Source: https://www.atai-research.org/project/short-term-labor-contracts-transaction-costs-and-credit-constraints-a-pilot-investigation-in-zambia/
Timestamp: 2019-04-26 13:50:26+00:00

Document:
Many farming households turn to casual work to make ends meet between harvests, reducing the amount of time they can invest in increasing their farms’ productivity. In ongoing work in Zambia, researchers are testing how receiving cash or food loans during the lean season affects labor supply and agricultural productivity. In a completed pilot, food loans increased food consumption during the lean season, reduced the portion of households engaging in casual work, and increased wages.
Many farming households turn to casual day labor, typically on other farms, to make ends meet between harvests, which often means that farmers do not have time to invest in their own land. If farmers neglect on-farm activities that are important for production, such as weeding or application of fertilizer, then casual work can result in lower yields on farmers’ own fields. With a poor harvest, families are less able to set aside resources to last through the next season, increasing their reliance on casual work. Providing credit, either in the form of food or in cash, could allow farmers to spend more time on their farms. Farmers would no longer turn to casual labor to feed their families between harvests, and they would therefore be able to spend additional time applying fertilizer, weeding, or harvesting the crop, which could increase yields. In the long run, this gain in productivity might increase incomes by more than farmers could earn through casual labor. Although existing research looks at the impact of agricultural loans on crop productivity, this is one of the first studies to look at the impact of credit on how farmers allocate labor.
Small-scale farming is the primary source of income in rural Zambia, and 72 percent of the work force is employed in agriculture. Most farmers are poor, and in Chipata District, where this evaluation takes place, the average income is less than US$500 per year for a household of six people. Sixty-three percent of households in rural Chipata are classified as “very poor” and almost all households lack electricity and piped water.
Zambia’ s long dry season allows for only one harvest per year, which means that the harvest must generate income to last the entire year. Payments for input loans and other debts are often due at the time of the harvest, exacerbating the difficulty of setting aside resources for the next year. As a result, many households turn to casual day labor during the lean season (January to March) to cope with short-term financial needs. In the study sample, 60 percent of young men reported engaging in casual labor during the previous season.
Researchers are testing the effects of food and cash loans on labor supply and agricultural productivity. They have completed a preliminary, pilot study to establish the relationship between food shortages and labor supply. A larger study is ongoing.
Pilot study: Researchers tested the effect of food loans on farming households’ food consumption, casual labor supply, and wages. The loan program offered households one 25-kilogram of ground maize flour per month during the lean season (January to March). Farmers were expected to repay the loan at harvest (in June) with three 50-kilogram bags of unground maize. Each bag of ground maize was worth about 45 Zambian kwacha (US$9) and each bag of unground maize was worth 50-65 kwacha (US$10-13), resulting in an interest rate of 11-44 percent over the loan period.
Researchers evaluated the loan program in 40 rural villages, each within a day’ s drive of Chipata town and with 15-25 small-scale farmers. In 10 villages, all eligible households (those with 1-5 hectares of land) were offered the loan (“full treatment villages”). In 20 villages, households that expressed interest in the loan entered a lottery, through which half were selected for the loan program (“partial treatment villages”). Ten additional villages served as the comparison group and did not receive loans.
Households that took up the loan could pick up the maize flour at one of ten distribution centers in January, February, and March. To repay the loan, households brought maize for repayment to a central point in each village in June.
Full study: Over the next two planting seasons, researchers will compare the in-kind maize loans with cash loans and test the impact on farmers’ labor allocation and crop yields. As in the pilot study, loans will be disbursed in January and repayment will be due in June. Regardless of loan type, borrowers will be able to repay with either maize or cash. In order to measure how the effect of receiving loans persists over time, some villages will not receive loans during the second year of the full study.
Pilot study: There was high take-up of the loans, and villages where loans were offered saw an increase in food consumption, a decline in the number of households engaging in casual day labor, and an increase in wages for those who did engage in casual labor. The impacts were larger in villages where all eligible households could take out a loan.
Take-up and repayment: In full treatment villages, 90 out of 104 eligible households (87 percent) took out a loan. In partial treatment villages, all 104 households that were offered the loan program took out a loan. Ninety-eight percent of borrowers in full treatment villages and 95 percent in partial treatment villages repaid their loans in full.
Food consumption: In full treatment villages, the probability of missing a meal in the previous week was 16.5 percentage points lower than in comparison villages, where 36 percent reported that a family member had to miss a meal. In addition, the number of meals eaten in the previous 24 hours increased by 0.2, from a base of 1.7 meals in comparison villages. The loans had no significant effect on the probability of missing a meal or the number of meals eaten in partial treatment villages.
Labor supply and wages: The share of households working in casual labor declined in both full and partial treatment villages. In comparison villages, 60 percent of households engaged in casual labor during the agricultural season, but this figure was 9 and 8 percentage points lower in full and partial treatment villages, respectively. Wages also increased in villages where lean season casual labor fell.
Full study: The study is ongoing. Results are forthcoming.

References: in casu
in casu
in casu
in casu
in casu
in casu