How can the financial services sector strengthen the sustainability and inclusivity of smallholder farming in the supply of global commodity crops?

White Paper for The Global Landscapes Forum: The Investment Case, London, 6 June 2016, related to the discussion forum Smallholder finance – evidence from the tropics, organized by Pablo Pacheco, coordinator of Flagship 5 of the CGIAR Research Program on Forests, Trees and Agroforestry.

Authors: Noemi Perez, FAST International; Jan Willem van Gelder, Profundo; Hans Smit, SNV; Pablo Pacheco and Sophia Gnych, CIFOR

Smallholder farmers play a key role in the production of agricultural crops for local, national and, increasingly, international markets, including high-value tree crops.1 As commercial-scale agriculture has expanded and markets have seen greater integration, smallholders are forced to compete with agribusiness to meet a rising demand for food, fiber and fuel. But smallholders remain disenfranchised, often facing economic, financial and institutional constraints that make the adoption of more efficient practices and technologies more difficult and limit productivity and local livelihoods.

A good example of this are oil palm smallholders in Indonesia, whose participation in the sector is growing rapidly. Despite their important contribution to national production, oil palm smallholders risk exclusion from global markets as agricultural standards evolve, and they struggle to adopt improved production practices.4 Finance has the potential to play a significant role in supporting the upgrading of production systems and delivering more effective resource management5 , as well as helping to fulfill a growing demand for agricultural and tree-crops that meet sustainability standards.

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