Improving smallholder livelihoods with service delivery models

Giant networks will make businessmen of smallholder farmers, was the header in a recent Dutch magazine. Probably that’s overstating it, but there is some truth. We see a paradigm shift taking place, in the way companies deal with smallholder farmers as (potential) businessmen rather than as receivers of development aid.

IDH’s approach to improve smallholder livelihoods

We take a holistic approach to creating improved smallholder farmer livelihoods. Focusing on three dimensions of challenges that impact farmers. Sector governance, field level sustainability and business practices. We include all dimensions, because without addressing one the others will fail, which would be more of a traditional development aid approach, funding isolated projects without a realistic idea of how it fits together. That is certainly NOT what we want.

So how does it all fit together?
Farmers can be trained in good agricultural practices, but if they lack infrastructure connecting them to the market, if there is no market demand for responsible products, or they don’t get the inputs needed (like agrochemicals, fertilizer, seedling, machinery), or they lack access to finance to improve and grow their farms, what’s the point of training them in the first place?  If their soils are depleted or their bushes too old, they won’t get better yields from training anyhow. We must address the critical elements needed to help farmers become entrepreneurs.

Why is innovative finance a vital component of our smallholder approach?
The innovative finance is provided to support the delivery of the inputs and services that are needed to improve smallholders businesses. Smallholder farmers with access to services can increase their yields, improve their profitability, productivity and ultimately their bankability, and will continue to invest in their farm. Innovative financing through leveraging supply chain partners can
ultimately help smallholders become entrepreneurs.

How do you help smallholder farmers become entrepreneurs?

With bankability, we start with the basics. Often smallholder farmers are not familiar with finance or do not have a bank account. We help them to learn them about how finance schemes work. For example, in Aceh we supported a shrimp farmer’s project where a cooperative took a loan on behalf of the farmer, gave farmer access to inputs and training, which they could then pay for with shrimp yields (click on the video for more information).Local banks are often reluctant to invest in smallholder farmers, because they do not know the sector and think it is too risky. In the case of the Aceh project, the bank was willing to invest because IDH’s implementing partner would coach the shrimp farmers to professionalize.

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How does analyzing a service delivery model help the smallholder?

The service operators we work with, to analyze and prototype service delivery models, are looking to understand efficiency gains in the flow of services to smallholders. These insights also serve as pre-work for innovative finance investments. We rationaliz
e service delivery models, so to speak. With a good understanding of the risks and benefits of different models, service providers can develop a better plan to service their smallholders and strengthen their own business at the same time. IDH runs several prototypes with service delivery models in cocoa, coffee, spices and is analyzing service delivery models that have specific innovations  (with the Bill and Melinda Gates Foundation) to further increase insights into “key levers” for improving the performance of service delivery models. IDH is in the process of establishing a dedicated Service Delivery Model Innovation Lab to develop and implement innovations in service delivery models with selected partners.

Interview with IDH’s Iris van der Velden and James Webb





Download a recent publication with our findings on Service Delivery Models
Download a slide deck with more information on the Innovation Lab