Building bridges between smallholders and financial markets

IFAD Asset Request Portlet

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Building bridges between smallholders and financial markets

Estimated reading time: 1 minute

©IFAD/Olivier Asselin

One of the major challenges facing smallholders is getting adequate and cost-efficient protection against price volatility and climate-related impacts on production. International financial markets have offered solutions to large agribusiness for decades. These have not been explored by smallholders, due to limited access to information, lack of volume to enter a derivative contract or limited business skills.

The CACHET initiative hopes to address this by helping smallholders transfer climate and price risks to the international markets. They will have revenue protection through a hedging-based approach combining yield and price protection, where the risk is shared between other hedgers, speculators and investors. This innovative approach is currently being piloted in the maize value chain in Senegal and the cocoa value chain in Nigeria.

Overcoming obstacles to alleviate rural poverty

IFAD’s CACHET project helps farmers access risk management solutions available in commodity exchanges. Initially, African smallholders can benefit from hedging instruments - namely options largely available in financial markets. Hedging can support smallholders invest in production and give confidence rural banks to provide adequate financing.

Amath Pathé Sene, CACHET’s coordinator, explains how the project relates to the 2030 Agenda for Sustainable Development:

Inspiring and learning from others

The initiative is designed to introduce this new type of financial instruments in IFAD's financial architecture and engage other value chain and public operators in maintaining them. CACHET is working with governments and the private sector to support similar approaches based on lessons learnt and experiences in the pilot countries. For example, in Senegal, the Government has launched a national programme to boost agriculture and fuel efforts to protect smallholders against climate change effects and price shocks. CACHET has connected the Multi Commodity Exchange of India to public and private operators in the pilot countries.

It is hoped that the pilot projects will demonstrate the huge potential of investing in smallholders’ revenue protection, encouraging these types of investment to be taken-up.

Fatou Goumbo Gueye, from Senegal's Ministry of Agriculture.