The retailer is not exposed to the harvest. They are exposed to the other three shops.
An input retailer sells fertiliser and seed on credit, settled after harvest four months later. This is how most smallholder farming here is financed, on local knowledge and a notebook.
The risk is that the same farmer took credit from three other shops for the same season.
Nobody can see that, so every retailer prices for it, and the farmers who borrow from one shop subsidise the ones who do not.
One planting season, four shops, one farmer
-
Oct
Planting
Fertiliser and seed taken on credit from the shop nearest the field. Written in a notebook, no copy given.
-
Nov
Top dressing
A second shop, in the next village, supplies urea. They do not know about October and have no way to ask.
-
Dec
Pest pressure
Pesticide from a third shop, because the first two have stopped extending. Neither of them told the third why.
-
Jan
Quiet
Nothing is bought. Nothing is repaid. Four shops are each carrying a position they believe to be the only one.
-
Feb
Harvest
The crop comes in below expectation, as it does perhaps one year in four. There is enough to settle roughly half of what is owed.
-
Mar
Settlement
The farmer pays the shop they most need next season. The other three learn about each other for the first time, in the worst possible way.
The farmer was not concealing anything. Each shop asked, each was told the truth about that shop's own dealings, and nobody could see the total.
If you sell inputs on credit, or buy them that way.
What helps is how it works where you are: what you extend, and what you have lost.