This impact case study looks at what has been achieved by a DEGRP agriculture project that undertook an analysis of agricultural investment decisions in Uganda.
The project team’s work, led by Arjan Verschoor from the University of East Anglia, has had a significant impact on agriculture in Uganda, including changes to the country’s national agricultural policy.
The research challenge
Low agricultural productivity is a common problem across Africa, contributing to food insecurity and rural poverty. There are many obstacles to increasing productivity, among them lack of access to agricultural technologies, lack of knowledge of the latest growing techniques, and land ownership issues.
But even when farmers do have access to products and services that could enhance their harvests, such as fertiliser, quality seeds, or irrigation technology, they are often reluctant to invest in them. And with good reason: investment is risky, typically requiring a large cash outlay with no guarantee that bad weather, disease, or other kinds of damage won’t affect crops.
Encouraging farmers to invest in new technologies while protecting them from risk is therefore a key challenge for policymakers.
The DEGRP research
DEGRP-funded researchers sought to address this challenge by exploring how farmers perceive risk, and how these perceptions influence their investment choices. Their rationale was that a better understanding of farmers’ risk-aversion would give insights into how productivity-enhancing products and technologies could be adapted to make them less risky, and therefore more attractive to farmers.
Focusing on two districts in eastern Uganda that frequently experience harvest failure, the project team worked closely with 1,803 farmers in 100 villages, using economic experiments, interviews and surveys to investigate the drivers of risk-aversion.
Their research revealed a number of factors affecting farmers’ decisions to take risks, including: previous experience of risk-taking; expectations around risk-taking within their communities; and concerns over how the risk will be spread across their social networks – e.g. friends, family or neighbours – in the event of a failed investment.
From their findings, the research team generated a series of policy recommendations to adapt existing investment opportunities in line with farmers’ complicated relationships with risk. Their proposed solutions included:
- Better insurance offers
Traditional crop insurance is rarely available to smallholders, but weather-index insurance is a viable alternative and could be promoted more by agricultural policymakers. Insurance would also be more attractive to smallholders if ‘bundled’ together with credit and agricultural inputs into a convenient package. Offering insurance to groups of smallholders may also increase its attractiveness, since group members can share the remaining uninsured risks.
- Community warehouse receipt systems
These allow farmers to leave their produce in a warehouse, borrow up to 80% of its value and sell it when prices rise, rather than having to sell immediately because they need the cash, even if the price they get for it is low. These warehouse receipt systems already operate in Uganda, but are not accessible to smallholders; a community level system offers a good alternative and allows farmers to manage their own risk.
- Selling fertiliser in smaller packs
Inorganic fertiliser can greatly increase productivity, but few smallholders in Uganda use it. It is typically sold in 50 kg bags, but research indicates that buying smaller bags makes the investment less risky. Thus, selling fertiliser in smaller packages would increase the likelihood that farmers will buy and use it.
The project's impact
The research findings and policy recommendations resulted in a number of positive changes at different stages of the project.
The research team shared and consulted on their findings with a wide range of local and national stakeholders – including policymakers and business representatives – at various points during the research process. By shedding light on how smallholder farmers approach risk, these stakeholder consultations helped to shift perceptions of the conditions needed to encourage farmers to invest in certain agricultural products and technologies.
With this shift in perceptions underway, the research team then partnered with Ugandan NGO AT Uganda to lobby for changes to Uganda’s agriculture policy. As a result, promotion of weather index insurance now features as one of five core activities in the Uganda Climate Smart Agriculture Plan. Uganda’s new Agriculture Sector Development Plan now promotes this type of insurance as well, both in its own right and as a complement to warehouse receipts systems.
The research has had a wider impact, too. It helped to build the capacity of Ugandan researchers involved in the project by giving them the opportunity to use new research techniques. In fact, at the end of the project, the lead Ugandan researcher set up a new research institute - the Field Lab Research Services Institute - dedicated to providing research conducted with these techniques.
The project also fostered collaboration between different organisations and groups involved in boosting agricultural productivity. The researchers’ efforts to continually engage stakeholders throughout the research process led to an alliance of insurance companies, micro-finance organisations, farmer organisations and agricultural service providers who have agreed to collaborate to improve insurance products.