Investing to Overcome Climate Change - Acumen

Investing to Overcome Climate Change

August 12, 2021

New Acumen report, “Resilient. Farmers.” provides investors and agricultural businesses with recommendations to help smallholder farmers adapt to climate change, build their resilience, and increase their incomes. 

Salana has been a farmer for 18 years, long enough to know that the weather did not use to be like this: “the climate is hot… The temperature is increasing. There is a shortage of rainfall.” Salana used to grow khat in central Ethiopia, and the changes in climate make it increasingly difficult for him to survive as a farmer. “The heat and frosty weather happen turn by turn and that is spoiling the crops. The crops just stop growing well and we face bankruptcy.” 

Many of us cannot conceive of a life dependent on rain, nor the fear when the rain is absent, inconsistent, or too strong. But smallholder farmers know. They have painful, firsthand experience of what a changing climate really means, and their ability to adapt to it is the difference between bankruptcy and solvency, between prosperity and hunger. 

In “Resilient. Farmers. Acumen and the Busara Center for Behavioral Economics detail how farmers think about climate change, how they’re trying to adapt to it, and what they need from agricultural platform companies offering adaptation options. The research — funded by the United Kingdom Foreign, Commonwealth, and Development Office (FCDO)’s Strengthening Impact Investment Markets for Agriculture program — is grounded in the perspectives of 360 smallholder farmers interviewed in four sub-Saharan African countries. 

From Nigeria to Ethiopia, farmers told us that increasingly severe weather was damaging their livelihoods:

“You cannot get rainfall sometimes even when you desperately need it. Other times, rainfall happens during the season when you don’t need it.” – Male farmer in Ethiopia

“We are experiencing extended drought, so as a farmer you find yourself running losses.” – Youth farmer in Kenya

“Sometimes the heat extends beyond its time… where you normally harvest 100 bags you end up harvesting 70 or 80 bags.” – Female farmer in Nigeria

Building Solutions for Smallholder Farmers

There are more than 2 billion smallholder farmers worldwide. Climate change exacerbates the risks they already face: low margins, uncertain markets, and poor infrastructure, among others. If farmers are going to grow their yields and increase their incomes, they must become resilient to the shocks — meaning have the ability to anticipate, adapt, and absorb negative impacts — and the adverse trends that we know are in store. 

Agribusinesses have a critical role to play in supporting farmers, and a new group of early-stage companies is trying to lead the way. These agricultural platforms offer smallholder farmers different combinations of products and services: inputs, credit, agronomic advice or training, and a premium price for farmers’ crop. 

When these models work, the impact on farmers can be heard in their voice: 

“I had the highest yield since I started farming…In the end I made more income when I harvested and sold the crops. Even after I gave [the company] their percentage.” – Female farmer in Nigeria

“When you call…the agronomist responds very fast and does not disappoint the farmer. When you report a problem on your farm, they come to your farm.” – Young farmer in Kenya

“Before the arrival of [the company] I could only afford to cultivate one hectare but with them I can cultivate more.” – Mid-tier farmer in Nigeria

To be successful, platforms must overcome infrastructure challenges, capital gaps, and farmers’ well-deserved aversion to risk. Early-stage ventures are often unable to deliver inputs on-time with consistency. In some sectors these growing pains are easily forgiven. But for farmers who are maxed out on risk, casual experimentation is not an option. We asked farmers what they needed from agribusinesses to adopt their products and services. Their answers were clear:

Training: Farmers highly value advice from experts, often multiple times in a process.

Clarity: Unclear terms or conditions in a contract are a red flag for smallholders.

Consistency: No matter how impactful a service, it’s only useful if delivered on time. Otherwise, it’s just another risk.

“Yes, we had [initial] interest, but now we want some more light, more training so that we get to know more.” – Leader farmer in Kenya

“Their challenge is timing; they usually come when we have already planted.” – Leader farmer in Kenya

“We don’t understand how they reject part of our products, and these rejections are impacting our income.” – Female farmer in Ethiopia

As for Salana, he has been delighted to work with an agricultural platform in Ethiopia, who showed him how to make green compost: “The land doesn’t need any kind of chemical…since the arrival of this [company] I am getting good quality of land and thus increased production.” He has now diversified his crops, and green beans and other vegetables have helped improve his income: “the current technology is easier than that of traditional one by four-fold. With the current technology I am able to improve my household and livelihood as it earns me more income.”

Recommendations for Investors and Agribusinesses

We know more droughts are coming. More floods are coming too. Smallholder farmers are, and will continue to be, among the most impacted by climate change, but of every dollar raised in climate finance, just 1 cent goes towards smallholder agriculture. We need a massive investment in adaptation and resilience, but those funds will only be impactful if they take into account smallholders’ unique perspectives. 

Agricultural platforms need to listen to smallholders, provide the extension and support that they need, and explore channels for customer feedback similar to this research. To enable that retention and sustainable scale, investors in these businesses need to provide patient, flexible capital that will allow platforms to build trust, prove their value to customers, and begin to change behavior. Acumen’s experience investing in agriculture has shown us that this takes time, and frequently requires partnerships with governments and NGOs who can assist on extension. 

Unfortunately, time is not on our side. Temperatures are rising, and rains are not falling when they should. Smallholder farmers have told us, in no uncertain terms, that they need help to weather the coming storms. “Resilient. Farmers.” provides a stepping stone to develop deeper and more effective relationships between smallholder farmers and the agribusinesses that serve them. 

Download the report here. 

This research contributes to delivering the Global Action Agenda laid out by the COP26 campaign Transforming Agricultural Innovation for People, Nature and Climate, co-chaired by FCDO and the CGIAR Research Program on Climate Change, Agriculture & Food Security (CCAFS). A pillar of this action agenda is to build the evidence base for increasing investment in climate-resilient agricultural technologies and practices. 

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