Shouldn’t An Increase In Profits For Smallholder Farmers Lead To Increased Household Incomes?

It seems logical that if a smallholder farmer experiences an increase in his/her profits, this would translate to an increase in his/her household income. Unfortunately, there is little evidence to support this assumption. This puzzling dichotomy came to light at a recent MPEP seminar on smallholders and inclusive growth in agricultural market systems where Dr. Elizabeth Dunn, research economist and President of Impact LLC, shared findings from a recently published FIELD Report that looked at smallholder participation in agricultural value chains.

The report, developed with the support of the FHI 360-led FIELD-Support LWA, investigated inclusive growth in agricultural value chains with a focus on smallholder participation, upgrading behavior, and outcomes related to agricultural productivity, agricultural profits, and smallholder incomes. In the report, Dr. Dunn reviewed empirical evidence from 12 agricultural value chains that engaged and benefited smallholders. The evidence reviewed in the report indicates that smallholders can play a significant role in competitive value chains, so long as they have the necessary capabilities, opportunities, and information needed to make an informed decision about upgrading.

Additionally, the report revealed an interesting finding related to smallholder benefits. It showed that in about half of the cases studied, smallholders experienced an increase in profits, but there was little to no evidence showing an increase in household incomes. This finding was the topic of much discussion during the Q&A session following Dr. Dunn's presentation. Many participants, myself included, wanted to understand what factors might have contributed to the lack of increase in household incomes in situations where smallholder profits clearly increased. One possible factor, offered by Dr. Dunn, was that there are underlying problems with current evaluation methods: evaluation designs are not flexible enough to keep track of the dynamic nature of these types of programs and evaluation horizons are too short in length. It stands to reason that one would not see an increase in household incomes at the immediate end of a project, which is when these types of evaluations are typically done. It often takes much longer for these kinds of results to manifest at the household level.

The FIELD report and Dr. Dunn's presentation are important contributions to the thinking on inclusive market development and smallholder participation in value chains, showing that smallholders can play a significant role in competitive value chains. Find out more about the report's key findings by downloading the screencast, the report or other materials from the event resources page.