Once the innovation is proven profitable and is locally available, its adoption may still be hampered by constraints facing SHF in accessing liquidity, risk-reducing instruments, information, and markets. These four categories of constraints have been extensively analyzed using in particular randomized control trials to identify their causal relations to adoption . These studies typically seek to identify ways of overcoming these constraints that could be implemented by governments, international organizations, NGOs, and benevolent agents such as philanthropic foundations and corporate social responsibility initiatives.Due to seasonality, especially under rainfed farming conditions which is where most of the lag in modernization currently prevails , there is a lack of correspondence between the timing of agricultural incomes and that of expenditures. As a consequence, the inter-temporal displacement of liquidity through credit and savings appears to be important for farmers to invest in new technologies, purchase inputs, optimize the timing of sales, buy consumption goods, and cover timely expenditures such as school fees. Financial services for SHFs appear to frequently be ill-designed for their purpose, expensive, excessively risky, and not easily available. Even when they have formal land titles, SHF are typically unwilling to put their land at risk as collateral with a commercial bank, thus acting as “risk constrained” . Microfinance products that effectively circumvent the collateral problem by relying on group lending and joint liability tend to be too expensive for the long agricultural cycles and have repayment conditions that are typically ill adapted to the timing of farmers’ capacity to pay . Availability of credit from formal sources, both commercial and non-profit, is consequently limited, weed dry rack and SHFs must either self-finance or rely on informal lenders with prohibitive interest rates. Hence, there would appear to exist a largely unresolved liquidity constraint on adoption originating on the supply side of the financial market. Yet, this is often not the main reason for low adoption which may be on the demand side.

Recent field experiments are providing evaluations of interventions aiming at relaxing the liquidity constraint on SHFs, with fertilizer the most commonly used indicator of technology adoption because of its ubiquitous recognition and yet massive underuse. While contexts and interventions vary for these experiments, they surprisingly tend to show that a liquidity constraint is not the reason why a majority of SHFs are under-investing in fertilizers. The main constraint may be instead lack of profitability in adopting fertilizers.A first category of experiments consists in providing unrestricted access to credit to a defined eligible population, as was done in Morocco , Mali , and Ethiopia . While interest rates in these studies were variously subsidized , uptake remained low: only 17% of eligible farmers took a loan in Morocco, 21% in Mali, and 36% in Ethiopia. Furthermore, farmers that did take a loan only used a small fraction of the liquidity to increase their expenditures on fertilizer or other agricultural inputs . Such credit displaces the equilibrium allocation of liquidity in favor of the targeted inputs, similarly to what a price discount would do. And yet, uptake remained low. In Malawi input credit for high-yielding maize and groundnuts was taken by 33% of the farmers . This low demand for credit thus seems to be reflective of a low demand for the inputs themselves. Low demand for fertilizer is exemplified in two rather extreme experiments. In Mali, Beaman et al. provided to another group of farmers a pure cash grant, rather than the credit described above. This only increased expenditures on fertilizer by 15%, in comparison with 11% with a credit that had to be paid for, showing that credit is not the major constraint to adoption. In Mozambique, a group of progressive and well positioned farmers, with good access to extension services and to input and output markets, were offered vouchers with a 75% discount on fertilizer price, and yet only 28% of the farmers redeemed their vouchers .

There are a few experiments that show the importance of well-tailored credit and savings products to support the adoption of profitable innovations by SHF. Two cases exhibit the importance of accounting for the seasonal distribution of farmer income. In Kenya, One Acre Fund offered harvest-time loan at 10% interest rate with repayment expected 9 months after harvest, collateralized with stored maize. The objective was to allow farmers to avoid selling their harvest at the time of the year where prices are lowest, postponing sale to the period of high prices. 63% of eligible farmers took the loan . A similar savings scheme through group-based grain storage was introduced in Kenya. Fifty eight percent of the farmers took-up the product, and were twice as likely to sell maize on the market . While these financial products contribute to the households’ welfare, and indirectly increase the return to agricultural production, there is no evidence that they induced higher adoption of fertilizer or other modern technologies. These experiments point to the existence of other constraints to fertilizer use. This can be lack of complementary inputs , excessively high risk, or high transaction costs in reaching markets that all make fertilizer use not profitable. These other constraints need to be jointly addressed with credit availability. An example is new financial products such as Risk Contingent Credit–where repayment is insured by an index insurance, where insurance serves as collateral for the loan, and where the insurance premium is paid with loan repayment at the end of the season–that have promise and are under experimentation . Another example is precision farming where soil testing allows to customize fertilizer recommendations to heterogenous local conditions and to design comprehensive technological packages . Conclusion is thus that, in spite of presumptions, credit availability is not the main constraint to fertilizer use for a large majority of SHF in SSA and SA. For them, low fertilizer use is mainly due to low profitability associated with physical, market, and institutional conditions.

Interventions to jointly secure the profitability of fertilizers and the availability of well-designed financial products for their own particular circumstances are necessary for large scale adoption to occur.Smallholder farmers are exposed to many risks that can put their livelihoods and assets in jeopardy and deter investment. Shocks include weather, plagues, prices, and health. As a consequence, SHF engage in shock-coping adjustments after an adverse event has occurred, and in risk-management strategies in anticipation of shocks difficult to cope with. Both responses are costly. Shock-coping includes dis-saving, emergency borrowing, sale of productive assets, emergency migration, use of child labor by taking children out of school, and postponement of consumption expenditures. Some of these responses can have long-term consequences, particularly when they imply decapitalization of assets, including child human capital and health . SHF also engage in risk-management practices. This includes preferring to use low return-low risk traditional technologies, holding large precautionary savings and productive assets that are biased toward liquidity , and engaging in income diversification at an efficiency cost . These costly strategies to deal with risk reduce the resources available for investment and technology adoption. Risk exposure also has a direct consequence on the adoption of technologies in reducing their expected return. Thinking of fertilizer, for example, dry racks for weed the possibly that drought or flood wipes out the harvest and hence the return to fertilizer discourages its application in the first place The obviously missing piece in the panoply of risk management and risk coping instruments used by smallholder farmers is insurance. Agricultural insurance is common in developed countries, although usually heavily subsidized. For SHF in developing countries, the administrative and implementation costs for agricultural insurance that requires verification of losses by an adjust or are too high to make it cost effective. Index insurance, where payments are triggered by a verifiable local index of rainfall or small area average yield has promise . Yet, take up has been very low, typically not exceeding 6 to 18% at market price for multiple reasons including basis risk, lack of trust, liquidity constraints, and limited salience of benefits The question for this paper, however, is whether insurance, when taken, induces farmers to adopt technology. Only a few studies in which the insurance uptake was sufficient permit this analysis. Experimental results for Ghana have shown that farmers that purchased insurance increased their use of chemical inputs by 24% . Mobarak and Rosenzweig offering a insurance service to farmers in India, show that it induced them to replace their use of traditional risk tolerant rice varieties by higher yielding varieties. Cai shows that a weather insurance policy in China induced tobacco farmers to increase their production of this risky but highly profitable crop by 16 percent and their borrowing by 29 percent. These experimental results suggest that if one could improve the design and marketing of the insurance product so that uptake could increase, technology adoption may follow. Promising avenues include products with reduced basis risk , financial training to help farmers better understand the value of insurance , group insurance on the presumption that managers have a better understanding of the product than farmers , and combining index insurance with other risk-reducing instruments, including social assistance for large shocks . Also promising is to reduce risk through resilient technology such as drought and flood tolerant seed varieties. SwarnaSub1, a superior rice technology with flood resilience properties, is appealing to farmers in flood-prone areas of India. Emerick et al. show that adoption of Swarna-Sub1 enhances agricultural productivity by crowding in modern inputs and cultivation practices , and increasing credit demand.

Finally, an innovative financial product introduced by BRAC in Bangladesh is contingent credit lines indexed on events such as flooding . This experiment shows that households given pre-approval to take a loan if they experienced flooding in their local area increased investment in risky production practices as part of their risk-management response. Since offering contingent credit lines has little ex-ante cost, the behavioral effect can be very large.A farmer’s decision to adopt a technology relies on his assessment of its value for himself. Hence beyond being aware of the existence of the technology, the farmer needs fairly complete information on the specificity of the technology, how to use it or adapt it, and how it would perform in his own context. To take some examples, the adoption of a new variety or management practice requires being aware and informed on their characteristics, associated best practices, and benefits. But even the adoption of fertilizers which are broadly familiar to most farmers, requires reliable information on their quality and the very specific quantity and timing of application that depends on local conditions. This learning process is particularly difficult due to the heterogeneity of contexts across farmers and across years . The traditional model of public or private sector extension agents faces multiple limitations. In addition to customization of the advice that should be delivered, the sheer number of smallholder farmers and their geographical dispersion limit what a public or private extension service can possibly achieve. In India, for example, fewer than 6% of the agricultural population reports having ever received information from extension services . In Uganda and Malawi, these numbers are higher but still imply receiving a service less than once a year . Given the multitude of smallholder farmers and the limited number of extension agents, extension services have typically focused their efforts on training “contact farmers” and expecting that these entry points in the farming community will circulate information in their social networks, inducing other farmers to adopt . The idea is to reinforce the process of learning and diffusion of technology from farmers experiencing for themselves to watching others experience the technology . Recent research has attempted to improve on this model by identifying optimum entry point farmers to maximize the subsequent diffusion of information and adoption. The theory of social networks gives useful clues as to which farmers to potentially select as contact farmers based on their position in the network . Other less theoretically based experiments compare the diffusion of the technology through contact farmers selected as “peer” farmers , large farmers, extension officer-designated farmers, community-designated farmers, members of women’s groups, etc. . Results do not converge to a general finding, suggesting that who is a better contact farmer is context specific. To be good entry points, contact farmers also need to be good experimenters, demonstrating the benefits of the new technology. Finding out who those good demonstrators are in not easy.