Background
Sharecropping offers advantages to farmers: they need not make upfront payment for land rental at the beginning of the season (when their liquidity tends to be low) and they share the risk of crop failure with the landlord.
However, sharecropping presents farmers with reduced incentive to invest in their crops, reducing agricultural productivity.
This Resilience+ project offers financial tools to help farmers transition to and thrive in fixed rent arrangements—boosting their income and productivity while managing their risk.
Project Overview
Principal Investigators:
Solomon Zena Walelign, Ethiopian Policy Studies Institute
Michael Carter, UC Davis
Project Partners:
Abay Bank
BFA Global
Nyala Insurance Company
Sarota Wolaita Saving and Credit Cooperative Union
NASA Harvest
Country: Ethiopia
Timeline: 2025-2027
Project Summary
When farmers rent land to farm in Ethiopia, a sharecropping arrangement is almost always used. Under this rental structure, half of the crop revenue goes to the land owner as payment. Because farmers share the rewards of investment under sharecropping, they tend to put less in—from their own labor to inputs like fertilizer—than they would on land they own. As a result, land under sharecropping has lower average yields.
The Tenancy Reform Risk Management Project (TRRM) offers an interlinked credit-insurance contract to help fifarmers thrive in a fixed rent arrangement. Recent innovations open the door to an interlinked credit-insurance contract that:
- provides tenant farmers up-front filoans to cover payment of a fixed, upfront cash rent, and
- provides an insurance contract that pays off the lender in the case of bad agricultural conditions and also provides small payments to the tenant so that she earns at least as much in bad conditions as she would have earned as a sharecropper.
Landlords should be made no worse fioff as they will receive a fixed rent payment rather than a risky share rent. Indeed, if the innovation increases the demand for land, some further fibenefits may be passed to landlords in the form of higher rents.
Interlinking index insurance with a fixed rent loan has two goals. The first is to reduce risk for lenders with the goal of increasing the supply of credit for tenants. The second is to make sure that fixed rent tenants are no worse off in bad states of the world than they would otherwise under a share contract.
This project is using a randomized controlled trial (RCT) to observe project impacts. The study includes 88 kebeles, which includes 44 treatment and 44 control kebeles.