In Zambia, small-scale agriculture employs the vast majority of the rural population, despite low levels of productivity and farming income. Most small-scale farms run out of food and cash four to five months after the harvest. Consequently, farmers engage in costly strategies to finance consumption until the next harvest, most commonly selling family labour off-farm in the casual labour market.
Between 2013 and 2015 the researchers conducted a randomised control trial which demonstrated that providing access to additional resources during the months when resources are scarce – the hungry season – can increase both farmer well-being and agricultural outputs. Currently, tests into whether similar interventions can successfully be built into private-sector operations are taking place.
Zambian farmers participate in contract farming arrangements with outgrower companies to obtain inputs such as seeds, pesticides, and fertiliser at the beginning of the agricultural cycle. In return, farmers commit to sell their crops to these companies after harvest, at which point the value of the input loan is deducted from sales value. One of Zambia’s largest outgrower companies – Alliance Ginneries – has agreed to test an advance payment option (200 Kwacha) within their usual business network.
From a commercial perspective, hungry season loans have the potential to increase outgrower companies’ profits through two primary channels:
- Increased farm production. The previous study suggests access to hungry season credit can increase farm output by 8-10% through increased consumption and more labour inputs on farm. Since outgrowers earn a margin on each kilogram of harvest purchased from their farmers, higher output should also increase firm profits.
- A higher share of output sold back to the company. In principle, farmers commit to selling their crops to the loan providing outgrower. However, some farmers side-sell a portion or all of their crops to higher-bidding companies. As small-scale farmers struggle to obtain credit during the hungry season, advance payments could increase their propensity to sell their harvest to the provider, either out of reciprocity or to obtain future financing.
To assess the overall impact of such advance payments and determine whether outgrower networks offer a means of scaling without external financing, a random sample of approximately 2500 farmers will be conducted. Additionally, short surveys at local markets will be conducted to collect information about prevailing maize prices and wages, to complement the household data.