Emerging Insight: The financial lives of cocoa farmers in Côte d’Ivoire
17 October 2018
Côte d’Ivoire is the world’s largest cocoa producer, responsible for 35 per cent of cocoa produced worldwide. Of the country’s 900,000 cocoa farmers, 90 per cent are smallholder farmers, who own less than five hectares of land and have little access to formal financial services.
Farmers’ financial lives are determined by the crop cycle and they experience particularly difficult months from June to August, when they often run out of cash before the next harvest season starts. This “hunger season” comes during the rainy season, when farmers also face the risk of climate variation. Struggling to manage the interrelated risks and expenses at household and farm level, and without other financial solutions available, farmers often turn to informal loans at very high interest rates. Farmers repay these expensive loans during the next harvest season, diminishing their income and leaving them with reduced savings. This in turn exacerbates their cash-flow problems during the year ahead.
Compared to other countries, Ivorian cocoa farmers have very low yields, due to low use of inputs, like fertilizers and pesticides, and a lack of capital to finance them. The resulting low productivity, coupled with the high risks faced by the sector, directly affect the volume of cocoa that the country can export to the international market. Value chain actors, particularly the off-takers and cooperatives that buy the cocoa from farmers, seek to increase farmers’ access to finance, for example through in-kind loans in the form of farming inputs. In this way, they hope to secure access to sufficient cocoa.
Value chain financing increases productivity but does not help farmers, bound to their seasonal calendar, to manage risks, smooth their cashflow throughout the year, or save for future expenses. Typical value chain financing is therefore insufficient and has not brought about meaningful changes in farmers’ wellbeing. There is a need for more integrated solutions – also addressing farmers’ household risks and needs. To do so, financial services providers and value chain actors are experimenting with innovative models that leverage partnerships, use technology, and are based on a holistic understanding of farmers’ financial circumstances. These include formal loans and technical advice to help farmers diversify their income, formal loans for school fees, savings products, and life and hospital cash insurance products.
Such holistic approaches remain in pilot stage. However, it is already clear that they are vital in order to increase farmers’ resilience in Côte d’Ivoire and elsewhere.
Find out more about cocoa farmers’ financial lives, and ways to improve their resilience, in our two-part blog series.
Farmers’ financial lives are determined by the crop cycle and they experience particularly difficult months from June to August, when they often run out of cash before the next harvest season starts. This “hunger season” comes during the rainy season, when farmers also face the risk of climate variation. Struggling to manage the interrelated risks and expenses at household and farm level, and without other financial solutions available, farmers often turn to informal loans at very high interest rates. Farmers repay these expensive loans during the next harvest season, diminishing their income and leaving them with reduced savings. This in turn exacerbates their cash-flow problems during the year ahead.
Compared to other countries, Ivorian cocoa farmers have very low yields, due to low use of inputs, like fertilizers and pesticides, and a lack of capital to finance them. The resulting low productivity, coupled with the high risks faced by the sector, directly affect the volume of cocoa that the country can export to the international market. Value chain actors, particularly the off-takers and cooperatives that buy the cocoa from farmers, seek to increase farmers’ access to finance, for example through in-kind loans in the form of farming inputs. In this way, they hope to secure access to sufficient cocoa.
Value chain financing increases productivity but does not help farmers, bound to their seasonal calendar, to manage risks, smooth their cashflow throughout the year, or save for future expenses. Typical value chain financing is therefore insufficient and has not brought about meaningful changes in farmers’ wellbeing. There is a need for more integrated solutions – also addressing farmers’ household risks and needs. To do so, financial services providers and value chain actors are experimenting with innovative models that leverage partnerships, use technology, and are based on a holistic understanding of farmers’ financial circumstances. These include formal loans and technical advice to help farmers diversify their income, formal loans for school fees, savings products, and life and hospital cash insurance products.
Such holistic approaches remain in pilot stage. However, it is already clear that they are vital in order to increase farmers’ resilience in Côte d’Ivoire and elsewhere.
Find out more about cocoa farmers’ financial lives, and ways to improve their resilience, in our two-part blog series.