Casaburi, L, Glennerster, R, Suri, T and Kamara, S, 2014. Providing collateral and improving product market access for smallholder farmers: a randomised evaluation of inventory credit in Sierra Leone, 3ie Impact Evaluation Report 14. New Delhi: International Initiative for Impact Evaluation (3ie)Link to Source
The evaluators used a cluster randomised controlled trial at the village level. The randomisation was stratified by the bank catchment area (which provided credit intervention) and by village average sale patterns and price fluctuations. A sample of 120 palm oil producing villages located in the catchment areas of the three RABs was split into three groups. The first received the storage support intervention; the second received the inventory credit scheme; the third was monitored as a control group. The evaluation draws from two main survey instruments (baseline and endline), logs of palm oil production and storage, and administrative data from the programme.
In the build up to the intervention, two sensitization visits were carried out to illustrate the benefits of the programme for the farmers.
The study also used focus group discussions for identifying the determinants of take-up of the interventions.
Analysis of baseline data shows that in the year previous to the intervention: i) palm oil prices showed substantial increases over the period between the harvest season and the off-season; ii) farmers sell predominantly within a few months of harvesting and store only small amounts across seasons. A simple profitability analysis reveals that, under the observed price dynamics, farmers could substantially increase revenues and profits from palm oil by raising their levels of storage.
Despite the potential to increase profitability, the take-up rate was 29.9 per cent for the storage support and 24.9 per cent for the inventory credit. The programmes did not have a significant impact on overall storage behavior or on the patterns of oil sales across seasons. The storage provided as part of the scheme primarily substituted for other forms of storage. Thus, in the first year, the two schemes provided limited benefits for the participating communities.
The authors offer several reasons for the low take-up:
• High interest rates on the loans and lack of info on price fluctuations may have affected the decision to not take up the loan.
• There was a general issue of lack of trust in formal credit institutions; many of the intended beneficiaries may not have interacted with banks before the intervention.
• The intervention may have disturbed pre-existing relationships between farmers and traders.
About this impact evaluation
Inter-seasonal fluctuation of agricultural prices is widespread throughout the developing world. Prices decrease during the harvest season due to the availability of large quantities of crop, while the prices increase in the lean season. However, small farmers are often unable to benefit from the price increase owing to credit constraints for meeting their immediate cash needs and the lack of storage facilities. They are thus forced to sell at low prices and are unable to make a profit.
Community inventory credit aims to help small farmers to cope with seasonal volatilities by providing liquidity for short-term needs. The Sierra Leone National Program Coordinating Unit (NPCU) at the Ministry of Agriculture implemented a palm oil inventory credit and market support scheme in collaboration with several rural and agricultural banks (RABs) in 40 communities with a view to scaling it up in the future.
The study evaluates the impact of two interventions designed to help farmers to take advantage of price variations over the course of the year:
The first intervention was storage support which involved the provision of community storage rehabilitation, extra palm oil containers and marketing support to target communities. This intervention was aimed at reducing the risk of theft or physical loss; it removed the cost barrier of purchasing storage containers; and it used marketing support to reassure farmers they could sell their product later on in the year.
The second intervention, inventory credit, involved the disbursement of loans. This allowed farmers to use the oil stored in the community storage as collateral for the loans. This intervention is aimed at helping farmers overcome the liquidity constraint which may force them to sell their product early in the year despite lower prices.
RABs were to help farmers identify community storage facilities and offer individual loans worth 75 per cent of their product’s harvest-time value.
The product was randomly allocated to 120 communities in over two districts. The communities were divided into three groups; the first treatment group was offered the complete product; the second treatment group was given palm oil containers and storage spaces, but not credit for storage; the third group was the control group.