What is it about?

In this study, we identify the channels through which agricultural financing has an impact on farmers' productivity. Our findings show financing enables farmers adopt fertilizers earlier than otherwise. In the presence of financing, farmers without crop insurance are more likely to adopt fertilizers. In addition to fertilizer adoption, financing increases farmers' willingness to adopt hybrid seeds for land cultivation. In aggregate, our findings provide evidence that financing serves primarily to decrease farmers' risk aversion, resulting in an increase in willingness to adopt productivity enhancing activities.

Featured Image

Why is it important?

Our finding that farmers are less likely to spend on productivity enhancing activities if loan amounts from financial intermediaries are sub-optimal indicates agricultural productivity programs can be ineffective even when funds are utilized by farmers for farming activities. If as is the case in our study, farmers simply spend on more land in the presence of sub-optimal financing amounts, agricultural productivity programs simply boost agricultural output without having any significant impact on agricultural productivity. If farmers are not productive, their real incomes do not increase, they feel they are working to pay back loans, and as a result are less likely to repay their loans. Our findings indicate it is extremely important to provide farmers with loan amounts that facilitate both land purchases and enough capital for investments in productivity enhancing activities. In the presence of optimal financing amounts, the outcome that seems unthinkable - self funded agricultural programs - is more likely to be achievable.


Our finding that farmers without crop insurance are more likely to adopt productivity enhancing activities in the presence of financing is consistent with conclusions in some studies that agricultural portfolios of banks which insist on crop insurance prior to giving out agricultural loans do not necessarily outperform similar portfolios within banks that do not demand crop insurance prior to approving agricultural loans. Given farmers that have crop insurance can be lackadaisical about crop losses (the moral hazard problem), there is a credible and rational argument for giving agricultural loans to farmers that do not have or are not interested in crop insurance so long as these farmers have developed alternative strategies for mitigating crop losses.

Dr Oghenovo A Obrimah
Fisk University

Read the Original

This page is a summary of: Peasant Farming in Emerging Countries: Does Agricultural Financing Really Have an Impact?, SSRN Electronic Journal, January 2014, Elsevier,
DOI: 10.2139/ssrn.2483849.
You can read the full text:



The following have contributed to this page