The World Bank estimates that there are nearly 500 million small farms around the world today, totalling approximately 2.5 billion farmers and dependents. There are varying estimates as to their collective landholding or contribution to food consumption, but it is clear that smallholder farmers play a significant role in ensuring food security and sustainability on a global scale. Several of the United Nations’ Sustainable Development Goals simply cannot be achieved without involving the rural populations both as contributors and beneficiaries.

Unfortunately, while the last few decades have witnessed significant advancements in agricultural sciences and adjacent technologies, much of their application has been confined to the realm of commercial farming. Several smallholder farmers in emerging markets are still disconnected from the broader agricultural stakeholders and therefore do not benefit as much as they should from such progresses.

Smallholder farmers: Classic case of market failures

One estimate covering the Global South (excluding China) claims that only 7% of smallholder farmers are part of tight commercial value chains, with another 33% in the loose ones, leaving the great majority of farmers without proper market access. This is unsurprising given the small size of individual smallholder farmers and their geographically dispersed locations. They are usually unable to organize into a commercial enterprise for various practical reasons. The lack of critical mass makes it difficult to develop a business case for market entry or development of products and services catering to their needs.

With limited participation in the market systems, it follows that there is a significant financing gap among the smallholder farmers. The same study estimates that for 270 million smallholder farmers in the relevant geographies, the total funding needed is approximately $240 billion, consisting of working capital (e.g., farm inputs), long-term capital investments (e.g. equipment) and non-agricultural needs (e.g., schooling and important life events). Less than 30% of such funding needs are met, even when accounting for informal and potentially high-cost sources. Without this necessary ingredient, it is difficult for farmers to meaningfully invest in improved productivity – let alone switch to more profitable, higher-value crops that can improve in their wellbeing.

Diagram showing financing gap of smallholders worldwide

Source: Pathways to Prosperity

Indeed, several studies point to a significant yield gap, indicating the disparity between the full potential and the farmer’s actual yield. This means that farmers could be extracting significantly more output for the same amount of effort. One study by McKinsey estimated that farmers in sub-Saharan Africa could potentially increase the amount of cereals and grains by more than 2x with little land expansion. While this requires investments in logistical infrastructure, it also involves increasing the use of already available and relatively affordable products and know-how such as hybrid seeds and drip irrigation.

A diagram showing the yield gap in Africa
Source: McKinsey analysis

Environmental footprint is perhaps the most difficult implication to quantify. As financial and environmental pressure on smallholder farmers increase due to climate change, so does their reliance on natural resources such as water, food and energy. The stress of resources might encourage environmentally harmful practices. For example, “slash-and-burn” is an unfortunately common practice in several emerging markets whereby farmers burn the remaining crops at the end of the season to prepare for the new one, creating a whole set of problems ranging from physical safety to air pollution. These problems might aggravate a particular region’s growing needs to support increasing populations and consumer demand.

The industry’s challenges working with smallholder agriculture

Challenges abound when attempting to find solutions to give smallholders access to the resources they need for closing the gaps mentioned above. While these problems are many and multifaceted, as most problems tend to be, the most crucial step is to establish a baseline in order to define the objectives and framework for improvement. Unfortunately in many smallholder set-ups, there is a fundamental lack of data to even define where to start. This creates a major barrier for all kinds of stakeholders looking to work with smallholder farmers.

A diagram showing the ecosystem of smallholder farmers

Problem #1 — “Who grows what, where and when?” This fundamental knowledge is required to plan and implement any large-scale development program. It is challenging to keep track of small, remote farms especially when they are extremely diverse in their characteristics and practices. As illustrated in this survey by CGAP, a smallholder farm might grow six different crops and have livestock as well.

Problem #2 — Scale and complexity of agronomic data. Even though smallholder farmers are small in crop production and landholding by definition, their number in aggregate reaches hundreds of millions of farmers in certain geographies. As we previously explained, agronomic data is complex and dynamic – changing throughout the crop cycle and from one season to the next. To handle such data manually would be extremely resource-intensive or simply impossible.

Problem #3 — Ground operations are still required for data collection. Accuracy lies at the core of any data-driven initiatives – in agriculture or otherwise. While several technologies are emerging in the fields of agriculture to automate data collection – ranging from sensors to imagery analytics – their applications in the realm of smallholder agriculture are yet to be proven. For example, public satellite data can work well on large-scale, commercial farms with uniformed plots, but it might face challenges when applied to small plots, due to image resolution as well as irregular farming practices. Other solutions such as UAVs or field sensors would have significant cost implications or other practical limitations (such as theft) to be applicable in the smallholder setting. The ground-truthing data required to calibrate the predictive models is also limited; as such, it is impossible to avoid the first fundamental step of on-field data collection to establish the baseline.

So what do we do?

Smallholder farmers are crucial to the food value chain in the developing world. However, lack of access to enabling components such as farm inputs, market access, and financing prevents most smallholder farmers from reaching their full production potential. Data-driven technologies may hold the key to unlock this potential, but accessing the amount and type of data needed is easier said than done.

In the second part of this series we’ll take a closer look at some best practices that may help us overcome the challenges presented in this article.

Stay tuned!