Harvest Pre-Payments
Definition
Pre-harvest payments is a procurement practice where a buyer disburses an agreed portion of the expected harvest value to smallholder farmers before harvesting. The pre-financed amount, to be agreed upon in advance by both parties, can be a percentage, fixed sum, or the full expected value. This payment provides farmers with essential cash flow for timely investments in labor, equipment and tools for harvesting, supporting better crop cycles and financial planning.
Lead Actors
Farmer Organisation; Off-taker
Target Demographics
Farmer Organisations; Farmers
Objectives addressed
Farmer related
Increase farmer income:
Harvest pre-payments can increase incomes by enabling farmers' ability to timely investment in labor, tools, and equipment needed for optimal harvesting, reducing potential post-harvest losses and improving crop quality, which in turns leads to higher income.
Boost access to finance:
Harvest Pre-Payments provide farmers with early access to finance when they need to invest in their farms, at a time when they are usually most cash-strapped.
Strengthen income stability:
Harvest Pre-Payments can strengthen farmers' financial stability by aiding in planning for investments and covering part/all of their operational expenses.
Business related
Reduce side-selling:
Harvests Pre-Payments (especially when embedded in contracts) can reduce side-selling by committing the farmer to sell a certain volume to the offtaker who provided the pre-payment. Simultaneously the pre-financing fosters improved collaboration and trust.
Contexts Best Suited to
Adequate farmer data access or FMIS: for payment monitoring.
Adequate infrastructure: to collect harvested production.
Adequate infrastructure: to collect harvested production.
Key Risks
Cashflow & performance instability: Unforeseen events can affect volume and/or quality of the final harvest, while price volatility can affect the total value of the final harvest. Both could lead to default by the farmer.
Environmental Impact
Limited:
Link with environment relatively minimal.
Ambition level
Low
Time
Main time needed is for explaining the concept to farmers to begin, to calculate the pre-financed amount and disburse payments; Details on payment structure and amount can be built into contracts to facilitate communication to farmer on concept, reducing time needed.
Investment Need
Main costs incurred would be due to collection of information on farmer production levels, the determination of pre-financed amount and set-up and signing of the agreement/contract. This requires dedicated staff time.
