Smallholder farmers are increasingly caught between two of the 21st century’s defining challenges: climate change and declining livelihoods. Farmers face long-term yield declines and more frequent and severe environmental shocks such as floods, droughts, and emergent pests and diseases.
In our country, market barriers further deepen smallholder vulnerability, presenting a puzzle much like the proverbial ‘chicken and egg’ problem: on the one hand, farmers lack access to good market prices given small yield volumes, and are thus not incentivised to diversify into higher-value crops.
On the other hand, businesses along the value chain face investment barriers, including a scarcity of funds, and thus cannot invest in market aggregation; they also lack the operational capacity to scale and generate employment opportunities.
Moreover, because agricultural output often does not meet the required quality standards — due to the above reasons — many formal traders and food processors tend to reject a large share of smallholder farm produce, effectively shutting farmers out of value chains and discouraging them from investing further in their trade.
To make the best out of a bad situation, farmers turn to informal chains that deliver products to local intermediaries and small local stores, limiting many to markets characterised by low-quality products, low prices, and low returns.
Market-driven value chains can improve agricultural investment and productivity, greatly enhancing smallholder livelihoods. First, because they typically prescribe higher quality standards, buyers in value chains, such as food processors, pay higher prices than local markets.
Second, buyers purchase through contracts that guarantee farmers a minimum price for output, reducing the risk of price fluctuations; this allows farmers to make investment decisions with more certainty about expected returns. Thirdly, in response to both higher and guaranteed prices, farmers can expand the sizes of their farmed plots or invest more in yield-increasing inputs to improve productivity and raise incomes.
Synchronise investments to strengthen value chains
One Acre Fund, the agricultural social enterprise I work for, enables smallholders to generate an output value of about $1 billion (Rwf 1.2 trillion) across nine Sub-Saharan African countries – and this is just from cereals for subsistence. In the years to come, we see an opportunity for farmers to grow their revenue to $10 billion (Rwf 12 trillion). We aim to achieve this by shifting to high-value crops – like avocado, macadamia nuts, and chillies — engaging in value addition (processing, logistics, and distribution), and reducing production and marketing shocks.
One Acre Fund is well placed to break this ‘chicken and egg’ cycle by investing in agri-businesses that can ensure fair returns to smallholders and investors. We will achieve this through the Smallholder Resilience Ventures (SRV), an investment vehicle that provides funding and technical assistance across agricultural value chains.
In particular, we focus on climate-friendly high-value crops, like macadamia, chillies and rain-fed avocado, to increase smallholder resilience while improving long-term value chain productivity. Under the SRV, we offer market linkages in several ways.
The first is through smallholder support and aggregation. Under this method, we work with our existing client network of 1.6 million farmers across Sub-Saharan Africa to grow high-value, climate-friendly crops.
Under this model, we directly provide tree seedlings, offer extension services, and carry out aggregation and off-take support through thousands of rural-based staff. In Rwanda, we have over 2,400 agricultural cooperatives nationally that bring together nearly 300,000 members – 20 per cent of the country’s agricultural households. These cooperatives can leverage economies of scale to aggregate output, organise input purchases, and negotiate trade contracts with buyers to boost member incomes.
Secondly, we deploy capital to small and medium enterprises (SMEs) along the value chain to enable them to scale, hire, and provide better prices to farmers. We provide technical advisory services at crucial investment junctures to minimise risk and ensure the best use of funds.
Lastly, where we see gaps in the value chain, we will build new farmer-focused businesses within an agri-SME venture studio to fill value chain gaps. Under this model, we market smallholder produce to international buyers who demand sustainably and ethically sourced products and subsequently launch these new markets as investment-ready businesses that farmers can use to sell.
For example, in 2022, SRV co-invested in an avocado oil processing plant. This is the first industrial production of avocado oil in Rwanda, with the main raw material, avocado, sourced directly from smallholder farmers. We focus on non-export-grade avocados, which are highly likely to end up in the compost, significantly reducing food waste and increasing farm incomes throughout the avocado value chain.
This also encourages smallholders to invest more in rain-fed tree fruit production, increasing and diversifying their incomes and building their resilience to climate change.
Delivered together, these investments can elevate entire value chains by eliminating investment barriers, increasing SME competitiveness, generating job opportunities, and strengthening local value chains by connecting them to global markets.
The writer is the Director of Government Relations and Legal at One Acre Fund Rwanda.