AECF: Reaching smallholder farmers as producers and consumers

Agricultural production has the potential to be a pathway out of poverty for many of Africa’s rural poor. It represents the primary source of income for 90% of the rural population in Africa and accounts for 60% of total employment on the continent. The sector reaches many of the rural poor that the Africa Enterprise Challenge Fund seeks to benefit. It is for this reason that the AECF portfolio is weighted towards projects in the agribusiness sector.

Moreover, agricultural-induced growth has the greatest potential to generate benefits for the poor compared to other sectors, and the benefits of its growth are disproportionately felt by them: one study found that one percent of growth in GDP, as a result of agriculture generated expenditure growth, led to six percent growth amongst the poorest decile of the population.

The AECF’s focus on smallholders

Smallholder farmers, who often run their farms with only household labour and no access to machinery, make up the majority of African farmers. Plot sizes are typically less than two hectares. This makes smallholders more vulnerable to risks than larger farmers. In this context, the AECF supports smallholders to increase their productivity and profitability so that they are able to grow their assets and progress from subsistence into sustainable and secure livelihoods.

To ensure scale and sustainability of impact, the AECF achieves this goal by funding companies with innovative business models which address the challenges smallholders face and which reach them as consumers and producers.

 

Smallholders as consumers

One of the biggest obstacles smallholders face to increase their agricultural productivity is accessing high quality inputs. For instance, the majority of smallholders still rely upon recycled seed which gives diminishing yields over time, and most do not use fertilizers or pesticides due to their high cost and limited availability in local markets.

The AECF has funded nearly 50 input supply companies to provide smallholders with better and more affordable farm inputs such as certified seed, vaccines and day-old-chicks. The impact of such inputs can be transformative. In addition, the AECF also funds financial institutions to help them overcome some of the supply side constraints faced when seeking to provide services to rural smallholders, as well as information and media companies able to reach large numbers of smallholder farmers with vital, easily-accessible information.

Smallholders as producers

The AECF funds over 40 processing companies. Businesses of this type will be fundamental in unlocking Africa’s agricultural potential through purchasing raw materials from smallholder farmers and transforming them for sale in local markets, urban centres, or for export. They are particularly important for several reasons. Most directly, they typically generate a net benefit three times higher than an input supply project for each farmer that sells to them.

From a market systems perspective, processing companies build the capacity for value retention within sub-Saharan Africa. While it is the case that processing companies benefit fewer households on average when compared to input supply companies, processing companies tend to create relatively larger numbers of formal sector jobs. This is significant because many of these jobs will involve upskilling and training and may in aggregate have a catalytic impact through supporting the development of human capital in the sector in the region.

Different types of impact?

Companies which reach smallholders as consumers typically benefit more households than companies which engage with smallholders as producers. However, the former tend to generate lower average net benefits than the latter. This data highlights a perennial question the AECF faces in terms of how best to balance its portfolio of funded projects, specifically, whether to focus on one type of project over another.

 

An opportunity exists for the AECF to better understand whether projects which generate comparable total net benefits in aggregate, but which are different in terms of reaching smallholders as consumers or producers, are developmentally different or more transformational in other ways at the level of the household or wider economy.

You can find the above lessons alongside an analysis of the AECF’s development impact and further reflections in this year’s Impact Report which is available on the AECF Impact report page on the Hub.

This blog is a part of the October 2015 series on inclusive business portfolio impact and learnings.