REDUCING THE VULNERABILITY OF SMALLHOLDER FARMERS TO CLIMATE CHANGE THROUGH RURAL CREDIT PROGRAMS. A CASE STUDY FROM BRAZIL

The Intergovernmental Panel on Climate Change (IPCC) confidently predicted rural areas will experience major impacts from diminished water availability, food security, infrastructure and agricultural incomes, causing shifts in crop production worldwide (2014). Latin America will be significantly affected, since more than 90 percent of the regions is vulnerable to projected changes in droughts and floods (World Bank, 2014). Extreme weather events due to climate change entail risk for large- and small-scale farmers alike, but smallholders will always be more vulnerable. This paper considers how smallholder farmers in Brazil—focusing on those in the poor Northeast region—are affected by, and respond to, climate change. Brazilian smallholder farmers represent the overwhelming majority of agricultural establishments in Brazil and, in aggregate, their production exceeds the output of large-scale farmers. They average larger yields per hectare because they make more intensive use of inputs and physical capital (World Bank, 2013). The majority of family farmers, especially in the North and Northeast, are below the poverty line, and their household income is derived mainly from agriculture. Improving resilience and raising agriculture yields is important and the efficient use of land is critical for achieving Brazil’s economic and environmental goals; however, it is not sufficient. There is a need to combine social policies (safety nets) with agriculture technology adoption, improved market access, tailored technical assistance and off-farm income generating opportunities supported by education/vocational training. The Brazilian Government has committed itself to lifting 16 million people out of poverty. Programs such as the National Program for Strengthening Family Farming (PRONAF) represent key elements to the strategy. 2 billion Brazilian Reais (approx. 650 million US dollars), were assigned to fund the program in 2002, reaching over R $ 8 billion (approx. 3 billion US dollars) by 2007 (Dieese, 2008). If well applied, credit lines available through federal programs like PRONAF are powerful tools to allow farmers to adapt to climate change. However, distribution and application of funds to the poorest remains problematic. Risks of the strategy include debt or inadequate allocation of resources, which may increase socioeconomic vulnerability rather than reducing it. PRONAF is an emblematic case of the challenges and potential benefits of microcredit programs. It provides funding for smallholder farmers or associations of smallholder farmers. Investment in their access to basic goods and services allows local adaptation to climate change. However, the program has benefited well-organized individual farmers and associations in the south of Brazil out of proportion to their northeastern neighbors. Moreover, to qualify for the program, farmers must hold formal title to their land, a requirement that renders the poorest among them ineligible. Fund distribution has also failed to include the training and educational components needed to ensure that farmers make the most productive use of resources. Spending on these programs has reduced poverty in the short-term but it is not clear that the effect will be sustained. In 2009, the National Institute of Applied Economics Research (IPEA) launched an assessment about the Socioeconomic Vulnerability of Brazilian smallholder family farmers due to Climate Change. This assessment analyzed the vulnerability of smallholder farmers within all five macro regions of Brazil. Additionally, the study emphasized the importance of having climate change adaptation tools embedded in public policies to be able to avoid the impact of extreme weather events on the poor. IPEA analyzed PRONAF performance in each region. Surprisingly, even though the majority of smallholder farmers are in Northeast, only 25% in the region were able to become beneficiaries of the PRONAF resources owing to the tight eligibility requirements. On the other hand, in the South region, which has a lower concentration of smallholder farmers, 38% of this group received funding from PRONAF. According to the report, three factors contributed extensively to such results: legal rights to the land; education; and effective rural associations. This paper demonstrates that smallholder farmers from different regions of the world also struggles with such issues. Such similarity is shown through the examples of Mexico, Sri Lanka and Kenya. Throughout this study PRONAF impacts are assessed through a literature review of several impact evaluation analyses done over the first 15 years of implementation of the project. After presenting the main challenges posed by climate change extreme weather events in the agriculture sector, specifically targeting smallholder farmers, this paper focus on understanding the PRONAF program logic and its background. Once the background and logic is set it, this paper evaluates the impact of PRONAF in several areas such as sustainability, improvement to access to markets, and diversification. This paper concludes by pointing out that PRONAF still has a lot of improvements ahead in order to deliver the proper type of support to smallholder farmers. This study provides recommendations so the program can best impact the livelihoods of the poorest farmers who are concentrated mostly in the Northeast region of the country.