.

The sample comprises farmers with access to some type of agricultural extension service, either through an NGO or government entity, so that they have access information on how to use fertilizer if they choose to use it. Researchers worked with two sub-groups of farmers. The voucher randomization (VR) sample is comprised of farmers randomly distributed (or not distributed) vouchers for fertilizer. The VR sample enabled researchers to examine the interaction between voucher receipt and savings incentives.

Treatment Groups:

 

No savings offered

Offered regular interest rates

Offered individual savings with 50% match

Offered group savings with match

Received voucher for fertilizer

Treatment Y-0

Treatment Y-1

Treatment Y-2

Treatment Y-3

Did not receive voucher for fertilizer

Treatment N-0

Treatment N-1

Treatment N-2

Treatment N-3

As shown in the table, the VR sample consists of three treatment groups which received different combinations of interventions, and a comparison group which did not receive an intervention. In treatment group 1, farmers were offered a savings account with standard BOM interest rate. Treatment group 2 offered “matched savings” accounts, where farmer received matched funds equal to 50 percent of his or her average savings balance (up to 3,000 MZN, or US$112) during a defined match period. (The match rate is the percentage of the average balance in the account that is contributed by the project at the end of the match period, not an annual percentage rate.) In treatment group 3, farmers were offered a savings match with a group incentive, where the match rate rises or falls in accordance to the average account balance of the entire group. Farmers are not required to use the match for fertilizer, yet the match amount does allow each farmer to afford the inputs provided in the fertilizer package, which many farmers could not afford otherwise.

During meetings with farmer groups, project staff discussed the importance of savings and keeping part of one’s harvest proceeds for fertilizer and other agricultural inputs for the next season. Farmers were also given specific instructions about using the fertilizer package for maize, and information on BOM savings services and locations. After farmers completed the baseline survey, savings accounts were offered, and project staff assisted interested farmers in filling out the forms to open an account. Farmers then could make their initial deposit at a BOM branch or a Bancomovil, a mobile bank that services many of the sites.

During follow-up surveys planned for 2012 and 2013, researchers will collect data on per-capita income and expenditures, maize yields and use of seed varieties and fertilizers, and the creation and use of savings accounts.

Results:

Results forthcoming.

Dean Yang

Promoting Sustainable Farming Practices in Malawi

Policy Issue:

Low productivity in agriculture is a pressing challenge in the developing world.  The compound effects of farming with mechanized soil tillage, climate change, and increasing urbanization are adversely affecting the long-term productivity of soil worldwide.  As a result, crop yields in developing countries are often many times lower than those that could be achieved using readily available technologies and farming techniques. Improving food security and agricultural incomes therefore depends on farmer adoption of these tools and techniques. A critical determinant of new technology adoption is the learning process through which information on these techniques is disseminated, understood, and applied. Although the importance of information flow through existing village and social networks in developing countries is well-documented, to what extent these networks can be used to disseminate new information from public sources—such as agricultural extension officers—remains unclear.

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Context:

A lush climate and rich soil make Malawi well suited for agriculture, which is central to the country's economy and national life, making up 36 percent of its GDP[1] and occupying more than 80 percent of its workforce.[2] Tobacco is the leading export crop, followed by tea, sugar and cotton. The staple food crops are maize, cassava and millet, grown by smallholder farmers mostly at the subsistence level. Most rural families have too little land to produce sufficient food and too little income to buy extra. According to some reports, a quarter of the population runs out of food only five months after the harvest.[3]

Description of Intervention:

Researchers investigate how new information on agricultural technology from outside sources, such as government-employed agricultural extension agents, is transferred through existing village and social networks. Understanding how gender and relationships affect communication between extension officers and farmers, as well as between farmers is crucial to designing effective information-based interventions to promote technology adoption. Both the technologies and methods for disseminating information are evaluated in the context of the Malawi Agricultural Development Programme Support Project (ADP-SP). This project is intended to support the efforts of the Malawi Ministry of Agriculture to achieve sustainable productivity growth in smallholder maize production systems.

Each village assigned to receive the intervention will be randomly assigned a dissemination method as well as a farming technique that is to be promoted. The two techniques for dissemination are:

(1)   Fertilizer Nutrient Management (FNM), which includes the use of efficient combinations, timing, and spatial concentration of fertilizer application and results in short-run increases in land productivity.

(2)   Conservation Agriculture (CA), which includes pit planting, minimal tillage, and mulching. CA is associated with long-run returns, as CA practices increase the biodiversity of farm ecosystems, allowing non-chemical organisms to take a role in soil maintenance.

The randomly varied dissemination methods are:

(1)   Extension officers, working through their existing channels and provided with incentives based on the adoption of the techniques in their areas.

(2)   Extension officers collaborating with lead farmers in each village, whom they select in consultation with the community. Lead farmers will be provided with incentives based on the adoption of the techniques in their villages.

(3)   Extension officers collaborating with peer farmers, selected through focus groups in each village and representing average farmers spatially dispersed throughout the village. Peer farmers will receive incentives based on adoption in their neighborhoods.

Across all three types of dissemination methods, incentives were sometimes randomly assigned to the communicators.  In the lead and peer farmer villages, the gender composition of the message sender will be varied. The random variation in the technology promotion agent and in the technique being promoted will allow researchers to determine the potentially differing outcomes of various components of information dissemination programs.

Results:

Results forthcoming.

[1] US Department of State, Bureau of African Affairs. “Background Note: Malawi.” January 11, 2011

[2] World Vision. “Country Profile: Malawi.” http://worldvision.com.au/Libraries/3_1_2_Country_Profiles_-_Africa/Malawi.sflb.ashx

[3] ibid

Mushfiq Mobarak

Insurance, credit, and technology adoption in Malawi

 

Policy Issue:

The classic economic view of poor farmers is that their lack of a savings cushion causes them to prefer agricultural approaches with more reliable, but lower average returns. Farmers may see adoption of new technologies as risky, especially early in the adoption process when proper use and average yields are not well-understood. Weather and environmental factors can also pose significant risks. Risk and uncertainty can lead to low levels of technology adoption, particularly where resources to help farmers deal with risk, such as insurance, are not available. However, few studies have evaluated whether providing insurance can increase adoption of profitable agricultural technologies.

Context of the Evaluation:

Nearly all Malawian households (97 percent in 2004-2005) are engaged in maize production, but only 58 percent use hybrid maize varieties. Hybrid maize adoption in Malawi has lagged behind adoption in Kenya, Zambia, and Zimbabwe. Aversion to risk, credit constraints and limited access to information are among the most cited reasons why hybrid seeds and other technologies have failed to take hold in Malawi. Within Malawi, varying rainfall risk is by far the dominant source of production risk in Malawi, followed by pests.

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Description of Intervention:

Researchers conducted a randomized field experiment to determine whether bundling rainfall insurance with a credit program (intended to finance adoption of a new crop technology) increased demand for credit. Researchers randomly selected 16 localities in central Malawi where farmers were offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. In another 16 localities, farmers were offered a similar credit package, but if taking the loan were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall.

The microfinance institutions Opportunity International Bank of Malawi (OIBM) and Malawi Rural Finance Corporation (MRFC) offered loans for the hybrid seeds based on group liability contracts for clubs of 10-20 farmers. Take-up of the loan was an individual decision, but the subset of farmers who took up the loan were told that they were jointly liable for each others’ loans.

The weather insurance policy was customized to each of the four project regions (Lilongwe North, Kasungu, Nkhotakota, and Mchinji). Payouts were based on the rainfall readings at the closest weather station to the individual in question, and premiums were lower in places where the likelihood of a bad rainfall shock was lower. Compared with the annual interest for the uninsured loan (27.5 percent), a farmer taking out an insured groundnut loan faced an effective interest rate ranging from 37.8 percent to 44.4 percent, depending on the area.

All farmers in the study were administered a household survey that covered income, education, assets, income-generating activities (including detailed information on crop production and crop choice), measures of risk aversion, and knowledge about financial products such as credit and insurance.

Results and Policy Lessons:

Loan Take-Up:Take-up was 33 percent among farmers who were offered the basic loan without insurance. Take up was lower, at only 17.6 percent, among farmers whose loans were insured against poor rainfall. A potential explanation is that farmers already were implicitly insured by the limited liability inherent in the loan contract, so that bundling a loan with formal insurance (for which an insurance premium is charged) is effectively an increase in the interest rate on the loan.

It is also possible that farmers may have been uncertain about the risks associated with the hybrid seeds. For those in the treatment group, the fact that they were offered insurance may have served as a signal that the seeds were a risky investment. Lower take-up of the credit plus insurance product would then be a rational response.

Analysis indicates that farmers who are wealthier and more educated were more likely to take up the insured loan. By contrast, there is no indication that farmer education, income, or wealth is related with loan take-up in the uninsured loan group.

Xavier Giné, Dean Yang

Examining Underinvestment in Agriculture: Returns to Capital and Insurance Among Farmers in Ghana

In northern Ghana, farmers underinvest in potentially profitable agricultural inputs like fertilizer and high-yield seeds.  It’s unclear, however, why farmers forgo these opportunities. 

It could be that farmers are risk averse—that they’re reluctant to take loans for fear that a poor harvest, crop price fluctuation, or unexpected weather patterns means money lost or a debt to repay.  Or it could be that farmers lack the initial capital to invest in agricultural inputs.

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Policy Issue: 

Managing business and personal finances can be an immense challenge for rural farmers, whose financial fortunes are frequently determined by forces such as weather and crop prices, which are beyond their control. Farmers who might increase their productivity and their incomes by making additional investments in profitable agricultural methods or tools may be wary of the potential riskiness of adopting such technology. Due to these uncontrollable risks, some farmers may be reluctant to take loans to finance seemingly profitable ideas for fear of not being able to repay. Other theories suggest that farmers may not make potentially productive investments because they may lack access to the initial capital to adopt these technologies in the first place.

Context of the Evaluation: 

The climate of northern Ghana’s savannah region has a single short wet season, with high annual variability in rainfall. This kind of weather pattern, which creates great risk for farmers who depend on the weather for their livelihood, is common throughout the semi‐arid tropics of West Africa and is believed to be increasing as a result of climate change. Initial research for this study highlighted weather risk as the single greatest concern faced by farmers in the region. There is strong evidence that shocks in the amount of rainfall translate directly into consumption fluctuations for farmers. The extent to which risk of loss is deterring investment in potentially profitable agricultural technologies, however, has been little studied.

Details of the Intervention: 

Researchers sought to investigate the role of risk in constraining farmer investment and technology adoption choices, and to evaluate its importance relative to constraints on credit. The 1,200 farmers were randomly allocated to be offered one of the following products: (1) a capital grant; (2) a rainfall insurance product for free; (3) a rainfall insurance product at various prices - ranging from highly subsidized to the commercial price; or (4) both rainfall insurance and capital. A further group of randomly-selected farmers received no offers, serving as the comparison group.

The capital grant was provided to selected farmers to coincide with each individual farmer’s requirements for purchasing inputs. The innovative rainfall insurance policy aimed at providing some protection from drought during the height of the farming season and was designed to be as simple as possible. Data was collected on a range of variables relating to households’ economic activities and well-being, including farming activities and production and households’ use of insurance, savings and credit facilities (both formal and informal). Surveys also include farm measurement and soil sample, and the evaluation design allows researchers to examine the impact of social mechanisms in building trust and the understanding of a new financial product.

Results: 

Results forthcoming.

Click here for a Q&A with researcher Chris Udry

Click here to read about the new agricultural insurance product launch as a result of this study

Dean Karlan, Christopher Udry

Technology Adoption and Diffusion through Social Networks – Evidence from a Coffee Training Program in Rwanda

Policy Issue:

In Sub-Saharan Africa, a significant proportion of the poor are small-scale farmers with productivity levels among the lowest in the world. Agronomic practices, such as the correct combination of organic and inorganic fertilizer or pruning of tree crops, have the potential to substantially increase yields. However, application of such practices, and adoption of productivity-enhancing agricultural technologies in general, remain infrequent in most of Sub-Saharan Africa. Assuming that knowledge deficits are the main hindrance to the adoption of best agronomic practices, training on agricultural technologies could promote the take-up of these practices, increase productivity, and improve economic outcomes for these poor farmers. This project aims to evaluate the impact of agronomy trainings on small-holder productivity and adoption of best agronomic practices. The study will also measure the diffusion of the program’s effects, if any, within farmers' social networks, by linking each grower to the people with whom they might share the information provided in the trainings.  

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Evaluation Context:

According to the Ministry of Agriculture of Rwanda, the main reason why the country is currently falling short of the coffee sector targets for 2010 is an insufficient level of cherry production[1]. In Rwanda, one of the most densely populated countries in Sub-Saharan Africa, land parcels are extremely small – averaging only a few acres. Most farmers live off subsistence agriculture, and therefore usually give priority to food crops, allocating only a small fraction of their land to coffee. Since their revenues from coffee sales are limited by production levels, finding ways to improve their yields could make coffee a more attractive crop choice and help small-scale farmers shift out of subsistence farming into more profitable activities.

TechnoServe, an agri-business NGO aiming to provide business solutions to those in rural areas, is conducting agronomy trainings in several coffee-growing regions in Rwanda and other East African countries. IPA is conducting a randomized evaluation of one of TechnoServe’s agronomy training programs in Nyarubaka, a rural sector (a geographical unit covering thirty villages) in the Southern Province of Rwanda. Similar to other coffee farming regions in Rwanda, the majority of farmers in Nyarubaka live off the food crops they grow and few households have electricity.

Description of the Intervention:

In Nyarubaka, the agronomy training evaluation sample is composed of the 1600 farmers (from 27 villages) who signed up for Technoserve’s agronomy trainings. As Technoserve only had resources to train a limited number of farmers, households in the sector were randomly assigned to a treatment (50%) or comparison (50%) group after receiving a baseline survey. The baseline survey collected crop production and profit information (across all crops), information on consumption, household demographics and assets, and a detailed social network map (including information on who farmers talk to about coffee).

Villages in the treatment group were then randomly assigned to different intensity levels: in some villages ¼ of registered households received treatment (i.e. ¾ comparison), others ½, and others ¾.

Training sessions took place once a month for 11 months in the first year of the program and an additional 5 review training sessions were done over the course of the second year. These trainings covered a number of coffee best practices: rejuvenation and pruning; nutrition (organic and inorganic); pest, disease and weed management; mulching; soil and water conservation (water traps, terracing); shading; and record keeping. Trainings were attended by groups of around 30 farmers and took place on the plot of a designated "focal farmer" who was generally chosen because of the accessibility of his/her plot.

Farmers in the 1600 farmer sample receive surveys every few months to gather data on their coffee yields, sales and practices, as well as their harvests of other crops during the two rainy seasons. In addition, there is a consumption survey administered once a year. Take-up of the agronomy practices taught in the trainings is monitored closely through bi-yearly plot inspections. Farmers in both treatment and comparison groups were given scales for weighing their coffee harvests and calendars to record their harvests and sales.

All the coffee farmers in the sector who are not part of the direct agronomy training evaluation are also surveyed at least once a year to collect data on their own coffee practices. Annual follow-up of these additional 1400 coffee farmers in the region allow us to identify their “coffee friends” (individuals who they talk to about coffee) to assess the diffusion of these practices through the social networks of trained farmers. This context is a particularly interesting one to learn about diffusion, as there is variation in the type of technologies included in farmer training. Some of the best practices result in outcomes that are visibly evident (i.e. coffee trees just look much better/healthier) whereas others are less visible. So, we may see differences in the relative speeds of diffusion of these various practices (with some diffusion even outside the social networks, but within geographical space).

Both geographic and social network mapping of all coffee farmers in Nyarubaka is carried out regularly to understand how geographic and social infrastructures affect adoption and diffusion of the agronomic practices.

Results and Policy Lessons:

Results forthcoming.

 


[1]Ministry of Agriculture and Animal Husbandry and Ministry of Trade and Industry, “Rwanda National Coffee Strategy 2009-2012.” December 2008.

Esther Duflo, Tavneet Suri

Finding Missing Markets: An Agricultural Brokerage Intervention in Kenya

 

Small-holder farmers typically sell their horticultural produce (fruits and vegetables but not flowers) on the domestic market, rather than exporting them for higher returns. DrumNet provides access to agricultural credit, assists small-holder farmers with strategic marketing, and provides information on marketing opportunities and distribution (handling, packaging, transportation, and logistics). 

Individuals offered the program were 19.2% more likely to be growing an export crop than individuals in the control group. Farmers are less likely to grow horticultural produce for export without credit.

One year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans.

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Policy Issue:

In much of the developing world farmers grow crops only for local or personal consumption, despite export options which could be more profitable. There are several plausible reasons why farmers might choose to sell crops at local markets, forgoing the opportunity to make more money by exporting them. There may be information gaps about profitability, lack of access to capital needed to make the switch to export crops, inadequate infrastructure to bring crops to urban centers, concern over risky export markets, or misinterpretation by researchers as to the true profit opportunities.

Context of the Evaluation:

Kenya, a country with a 50% poverty rate1, has received a great deal of attention over the past decade because of rapid and sustained growth of its horticultural sector. Europe’s appetite for Kenyan agriculture exports has been great, but small farmers have largely failed to cash in on this opportunity. Instead,  many farmers receive low prices for their cash crops by selling them at their farm gate or local market. About half of the household income of surveyed farmers came from agriculture, and most own the land they cultivate, which is usually about 1 acre. Farmers grew subsistence crops 50% of the time, cash crops 34% of the time, and only 12% of farmers grew some proportion of export crops. 

Details of the Intervention:

Researchers conducted a randomized study with DrumNet, a Kenyan NGO, to evaluate whether a package of services could help small farmers overcome barriers to adopting, financing and marketing export crops. DrumNet was designed as a horticultural export program with additional microcredit services that tried to link smallholder farmers to commercial banks, retail farm suppliers, transportation services and exporters. To be a member of DrumNet, a farmer must agree to attend self-help meetings, express interest in growing export crops marketed by DrumNet, and have irrigated land.

DrumNet clients received a four week orientation course in which the financing and selling process was explained and good agricultural practices were taught. Farmers also opened a personal savings account with a local commercial bank to accommodate possible future business transactions. At harvest time, DrumNet negotiated prices with an exporter and arranged a produce pickup. Additionally, DrumNet hoped to reduce uncertainty of selling in the export market by convincing farmers and exporters that the other party would honor their commitment to supply crops and purchase at previously agreed prices.

A random selection of clients were also invited to make a cash contribution equivalent to a week’s labor wages, which served as partial collateral for a line of retail credit. Farmers were organized into groups of five, jointly liable for individual loans taken out. These clients received a line of credit with the local agriculture supply store, mediated through DrumNet.

Researchers randomly selected 36 self-help groups for the evaluation, and divided them evenly into three experimental groups.  Two treatment groups received all of DrumNet’s services, and one of these also received a line of credit (see chart below).

 

Self-Help Group

Education on Good Farming Practices

Savings Account at Local Bank

Group Credit for Agriculture Supplies

Individuals

Treatment-Credit

X

X

X

X

373

Treatment-no
Credit

X

X

X

-

377

Comparison

X

-

-

-

367

 

Results and Policy Lessons:

Impact on Export Crops: One year after the program began, treatment individuals were 19.2 percentage points more likely to be growing an export crop, but there were no significant gains in income. Out of twelve self-help groups, ten decided to take advantage of DrumNet services when credit was offered, compared to only five of twelve when it was not, implying that farmers perceive credit as an important factor for cultivating export crops. While credit might have made exporting easier to some clients, access to credit had no effect on income gains compared to no-credit groups. 
 
Long-term Consequences: Unfortunately, one year after the evaluation ended, farmers were unable to obtain EU export certifications and the exporter stopped purchasing their crops. This led to DrumNet’s collapse as farmers’ export crops were left to rot and loans went into default. Farmers returned to growing for local markets, underscoring the original concerns over export market risk.

1  As of 2000. CIA World Fact Book, “Kenya,” https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html (accessed August 24, 2009).

Dean Karlan

Reducing Barriers to Saving in Malawi

On average, developing countries have fewer than 20 bank branches per 100,000 adults, and people deposit money at a rate one-third of that in developed countries.[i] This lack of formal financial services, along with many other factors, may inhibit farmers and other entrepreneurs, particularly in rural areas, from increasing savings and investments, and smoothing household consumption. Financial services could help farmers to accumulate funds to purchase tools such as fertilizer which are helpful for increasing production. If barriers to financial services are reduced or eliminated by offering enhanced savings products, what is the impact on the use of different agricultural inputs, farm output, and overall well-being in rural farming households?

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Context:

Tobacco is one of Malawi’s primary exports, employing many of the country’s farmers. Income volatility influenced by macroeconomic forces can be particularly harmful to those farmers living near the poverty line, causing households to skip meals and forgo necessary healthcare expenses.

Opportunity International, an international NGO, opened the Opportunity International Bank of Malawi (OIBM) in 2002 with a license from the Central Bank of Malawi. OIBM provides financial services to the rural poor and has partnered with researchers and two private agricultural buyers, Alliance One and Limbe Leaf, to offer enhanced savings products to tobacco farmers.

Description of Intervention:

The study assessed the impact of OIBM’s savings programs on the behavior and well-being of local farmers. Farmers were organized in farmers clubs, with an average of 10-15 members, by one of the agricultural buyers. In exchange for group loans in the form of fertilizer and extension services, administered by OIBM, the club allowed the commercial buyer to make the first offer on the national auction floor, essentially creating an exclusive relationship. Farmer clubs in this sample were randomly assigned to one of two savings account treatment groups or a comparison group. Clubs in the comparison group received information about the benefits of having a formal savings account. Clubs in the treatment groups received the same information about savings accounts and were also offered individual savings accounts into which proceeds, after loan repayment, would be directly deposited.

Farmers in the first treatment group were offered an “ordinary” savings account with an annual interest rate of 2.5%. Those in the second treatment group received the same individual savings account, in addition to a “commitment” savings account which allows farmers to specify an amount of money to be frozen until a specified date (e.g. immediately prior to the planting season, so that funds are preserved for farm input purchases).

To assess the impact of public information on financial behavior, farmer clubs in both treatment groups were randomly assigned to one of three raffle schemes providing information about club level savings. Raffle tickets to win a bicycle were distributed to participants on two occasions based on savings balances as of two pre-announced dates. One third of farmers received raffle tickets in private, one third received tickets in public when names and numbers of tickets were announced to the club, and one third was ineligible for the raffle.

Results:

Savings Behavior:Twenty-one percent of farmers who were offered a commitment savings product (no raffle), made transfers to their account, while 16% of farmers who were offered the ordinary savings product (no raffle) had their harvest proceeds directly deposited into their individual account, and no farmers in the comparison groups received funds directly in an OIBM account. Overall, farmers in the six treatment groups deposited substantial amounts into their individual bank accounts; among farmers who were offered the commitment savings account, most of these deposits were made into the ordinary savings account.

Farmers in the commitment savings group had higher net savings during the pre-planting period, and the commitment savings treatment group overall withdrew more money during the planting season. This finding implies that these farmers were better able to save money and delay consumption until the lean season when food supplies from the last harvest were scarcer. Farmers in the ordinary savings group did not experience an increase in net savings during the pre-planting season, or an increase in withdrawals during the planting season, suggesting they were not able to smooth consumption as effectively.

Inputs, crop sales, and expenditures: In relation to those in the comparison group, farmers who were offered commitment savings accounts had more land cultivated, higher value of inputs, and greater value of harvest at a statistically significant level. These commitment savings farmers cultivated .42 more acres of land (compared to an average of 4.3 acres of land in the comparison group) and used 26% more inputs. This increase in land under cultivation and inputs used by the commitment savings group led to a 22% increase in value of crop output above the levels in the comparison group. Finally, farmers in the commitment treatment group increased total expenditures reported in the last 30 days by 17%. Overall, farmers in the ordinary savings group did not have outcomes that were different from those in the comparison group at a statistically significant level.

Evidence suggests that the positive results in the commitment savings group were derived from farmers keeping funds from their social networks. Though farmers in the commitment savings group received 89% of funds in their ordinary accounts, the existence of the commitment device may have allowed farmers to credibly claim that money was inaccessible. Results from the public and private raffle treatments were inconclusive.

 

For further reading, check out Xavier Gine's summary of the study.


[i]Consultative Group to Assist the Poor/The World Bank, “Financial Access 2009:  Measuring Access to Financial Services around the World,” http://www.cgap.org/gm/document-1.9.38735/FA2009.pdf(Accessed January 9, 2011).

For more details, see the Gates Foundation briefing note on this project.

Xavier Giné, Jessica Goldberg, Dean Yang

Contract Farming, Technology Adoption and Agricultural Productivity: Evidence from Small Scale Farmers in Western Kenya

Researchers study how rewards, information delivered via SMS and decentralized decision making can encourage farmers to adopt new crop varieties and efficient agricultural practices.

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Michael Kremer, Sendhil Mullainathan

Paying for Environmental Services: An Experimental Study in Bolivia

Can financial incentives and information influence farmers to account for spillover effects of their cattle management practices?

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Policy Issue: 

Some agricultural and farming practices create spillovers that affect others or the environment. These spillover effects, known as externalities, can create a wedge between the benefits a farming practice has to individuals and the effects it has on society as a whole. Although adoption of agricultural technologies that reduce the production of negative externalities, such as pollution or deforestation, is beneficial to society, such technologies will not be adopted if they don’t bring benefits to individual users. The standard policy solution in the face of such externalities is to change incentives so that private individuals benefit from use of socially responsible practices. In recent years, policymakers have advocated payments for environmental services as an incentive-based approach to internalizing the externalities of land use decisions, but there is little empirical evidence on the impacts of such programs.

Context of the Evaluation: 

This study takes place in Bolivia’s Rio Grande Protected Area, where cattle are both a  source of private income, and of negative agricultural productivity, health and environmental externalities. Most participants in the study area own both cattle and forest land. Through forest clearing for pasture and free range grazing in the forest, local cattle management practices generate significant negative externalities at local (watershed) and global (biodiversity, carbon) scales. Free range grazing cattle spend a significant amount of time standing in streams, where much of the best vegetation grows. This causes erosion of the stream banks, and contributes to landslides that close roads and block access to markets.

Details of the Intervention: 

Researchers partnered with Fundación Natura Bolivia, an organization that has worked in the study area for six years implementing payment for environmental services projects. This study will evaluate interventions designed to increase the adoption of more environmentally friendly cattle management practices, including the establishment of pastures with trees and water troughs, which reduce negative externalities related to health, productivity and environmental processes by reducing the time cattle spend grazing near streams.

In half of the eligible villages, financial incentives will be introduced in the form of conditional contracts for cattle management. The other half of the villages will be provided only with information about the harms associated with poor cattle management. In addition to evaluating effectiveness of incentives for conservation outcomes, data collection will focus on ancillary measures that help shed light on the process of collective action within the community.

In the short run, adoption of these management technologies will be costly to individual users, but has the potential to create benefits for everyone in the village by reducing erosion. In the long run (>5 years), the technology is expected to be both privately and socially beneficial, as the reductions in land degradation bring benefits to individual users. By varying the price incentives for adoption and the information about the externalities, the intervention will offer insights into whether incentives and information can help farmers adopt technologies that prevent negative externalities.

Results and Policy Lessons: 

Results forthcoming.

Nava Ashraf

Barriers to Fertilizer Use: Evidence from a Field Experiment in Kenya

Policy Issue:

Agricultural outputs in Africa have stagnated over the past decades: although total output has risen, food production has not kept up with the increase in Africa’s population. The number of chronically undernourished people in Africa has increased to 200 million in 1997-99.1 When used correctly, chemical fertilizer can substantially raise agricultural yields, yet usage of fertilizer remains low in Sub-Saharan Africa. Past studies suggest that usage is low because farmers have difficulty saving harvest income to purchase fertilizer for the next growing season, have limited information on the benefits of using fertilizer properly, and the fact that knowledge about fertilizer is not passed from one farmer to another. This project attempts to address all three issues.

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Context of the Evaluation:

This project focuses on small-scale subsistence farmers in rural Western Kenya, many of whom grow maize as their staple crop. All farmers in this population are extremely poor subsistence farmers, earning on the order of $1 per day. Previous research in this area has shown that when used correctly, top dressing fertilizer can increase yields by about 48%, amounting to a 36% rate of return over just a few months. However, only 40% of sampled farmers in the Busia district of Western Kenya report ever having used fertilizer.2

 

Details of the Intervention:

This experiment looks at a complex intervention with several components meant to increase fertilizer use and dissemination of knowledge. Farmers were recruited to the study through meetings at primary schools and randomly divided into four groups.

The first group received small, time-limited discounts which were valid within a 3 week window right after harvest, redeemable at a local shop. Farmers received coupons for a discount of about 15% of the price of fertilizer, for up to 25 kilograms.

The second group was encouraged to form farmers’ cooperative with their friends and neighbors to talk about fertilizer and agricultural practices. The researchers organized the groups and coordinated the first few meetings, but did not provide any direct information to the groups.

The third group participated in both the coupon scheme and the cooperatives.

A fourth group received none of these services, and served as a comparison.

Researchers will examine the changes in fertilizer usage between the different groups and whether farmers in the treatment groups talk to each other about agriculture more than others.  

A separate intervention was designed to investigate the spread of information and technology when provided only to a subset of farmers in the treatment and comparison groups. The research team visited the randomly selected farmers and provided them with ½ teaspoon measuring spoons, as well as information about the returns to using ½ teaspoon of fertilizer per plant. To enable diffusion of this technology to others in the community, the spoons were made available in nearby fertilizer shops to other farmers for a nominal fee. In addition, when distributing the measuring spoons, the farmers were given vouchers for spoons which they could give to their friends. This intervention will test the hypothesis that the fertilizer discount intervention and the cooperative intervention could lead to greater diffusion of information about fertilizer.

 

Results and Policy Lessons:

Results forthcoming.

 

1 Ernest Harsch, “Agriculture: Africa’s Engine for Growth”, available at http://www.un.org/ecosocdev/geninfo/afrec/vol17no4/174ag.htm.

2 Duflo, et. al., “Nudging Farmers to Use Fertilizer: Experimental Evidence from Kenya”, available at http://www.povertyactionlab.org/sites/default/files/publications/99_Understanding_Technology_Adoption.pdf

Esther Duflo, Michael Kremer, Jonathan Robinson

Nudging Farmers to Use Fertilizer: Experimental Evidence from Kenya

Use of inorganic fertilizer has the potential to dramatically increase yields and, if used correctly, is a highly profitable investment. So why do so few farmers in sub-Saharan Africa use it? Is it lack of information about profitability, lack of money to purchase the product, or an inability to save for the purchase? Researchers designed an intervention to offer farmers the ability to save harvest income for future fertilizer purchase. An ICS officer visited farmers immediately after the harvest, and offered to sell them a voucher for fertilizer, at the regular price, with free delivery later in the season. The program was popular, and in the first season increased usage by 14 percentage points. In the second season, the increase was even bigger, increasing usage by 18 percentage points. These effects are comparable to those obtained from a 50% price subsidy.

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Policy Issue:

By some estimates, there are approximately 1.4 billion people living on less than $1.25 a day,1many of whom are farmers. As such, identifying ways to increase agricultural incomes is crucial in meaningfully alleviating poverty. Such strategies are especially important in sub-Saharan Africa, a region in which agricultural yields have been low and remained stagnant for many years. Use of inorganic fertilizer has the potential to dramatically increase yields and, if used correctly, is a highly profitable investment. Why do so few farmers in sub-Saharan Africa use fertilizer- is it lack of information about its profitability, lack of money to purchase the product, or an inability to save for the purchase?

Context of the Evaluation: 

An estimated 66% of the population of Kenya’s Western Province lives below the poverty line2where the majority of small farmers grow maize as their staple crop. Improving agricultural productivity through increased use of inorganic fertilizers could have substantial benefits for the livelihoods of these subsistence farmers. Numerous agricultural trials on experimental farms, as well as experiments where farmers were given full fertilizer, showed that adding fertilizer once the plants had sprouted (as top dressing) generated a 70% annualized return in Western Province. However, only 40% of sampled farmers in the Busia district report ever having used fertilizer. The overall goal of this research program is to understand why farmers do not invest in fertilizer. This part of the project investigates whether difficulty in saving harvest income until the time that inputs are needed is a significant barrier to adoption.

Details of the Intervention:

In collaboration with the NGO International Child Support (ICS), researchers designed an intervention to test if providing mechanisms to save harvest income for future fertilizer purchase could be effective in increasing usage. The intervention was called the Savings and Fertilizer Initiative (SAFI). The design of the experiment allowed researchers to test the impact of the SAFI program against various other strategies to improve usage, in particular fertilizer subsidies.

The following interventions were tested over two seasons among a sample of farmers:

  1. Basic SAFI: An ICS officer visited farmers immediately after the harvest, and offered to sell them a voucher for fertilizer, at the regular price, with free delivery later in the season. The farmer had to decide during the visit whether or not to participate in the program, and could buy any amount of fertilizer.
  2. SAFI with ex ante Choice of Timing: An ICS officer visited the farmers before the harvest and offered them the opportunity to decide when, during the next growing season, they wanted the officer to return to offer them the SAFI program. They were then visited at the specified time, and offered a chance to buy a voucher for future fertilizer use (as in the Basic SAFI program, as described above).
  3. Free Delivery Visit Later in the Season: Same as SAFI program, but farmers were visited later in the season. An ICS officer visited farmers 2-4 months after the harvest (when it is time to apply fertilizer as a top-dressing to the next crop), and offered them the opportunity to buy fertilizer, at the regular price, with free delivery. This program was identical to SAFI, except that it was offered later.
  4. Subsidy Later in Season: An ICS officer visited the farmers 2-4 months after the harvest (when it is time to apply fertilizer to the next crop) and offered to sell them fertilizer, at a 50% subsidy, with free delivery.

 

Results and Policy Lessons:

The SAFI program was very popular. The basic SAFI was offered in two seasons. In the first season, the program increased usage by 14 percentage points, on a base of 23 percentage points. In the second season, the increase was even bigger, increasing usage by 18 percentage points. SAFI with ex ante timing choice was also successful, increasing usage by 22 points.

These effects are comparable to those obtained from a 50% subsidy offered later in the season: the subsidy increased usage by 14 points. They are also larger than an undiscounted offer later in the season: the free delivery visit later in the season had no significant effect on usage.

Consistent with a savings problem, enrollment in the SAFI program did not cause farmers to use fertilizer in subsequent seasons (as would be predicted if farmers were learning about fertilizer through the program). This suggests that it was the lack of commitment mechanism that was preventing farmers from purchasing and using fertilizer.

Overall, the results suggest that offering farmers small, time-limited discounts on fertilizer may substantially increase usage without inducing overuse among farmers who are already using fertilizer, at relatively low cost.

1 Shahua Chen and Martin Ravallion (2008). “The Developing World Is Poorer Than We Thought, But No Less Successful in the Fight against Poverty,” World Bank Policy Research Working Paper #4703.
2 National Coordinating Agency for Population and Development (NCAPD) [Kenya], Ministry of Health (MOH), Central Bureau of Statistics (CBS), ORC Macro. 2005. “Kenya Service Provision Assessment Survey 2004”. Nairobi, Kenya: National Coordinating Agency for Population and Development.

Esther Duflo, Michael Kremer, Jonathan Robinson

Community Based Rangeland Management in Namibia

Innovations for Poverty Action (IPA) is conducting an impact assessment of the Community Based Rangeland and Livestock Management (CBRLM) program in Namibia.  This program is part of a larger set of interventions in the agricultural sector designed to reduce poverty among the population of the northern regions of the country.  Many people in the area rely on cattle production for their economic livelihoods, however overuse of the communal grazing areas and suboptimal grazing practices threaten the long-term viability of the land and contribute to persistent poverty.  

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To increase the productivity of livestock and other animals using the land, the Namibia Millenium Challenge Compact funds a pilot program designed to help communities improve their livestock practices, address rangeland degradation, and improve market access.  

 

The evaluation is designed to test the impact of the various activities within the CBRLM intervention on household income, cattle productivity, and the condition of the rangeland. The intervention targets both inadequate information about appropriate cattle production practices and the social or other behavioral preferences of farmers.  At the moment, there is a collective action or “tragedy of the commons” problem – individual farmers are hesitant to reduce their herd’s impact on the rangeland because they are fearful that others will not follow suit which often results in overuse and degradation of the land.

Julian Jamison, Dean Karlan

Understanding Technology Adoption: Fertilizer in Kenya

Why do so few people use fertilizer even though it can considerably improve yields? This project measures the increase in yield due to fertilizer and hybrid seed use in Western Kenya. It found that fertilizer is profitable, and providing information goes part of the way towards increasing fertilizer adoption. Programs that help farmers commit when they have money to use fertilizer in the future have a very large impact on fertilizer adoption. 

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Policy Issue:

By some estimates, there are approximately 1.4 billion people living on less than $1.25 a day,1many of whom are farmers. Identifying ways to increase agricultural incomes is crucial to alleviating poverty. Such strategies are especially important in sub-Saharan Africa, a region in which agricultural yields have been low and remained stagnant for many years.

Context of the Evaluation: 

An estimated 66% of the population of Kenya’s Western Province lives below the poverty line, which often means they are unable to afford enough food to meet their basic calorie requirements as well as their non-food needs.2 The majority of subsistence farmers grow maize as their staple crop, but many have only small amounts of land and are actually net buyers of maize, purchasing it when their own supply runs out immediately before a harvest. In such an environment, improving agricultural productivity could have substantial benefit on the livelihoods. An important input into increasing productivity is chemical fertilizer. Numerous agricultural trials on experimental farms suggest substantial returns to fertilizer, and improved fertilizer use has been associated with the increase in agricultural incomes during the Green Revolution in South Asia. However, only 40% of sampled farmers in the Busia district of Western Kenya report ever having used fertilizer.

The overall goal of this research program is to understand why farmers do not invest in fertilizer. This part of the project first investigates whether the returns to fertilizer are actually substantial on real-world farms in real conditions.

Details of the Intervention:

In collaboration with International Child Support (ICS), an NGO, researchers set out to experimentally measure the returns to fertilizer among area farmers.  Farmers were selected from lists of parents at local schools, and ICS paid for fertilizer and hybrid seeds, delivered materials, helped farmers apply fertilizer and seeds, and assisted them with the harvest. On each farm, a comparison plot was kept directly next to treatment plots, which was farmed using traditional methods. The type of seed and amount of fertilizer applied to each plant was varied by plot (see below), but farmers were instructed to tend all plots exactly the same.

Group

Fertilizer/Seed
Combination

Time of Application

# of Plots

A

¼ tsp Calcium Ammonium Nitrate

2 months after planting

112

B

½ tsp Calcium Ammonium Nitrate

2 months after planting

200

C

1 tsp Calcium Ammonium Nitrate

2 months after planting

273

D

Hybrid Seeds

1 tsp Di-Ammonium Phosphate

1 tsp Calcium Ammonium Nitrate

(the “full package” recommended by the Kenyan Ministry of
Agriculture)

At planting

At planting

2 months after planting

82

 
Results and Policy Lessons:

Impact of Crop Yield: All fertilizer treatments led to increases in yield, though in different amounts. Interventions A, B, and C led to yield increases of 28%, 48% and 63% respectively, relative to comparison plots. Intervention D, the Ministry of Agriculture recommended package, led to an average 91% increase in yield relative to comparison plots.

Rates of Return: On an annualized basis, interventions A and B had positive returns of 8.4% and 69.5% respectively. Interventions C and D had negative rates of return at -17.8% and -48.2% respectively.3 This evidence demonstrates that fertilizer use can have substantial returns, even in the absence of any changes in other farming practices on real-world farms. However, returns to incorrect quantities of fertilizer yield much lower, or even negative returns. While government information on the appropriate use of fertilizer may maximize yield, it was not profitable and may not be appropriate in this case.

1 Shahua Chen and Martin Ravallion (2008). “The Developing World Is Poorer Than We Thought, But No Less Successful in the Fight against Poverty,” World Bank Policy Research Working Paper #4703.
2 National Coordinating Agency for Population and Development (NCAPD) [Kenya], Ministry of Health (MOH), Central Bureau of Statistics (CBS), ORC Macro. 2005. “Kenya Service Provision Assessment Survey 2004”. Nairobi, Kenya: National Coordinating Agency for Population and Development.
3 Note that these estimates do not account for differences in labor time across the 2 plots. For a fuller set of profitability calculations, see Duflo et al. (2010).

 

Esther Duflo, Michael Kremer

Irrigation and Property Rights for Farmers in Mali

Farmers face many challenges as they try to grow and sell enough crops to support their families. Uncertain rainfall, potential crop failure due to natural distasters or disease, unpredictable crop prices, and shaky land tenure all contribute to the difficulties and risks inherent in farming. Improvements in the production processes and productivity of farmland could help many poor families achieve a better life. The Alatona zone is one of the most disadvantaged zones in Mali. The main livelihood sources of the population in the zone are rain-fed agriculture, pastoralism, and wage labor in the Office du Niger.

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The Alatona Irrigation Project is a component of the MCC Compact in Mali, and like the larger mission of MCC, the AIP seeks to reduce poverty through economic growth. The AIP is focused on increasing production and productivity, increasing farmer's income, improving land tenure security, modernizing irrigated production systems and mitigating the uncertainty from subsistence rain-fed agriculture. AIP seeks to develop roughly 14,000 hectares of net irrigated land in the Alatona perimeter, representing an almost 20% increase of "drought-proof" cropland and a 7% increase of the country's total stock of fully or partially irrigated land. The AIP will introduce innovative agricultural, land tenure, and water management practices, as well as policy and organizational reforms aimed at realizing the Office du Niger's potential to serve as an engine of rural growth for Mali.

The AIP project will create an additional 14,000 hectares of irrigated land in the Office du Niger (ON) zone. Project affected people currently residing or tending land in the project zone will be given 5 hectare plots and new settlers wishing to move to the area will be required to purchase plots of 5 hectare or greater. Women will have access to 500 m² market gardens. Institutions and management processes will be improved relative to comparable institutions in existing ON areas. One such example is land titles: all farmers in the Alatona will be given full land titles for their land, including rights to sell the land. This feature of the intervention will increase property rights and security for AIP farmers in contrast to the short or longer-run lease system currently used by the ON. Farmer organizations will also be encouraged and supported to maximize local capacities.

Additionally, water management and the collection of water fees will be administered through local farmer associations; whereas in existing ON areas, the ON is directly responsible for the collection of water fees. Financial services including starter kits (fertilizer, seeds) for the PAP concessions and agricultural credit will also be developed in the area. Finally, since AIP land is sold to beneficiaries, the land revenues may provide opportunities during and most likely after the Compact period for subsequent development of the zone.

Lori Beaman

Farmer Decision-Making and Technology Experimentation in Indonesia

Many agricultural assistance programs are based on the premise that farmers do not experiment and hence do not know what the best production methods are. If, as our research may find, this premise is incorrect, large amounts of resources may be being spent ineffectively on technical assistance programs aimed at a problem that has been incorrectly identified.

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In 2006 we worked with Kalimajari, an Indonesian-based NGO, to study the production methods of seaweed farmers in Indonesia's Bali Province. Findings from this research revealed that farmers do experiment with technologies and that recommendations based on laboratory research are not always optimal in practice. As a follow-up to our earlier work, this project aims to better document the choices farmers make during the production process and to determine if farmers are using the best methods available to them.

 

Results:

Study implementation is ongoing.

Sendhil Mullainathan

Agricultural Microfinance in Mali

Agriculture is a way of life for most people in Mali. The vast majority of cultivated land is used by small farmers for subsistence agriculture. Previous research has shown that returns to agricultural investment are high, but in practice many farmers do not take on profitable investments.

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What prevents farmers from taking on potentially profitable investments? This project will look at the impact of offering farmers loans, grants, and savings.

90 villages will be randomly selected to be the first to receive access to a new loan product from Soro Yiriwaso (a Malian nonprofit), marketed at the beginning of the planting season. A subset of the women who don’t take a loan will later be offered a grant, similar in value to the average starting loan.

110 control villages will not be offered loans. Within each control village however, some farmers will be offered a grant, some the opportunity to open a commitment savings account, and a control group neither a grant nor a savings account.

Lori Beaman, Dean Karlan
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