Publication - Policy Brief
Small-scale farming remains the most common livelihood strategy and primary source of income in rural Zambia. Limited access to credit and insurance mechanisms leave farmers vulnerable to varying weather and environmental conditions. These yield risks can severely limit farmer’s ability to purchase farming inputs for subsequent seasons and to cover basic food needs for the entire year.
In the absence of savings and credit, the only way through which money for food and other basic needs can be raised prior to the harvest is to engage in short-term piece work at larger farms. Working off-farm generally implies that small-scale farmers neglect their own fields and their yields deteriorate as a result. This further increases the dependence of small scale farmers on piece rate labor in the subsequent season – a phenomenon that resembles a classic poverty trap.
Two interventions seek to mitigate the impact of these cyclical food shortages on labor allocation and thus improve agricultural productivity. 500 small scale farmers in the Chipata district of Zambia’s Eastern Province will be randomly selected and assigned to one of two interventions.
The Food Credit Intervention aims to provide farmers with access to additional food during the cropping season. Farmers selected for this intervention will be eligible to obtain one bag (50kg) of maize per month on a credit basis. All maize will be repaid in kind and without interest at the end of the harvesting season.
The Credit Insurance Intervention will offer farmers a risk sharing contract, with repayment tied to local rainfall. Farmers will pay back 1.5 bags per bag of maize received if the rainfall is excellent, and only 0.5 bags per bag received if the rainfall is below average. In order to avoid providing negative incentives, the pay-back rates will be conditioned on local rainfall.
The aim of these interventions is to provide farmers with the opportunity to invest their time and efforts in their own crops and increase agricultural productivity in the presence of cyclical food shortages, thus breaking the trap.
Baseline, midline, and endline surveys will be conducted to measure the loan take-up’s impact on consumption, labor allocation, and yields, as well as the intervention’s impact on future investment choices.
If the treatments are successful, the study provides a scalable and cost effective tool for generating sustained welfare gains that may also improve the overall functionality of the rural labor market.”