POLICY OPTIONS TO STRENGTHEN SMALLHOLDER FARMERS WITH AGRICULTURAL POTENTIAL 13
take productivity-enhancing risks such as adopting new technologies and switching to high-value crops. Insurance tools that could potentially help farmers manage risks range from basic weather and agricultural insurance to more sophisticated hedging options such as futures contracts and loan-guarantee funds. Te International Finance Corpo- ration (IFC)—the World Bank’s private-sector arm—has developed the Agriculture Price Risk Management tool to extend access to hedging products among agricultural producers and consumers in developing countries to help shield them from price instability (IFC 2011a). Other inno- vative instruments include partial premium support (in conjunction with capacity-building efforts and regulatory reforms) and “insurance-for-work” schemes. Tese initiatives are steps in the right direction, but
more collaboration among private institutions, govern- ments, and donors is needed to support research into the design of innovative, simple, and flexible insurance tools (such as group-based risk sharing and credit) that are adapted to the varying needs and constraints facing smallholders, especially targeting subsistence farmers with profit potential. Te products need to be accompanied by investment in infrastructure (such as weather stations for weather-based indexes) and capacity building of farmers and providers. Most important, insurance schemes need to overcome the capital and credit constraints that limit smallholder demand for insurance, something that the current push for weather-based index insurance has been criticized for lacking (Binswanger-Mkhize 2012). To make insurance more affordable, “aggregators”—such as farm- ers’ organizations, financial service providers, and input suppliers—could provide insurance and financial products as part of input contracts and vertical coordination mecha- nisms to help smallholders both manage risks and meet the demands of modern supply chains (Dries et al. 2009). Reducing risks associated with price volatility requires
supportive macroeconomic policies. National governments should encourage transparent, fair, and open global trade by eliminating formal and informal export restrictions and refraining from imposing new ones. Although export bans may help secure domestic food supplies, they tend to exacerbate global price hikes, thus hurting the poorest net buyers of food. Food prices have been increasingly linked to energy prices because of the growing diversion of food crops toward biofuel production as energy prices increase.
To minimize the negative impact that volatile energy (and hence food) prices have on farmers’ incentives and perfor- mance, the competition between food and biofuel produc- tion should be minimized by limiting policies that promote the use of grain feedstock to produce biofuels. Such a shiſt would require more investment in developing either biofuel crops that grow on marginalized lands that are unsuitable for food crops or feedstocks that come from the non-edible parts of crops or from nonfood crops. Policies that promote climate change mitigation and
adaptation in agriculture are especially useful for helping smallholders manage risks while improving productivity. Investments in mitigation include helping farmers improve their energy efficiency and manage their land in ways that increase carbon storage. In fact, the global mitigation poten- tial of agriculture has an estimated worth between US$32 billion and US$420 billion (Bryan et al. 2008). Investments in adaptation could focus on helping farmers adjust their planting dates as well as on developing and ensuring public provision of high-yielding crop varieties and technologies that are adapted to changing precipitation paterns and tem- peratures. Te key is to prioritize investments and find the appropriate mix of flexible climate change mitigation and adaptation policies and tools with the highest productivity- enhancing impact among different types of farmers, crops, and regions (Bryan et al. 2011). At the same time, it is important to create policy incen-
tives for smallholders to invest in mitigation and adapta- tion because many of the inputs and technologies required for low-carbon agricultural practices have high costs of production, purchase, and use. Brazil’s Low-Carbon Agri- culture Program, for example, provides financial incentives to encourage farmers to adopt crop and soil manage- ment activities that neutralize or minimize on-farm green- house gas emissions, including no-till farming, planting of commercial forests, and integrated crop-livestock- forestry systems.
LINK AGRICULTURE, NUTRITION, AND HEALTH
A more integrated approach is needed to increase small- holders’ productivity and improve their nutrition and health status. As both producers and consumers of more nutritious foods, smallholders have a potentially major role and stake in maximizing the linkages and synergies among
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