Relaxing seasonal constraints to improve labour productivity: Scaling-up with a private sector partner

Project Active from to Firms and Farms

In Zambia, small-scale agriculture employs the vast majority of the rural population, despite low levels of productivity and farming income. Recent studies have demonstrated that small scale farmers are most likely to deviate from their original production plan during the “hungry season” that precedes the harvest. Since harvest occurs once a year, most of these farmers run out of resources (cash savings or food reserves) about 3-4 months after harvest and must find other ways of meeting their consumption needs. Sometimes this includes selling family labour as ganyu on the local labour market.

A randomised controlled trial (RCT) conducted between 2013 and 2015 in Zambia’s Eastern province highlighted the importance of seasonal scarcity. It demonstrated that access to credit during the hungry season can increase the consumption and agricultural output of farming households. However, welfare and market-based programmes designed to provide access to hungry season consumption credits do not yet exist in Zambia.

The positive impacts of previous studies on seasonal loans - along with interest from policymakers and stakeholders toward scaling up the approach - has motivated the researchers to explore sustainable ways of scaling such a programme. This requires collaboration with institutions and organisations that already reach a network of farmers and interact with the farmers on a regular business.  In Zambia, agribusinesses that contract small-scale farmers as out-growers and provide other forms of loans to farmers fit such a description.

The existing out-grower networks offer three advantages for supporting hungry season lending:

  1. Companies have already developed infrastructure to support lending and repayment.
  2. Explicit loan and lending relationships between the company and farmers have been established.
  3. Subsequent harvests provide (imperfect) collateral for loans.

As such, it is the belief of the researchers that developing larger hungry season consumption loan programmes within agribusiness networks is feasible.

The feasibility of embedding access to seasonal credit through advanced payments is being tested in partnership with Alliance Ginneries Limited, a Zambian cotton ginning company. Alliance will offer small advanced cash payments to selected farmers during the hungry season.  Rather than paying farmers the full amount after they deliver their crops, this model changes the timing of transactions by splitting payments into a small “advance,” followed by regular harvest payments. Thus, farmers receive their harvest earnings spread across two points in time rather than only once per year. This assessment will inform the design of a large-scale impact evaluation in the 2018-19 growing season.