What Keeps Poor Farmers Poor?

The simple answer is a lack of money: no money to expand their fields or use the latest seeds and technology. But economists have a more complicated theory. Perhaps, farmers face too much risk.

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Next, we have a mystery. It's what keeps some people from turning a small business success into a big one. If a business does well, after all, a natural next step is to expand. Around the world, many farmers, who are, after all, business people, do not expand. If their farms are part of a developing country, that matters. So Robert Smith of NPR's Planet Money podcast asked what holds them back.

ROBERT SMITH, BYLINE: The first step in solving the mystery is to find an amazing farmer.

BLESSING NKHASE: My name is Blessing Nkhase.

SMITH: Blessing is definitely the best apple grower in the tiny African country of Lesotho.

NKHASE: We do have Golden Delicious, Fuji.

SMITH: Fuji?

NKHASE: Yes. Yes. We do have a Granny Smith.

SMITH: Granny Smith?

NKHASE: Yes.

SMITH: These are the same we have in the United States.

NKHASE: Yeah, yeah, yeah.

SMITH: Now, Blessing has empty fields. And the economically rational thing to do would be to grow more apples. He really is the best at it. And Blessing explains that if he had the money, he would.

But you don't have the money?

NKHASE: I don't have money.

SMITH: Blessing then says, well, I do have some money. But I'm not going to put it into my apples. I am going to put it into something different.

NKHASE: Into animal production also.

SMITH: So you're going to get cows here - a sheep, goat?

NKHASE: Yes. Yes. Yes.

SMITH: Blessing explains that he's worried about drought. So instead of investing in something he's good at - apples - he's going to diversify into something new, cattle. You see this a lot in poor countries where weather can destroy an entire crop.

SMITH: Chris Udry is an economist at Yale. He spent his career talking to these farmers.

CHRIS UDRY: They do not want to put all of their eggs in one basket. They're going to make sure that if growing conditions are poor for one crop, they've got another crop.

SMITH: So Chris started thinking, what is the real problem here? Is it a lack of money? Or are farmers afraid of the risk - afraid to lose everything? Chris and his fellow Yale Professor, Dean Karlan, came up with a way to test this. They randomly chose a bunch of rural villages in northern Ghana. And some of the farmers got a jackpot.

DEAN KARLAN: We sent them 250 - the equivalent of $250.

SMITH: So that would allow them to figure out if money is really the problem. But what about risk? How do you make rural farmers less afraid of investing in their fields? The researchers had an idea. What if they could offer an insurance policy to farmers? Essentially, say, if it rains too much or too little, we'll help you out. Ghana didn't have any commercial crop insurance. So Chris and Dean realized...

UDRY: If we were going to do this, we were going to have to make the Chris and Dean Insurance Company.

SMITH: You were going to have to start your own insurance company.

UDRY: Well, yeah (laughter).

SMITH: The researchers were going to need a lot of paperwork - statistics on rainfall. And they would have to explain this whole new concept to farmers. They ran ads on the radio.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN: Oh, I cannot hide my feelings. I'm so happy.

UNIDENTIFIED WOMAN: Yes, yes. What's new? I didn't know the company that provide crop insurance.

SMITH: And Chris and Dean hired young researchers to go door to door in Ghana to sell those insurance policies.

LINDSEY SHAUGHNESSY: Hello.

SMITH: It's Lindsey Shaughnessy knocking.

SHAUGHNESSY: I had a lot of charts. I had 30-page scripts with facts and figures.

SMITH: And she got the signatures. The team expected hundreds of farmers to sign up for insurance. But it ended up being thousands. And when they looked at the data, Chris and Dean found the answer to their question. If you just send money to farmers - 250 bucks, remember? - it helps. It helps the farmers plant more crops. But...

UDRY: Amongst the people who we had given nothing other than a promise...

KARLAN: The insurance group.

UDRY: ...The insurance group - they increased the size of their fields. They invested more. They applied more fertilizer. So it was remarkable. They found the money to invest in their farms.

SMITH: Same people who had said they didn't have money.

UDRY: Yeah.

SMITH: Chris says that if you can take some of the risk out of farmers' lives, they'll do what they're good at. They'll grow more food. Robert Smith, NPR News

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