Why farmers are risk-averse

Posted in — Lessons Learned > Sales
September 23, 2017
(Photo by Rachel Rose/iDE)

Farming is a risky business and may affect the livelihood of entire families.

Many smallholder farmers engage in farming methods characterized by low-inputs and consequently low-outputs. They continue to do it, nevertheless, because it is a low-risk strategy that ensures survival even though it prevents them from climbing up the ladder to prosperity. But it is a trap that is often a vicious cycle and leads to perennial poverty.

Introducing drip irrigation to these farmers would enable them to increase their yields dramatically and obtain higher incomes, but only if they can: apply best practices, know how to irrigate, and have access to the right seeds, fertilizer, and pest control. All of these require investment.

We may regret that small farmers are risk-averse, but it is the way they have survived in the past without jeopardizing the family’s only income source.

Farming is a risky business and may affect the livelihood of entire families given the high volatility of agricultural markets, potential pest invasions, and the vagaries of bad weather. Even organized farmers with a more modern approach are exposed to high risks and price volatility. iDE has introduced drip irrigation to plantain farmers in southern Nicaragua. It took quite some time to convince them that irrigating with less water gave better yields, higher quality, and used much less labor for irrigation and weeding. These are the strongest arguments in the short run, because they are immediately visible. The other advantages—better yields and quality—became evident only after plantain plants' 18 month period of growth.

For example, the first farmer to adopt drip under the project was Francisco Ramon, who was more innovative and curious than the other farmers in Rivas. Slowly, the pioneering early adopters like Francisco convinced their neighbours, and some of them became retailers for iDEal Tecnologías. The farmers are organized in the Aplari cooperative and do the marketing jointly, with most of the plantains sold to neighboring Costa Rica. However, the price fluctuations are extreme: in the best years, one “finger”—a plantain plant can have up to 50 fingers—was sold for five to eight Cordobas (16 to 26 US cents), but in 2016 the price suddenly fell to one Cordoba (three cents), less than the production costs. Those who had taken bank loans defaulted and this prevented them from being able to obtain more loans in the future.

A bad experience like this demonstrates why farmers avoid risks. The adoption rate, after such a price drop, lowers drastically, causing drip sales to decline.

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