Encouraging Agricultural Efficiency through Microfinance: Implications for Food Security

Thursday, July 21, 2011

Maybe those that work in development are sick of hearing this little factoid, but for those who are out of the loop, let’s repeat it just one more time: the majority of the world’s poor live in rural areas. As expected, many of these are highly dependent on agriculture, whether or not it is their primary economic activity.

So if they live in communities dedicated to agricultural production, then why is it that many of them still suffer from hunger?

To begin with, their own agricultural yield is abysmal compared to what it could potentially be, even in the absence of sophisticated technology. This is evidenced by the fact that many developing countries the world over are still not self-sufficient in feeding their populations; they import more than they export.

Additionally, modern industrial farming practices have failed the developing world, leaving them hungrier in the wake of this revolution than they were beforehand. As a UNEP-UNCTAD study on Organic Agriculture and Food Security in Africa reports, “the conventional wisdom is that, in order to double food supply, efforts need to be redoubled in modernized agriculture;” however, “the great technological progress in the past half-century has not led to major reductions in hunger and poverty in developing countries.” Industrial farming may have allowed for a greater global yield of food, but that certainly doesn’t mean the advantages made it to every corner of the world in need.

Microfinance has a clear role in mitigating this problem through supporting small farmers that can contribute to the total endogenous agricultural production of their respective countries. Unfortunately, many organizations are curbing their agricultural portfolios due to the risks they impose. For this reason, innovation in agricultural microfinance products is essential not only to adequately meet the demand of the clientele based on their needs, but also to ensure that from the supply side, the very MFIs are capable of providing the services without incurring losses.

What are the impediments to agricultural efficiency for “micro” farmers?

“Right now, the average farmer in sub-Saharan Africa gets just over a ton of cereal per acre. An Indian farmer gets twice that; a Chinese farmer five times that; an American farmer seven times that. Why is there this huge disparity? Farmers in other regions have tools and techniques and resources that African farmers do not. By offering farming families in Africa and South Asia those advantages, the least productive farms can come closer to the most productive,” Bill Gates stated in his opening remarks at the Chicago Council’s Symposium on Global Agriculture and Food Security.

So in the global fight against hunger, the issue here isn’t a lack of labor or a lack of land – these particular resources abound in Africa and other rural developing regions. The simplified answer is that the missing ingredients are tools, techniques and resources – all of which can be provided through inclusive finance.

Source: Microfinance Focus (link opens in a new window)