Risky business: the dangerous myth of the ‘risk-averse’ small –holder farmer
Betting the farm. Literally.
At least a few men and women have made a bet which in one stroke changed their fortune. George Soros is one example whose bet against the Bank of England helped to catapult him to extraordinary wealth.
In the developing world, there are around 2 billion farmers who in the developing world make bets – at least 2x a year – that have similar far-reaching effects on their lives: selecting the right kind of seed, right crop and the right farming techniques.
Yet, there is a pernicious myth about the “risk-averse” farmer`. The story (roughly) goes, if there is an “average” level of risk that a person is supposed to take, then the smallholder farmer is behind the curve.
They are risk-averse by not being ‘innovative’ : (sometimes?) hesitating, for example, to try new seeds or farming techniques.
As a result, here is this non-sophisticated farmer, unwilling to adopt new technology and approaches – toiling far away from the heaven of risk-taking and rewards. She needs encouragement to overcome her aversions and change her life.
Making hay while the sun shines
Surely, this argument is not spot-on? In reality, the life of most small-holder farmers is in many ways defined by high levels of conscious risk-taking.
While working in Kenya five years ago and talking to or engaging with 100+ smallholder farmers, I learned at a personal level how these farmers regularly take risks: one bad decision on which seed they buy or when (or how) they plant could have disastrous effects on their ability to make income and survive.
As discussed in Poor Economics by Abhijit V. Banjeree and Esther Duflo, at frequent intervals in the lives of smallholder farmers (and low-income households in general) – choices about everything from agriculture, health and education is full of risk. There is no unemployment insurance if crops fail.
Yet each year, farmers will take risks and take steps to manage them: whether it’s investing in livestock, saving some seed for next year, or running an additional business.
In other words, the lives of most smallholder farmers are rarely risk-averse – most of their lives are a testament to risk management.
Tools of the trade
A pressing question then is what way can Social Enterprise enable people from lower income households better manage risk? Two options are micro-insurance and savings.
Bima, a growing social enterprise, offers micro-insurance (insurance, often on agricultural output, at affordable rates for low-income households) in Africa and Asia. The innovative role for Social Enterprises with respect to micro-insurance is to drive awareness and usage, particularly in Africa, which has a low usage rate for a valuable and affordable tool to manage risk.
Increasingly, businesses that offered microcredit are also offering microsavings – safe vehicles for low-income households to save money and develop buffers to the risks of life.
While neither option is a panacea for to the risks facing the poor, they are nonetheless part of a wider set of tools that can help low-income households and small-holder farmers. ‘Risk-averse’ as they maybe.
Shane Heywood 