My last post covered Cash Transfers and explained how they are fantastic tools for development in that they aim to provide as much autonomy to the recipients as possible, and don’t impose one’s own agenda onto the recipients either. The limitation of this method is that it doesn’t utilize financial leverage nor tackle large-scale issues that may be affecting the community as a whole. Giving each family in a community a UCT of $1,000 may significantly increase the production capacity of the community, but what if this community did not have access to clean drinking water? Each individual family may use their money to make transportation to water sources more efficient, but perhaps if the money was instead pooled together to drill a community well or proper plumbing network so water access is available for the whole community.
The next two posts will cover organizations where you can donate small sums of money that pack in a strong punch towards measurable impact without utilizing the debt market.
One Acre Fund: https://oneacrefund.org/
One Acre Fund is a multifaceted organization that aims to increasing harvest yields to farmers in rural African regions. Instead of simply giving money through a form of Cash Transfer, or even using a Microloan to allow farmers to improve production, One Acre Fund is first a supplier that provides seeds and fertilizer on credit to farmers. By first focusing on resources, One Acre Fund lowers one of the main constraints for income generation by not only providing the seeds & fertilizer, but also by delaying the payment of it until harvest.
Just like with keeping children in school, most rural farmers have opposing constraints in that they only have money to buy supplies during the harvest season, but run out of money when the time comes to actually plant seeds or to use fertilizer. But it is these seeds that fuel the next harvest. So by delaying the payment structure, it allows the cost of production to be aligned with the inflow of their sales.
One Acre Fund doesn’t just provide supplies on credit, but rather it operates with a 4-step process: Asset-Based Loans, Delivery, Training, and Market Facilitation.
It’s great that One Acre Fund provides high quality supplies, but in order for that to even be a valid option, the supplies need to actually be available to the farmers in these remote regions. Much of what limits production is that being so far away from the urban markets prohibits the availability of high quality supplies. It’s just like how Amazon has been able to corner the US online shopping experience by removing much of the shipping cost and making the shipping process easier than just going to the store. For One Acre Fund, this convenience factor plays a huge role in reaching these remote markets.
Training & Market Facilitation:
Another limitation of many farmers is the lack of education and training. Since most farmers inherited their occupation, many farmers lack formal education or training in modern farming techniques. Providing fertilizer will be an expensive waste if the farmer is not trained how to appropriately apply the fertilizer to stimulate production yields. This is why local staff not only manage supply distribution but also conducting training classes on best practices. Finally, One Acre Fund works to connect farmers back into the larger market of the urban areas and providing storage services of crops so that maximum efficiency in transporting crops to larger markets that generate higher profits.
Like Give Directly, One Acre Fund conducts rigorous evaluations of its operations to improve measurable positive impact on farmers. They’ve conducted multiple RCTs, where they randomly select farmers in a community that have access to their services and a control group that gets put on a waitlist for the following farming season. They then compare and contrast the supplied farmer to the farmers. While the control study does eventually gain access to their services, it is still a bitter pill to swallow, and so this form of study is sparingly used only in ideal environments. Mostly One Acre Fund is simply tracking the contrast between where the farmers were prior to receiving access to their services and where they end up after using the service. The most common metric they use is “Total Impact”. Impact is the amount of additional profit the farmer has generated, while Total Impact is the average Impact x number of farmers.
One Acre Fund currently operates in 6 countries: Burundi, Kenya, Malawi, Rwanda, Tanzania, Uganda. In 2017, 615,000 farm families were served, and each family received on average of $171 of additional profit from their services, which represented an increase of 65% in income (https://oneacrefund.org/impact/).
One Acre Fund is also one of the largest distributors of solar powered lamps as well. After observing many farmers were still using kerosene lamps that are highly inefficient and unhealthy, One Acre Fund conducted extensive research and concluded that if they provided solar lamps, the cost savings would be $0.50 per week. In 2014 alone, over 65,000 solar lamps were sold (https://oneacrefund.org/documents/342/Randomized_Controlled_Trials_One_Acre_Fund_Solar_Lights.pdf).
Where do you fit in all of this? Well while One Acre Fund provides a service that isn’t free, this service is priced below a self-sustaining level for the organization. One Acre Fund’s main objectives is to maximize harvest yields and farmer profitability, and being able to charge for the service helps One Acre Fund to reach more farmer than simply handing it out, but in order to maximize the farmer profits they have to sell below market price.
They still depend on donations to function, but they approach donations as means of financial leverage, rather than as fundraising objective. One Acre Fund operates with a 4:1 ratio of revenue to donations. Meaning that for every $1 donated, they can project $4 in overall increased revenue. Or in other words, 75% of their funding comes from the financed services to farmers, and 25% comes from donors.
This 4:1 ratio is also found in the impact their services provide to farmers. For every dollar that a farmer pays to One Acre Fund, they aim to produce $4 in additional profit for the farmer from the increased harvest yield and access to markets.
It is important to state where these claims come from, because claims of explicit impact should not be taken for granted; there needs to be a valid rationale so that we don’t leave room for greenwashing. How One Acre Fund determines the value of impact is by using the metric “Social Return on Investment.” It takes the total impact of a given project (the total additional profit generated by the farmers) and divides it by the amount of donor funds were used. Thus, if One Acre Fund spent $1 million on 100,000 farmers, and it the expanded harvest yield netted $40 of additional profit per farmer, then the Total Impact was $4 million (100,000 x 40). Then when you divide that impact by the investment amount, we get a Social Return of $4 per $1 spent.
So what does all this mean to you? Well it means that the money you contribute to One Acre Fund is not used in traditional a nonprofit sense of funding the operating budget, but it’s more like a subsidy to reduce the price onto farmers. You are essentially passing along profits to farmers through the means of subsidizing farming supplies, and every $1 you donate produces $4 in value to a farmer.
On average it takes $33 of donations to expand operations to an additional farmer, and thus your $33 donation would provide the human impact of assisting one family, and would have a financial impact of $132 overall.
One Acre Fund provides you as the donor the opportunity to subsidize a comprehensive service that meets farmers where they are at, and guide them towards more sustainable practices and to more profit. This method sits between the micro loan & cash transfer models, where you aren’t directly lending, but are helping fund a valuable service. My next post will cover the impact sight has, and how subsidization can help unlock increased productivity through corrective lenses that are provided at an affordable price.