Monday
August 3
2015

Tarini Mohan

NexThought Monday – Power in Numbers: How organizing, even informally, benefits smallholder farmers

(Editor’s note: Rod Dubitsky, Md. A. Saleque and Abdul Mazid also contributed to this blog.)

“There is a power that can be created out of pent-up indignation, courage, and the inspiration of a common cause, and that if enough people put their minds and bodies into that cause, they can win. It is a phenomenon recorded again and again in the history of popular movements against injustice all over the world.”

–Howard Zinn, “You Can’t Be Neutral on a Moving Train: A Personal History of Our Times”

In developing countries, the market for agricultural products is transitioning from wet markets to supermarkets. Slowly fading is the day of the mustachioed man, sitting under the blazing sun waiting for customers to approach him, bargaining skills in tow. In these new conditions, the International Fund for Agricultural Development (IFAD) notes that smallholder farmers face increasing hurdles and dwindling profit margins from having to compete with large-scale farmers who have the ability to supply supermarkets. Supermarkets rely on wholesalers, who in turn favor procuring produce from large-scale farmers, as they tend to be more responsive to the needs of wholesalers in assuring the quality, consistency and safety requirements of the supermarkets.

The injustice refered to in the quote above relates to markets not addressing the needs of the poor – in this case, smallholder farmers’ access to quality, affordable inputs (seeds, fertilizers, pesticides, etc.), outputs (fruits and vegetables) and organized, competitive markets. This is where farmers’ organizations (FOs) come in, as they provide farmers with market access and a host of additional benefits. As defined by the Food and Agriculture Organization (FAO) of the United Nations, farmers’ organizations are a formal or informal “membership-based collective action institution serving its members, who are rural dwellers that get part or their entire livelihood from agriculture.”

The Benefits of Organizing

Smallholder farmers face numerous challenges in supplying produce of high quality on a consistent basis, as they don’t always have the resources to produce a healthy harvest. If they do not know whether they will be able to procure the fertilizer that is so necessary for a healthy harvest, they cannot assure the supermarket that they will be able to deliver. And the doubt doesn’t only exist about inputs; smallholder farmers often cannot guarantee timely transport for their produce from rural areas to the market. Produce that is lying in a truck for an extended period of time cannot be thought of as “quality produce.” As a result of these limitations, even traditional retailers will orient their procurement strategy away from smallholders in an effort to compete with the supermarkets.

Supermarkets also face stiff competition, but from one another. Hence, they are not able to take risks that come with depending on unreliable and inadequate smallholders. Supermarkets also try to keep transaction as well as product costs as low as possible, putting the small-scale farmers at a considerable disadvantage.

For smallholder farmers to remain competitive they will have to join forces with other smallholders, and the external community will need to assist them by encouraging and enabling the formation of FOs.

FOs aim to better the livelihoods of their members and provide the smallholders with access to information and markets, inputs and advice. They also aim to ensure extension through what is known as the “forum approach” (sub-groups of around five members) and advocacy through collective action. This leads to the smallholders’ successful participation in markets as well as access to finance, even for those who have been unjustly denied. FOs also facilitate collective production and provide a variety of services – financial, marketing, technology, education and welfare.

FOs are absolutely integral to the development of the agriculture sector of all developing countries, especially sub-Saharan Africa, where smallholders provide 90 percent of the region’s produce. In fact, we believe with conviction that absent effective farmers’ organizations, empowering and uplifting the hundreds of millions of smallholder farmers becomes an unrealizable dream.

FOs do not necessarily have to be formalized in order to help farmers pool their resources or exchange successful ideas, or to serve as a gateway to development organizations working to help smallholders market their produce as a group. Likewise, FOs do not need to be formalized for members to band together to increase their bargaining power, lower their production costs, reduce per-unit transaction costs, etc.

In fact, the poorest farmers have considerable disincentive from participating in formal FOs. While the formal FOs themselves are inclusive, they tend to be located in the more prosperous villages that have better marketing opportunities. Besides, the benefits that the poorest farmers derive from formalized or registered FOs are often too low to merit their participation, as these FOs have a membership fee, which the poorest farmers do not have the resources to pay.

BRAC’s Approach

BRAC, a non-governmental organization, deals with farmers who have very low levels of production and who usually produce only the staple crops of their country. FOs in staple crops confront challenges that may not exist in cash crops. For example, it’s more difficult to organize farmers in staple crops than in cash crops, since the farmers need the staple crops for self-sustenance and the percentage of crops marketed is generally quite small.

BRAC operates agriculture value chain programs in five countries outside of Bangladesh (where the organization is based), including Uganda, Tanzania, South Sudan, Sierra Leone and Liberia. In Tanzania, BRAC is executing the Livelihoods Enhancement through Agricultural Development (LEAD) program, with the ultimate objective of increasing farmers’ incomes. It conducts a range of activities, including forming informal groups for the farmers to collectively market their produce. Additionally, as discussed below, BRAC helps FOs set up contractual agreements with the buyers of the produce, whether it is wholesalers or supermarkets.

BRAC’s intention in forming FOs is to boost production volume, increase farmers’ bargaining power and improve farmers’ forward market linkages to local, regional and national buyers, market actors and millers. These groups are also subsequently linked to agricultural input suppliers such as agrovets (where farmers can buy agricultural and veterinary products) and agrodealers for improved access to quality inputs and backward market linkages. BRAC is further considering encouraging the farmers themselves to grade the produce collected into good/better/best, giving them greater confidence in the quality, price and fairness of the transaction.

In its second year of operation, LEAD has formed 2,877 FOs for maize and 2,150 FOs for poultry, and also trains smallholders in modern agriculture practices.

The Impact of Collective Action

In a recent impact study conducted in Tanzania on its Global Poverty Action Fund (GPAF) project, BRAC found that increasing the production capacity of different crops for farmers resulted in increased household food security, with the majority of the households able to meet their food consumption demands. Home-produced cereal consumption increased by 40 percent while meat/egg consumption and milk consumption increased by 40 percent and 63 percent, respectively, according to a study yet to be published.

It is risky for smallholders acting independently to sell directly to supermarkets, but farmers’ organizations/cooperatives can help form contractual arrangements or just linkages between members and buyers and middlemen to ensure the smallholders sell their produce at fair prices. As the World Food Program (WFP) notes, “by selling as a group through farmers’ organizations, smallholders can better access formal markets, negotiating better prices from buyers, gaining more favorable discounts through bulk purchases of inputs, and benefiting from lowered interest rates on agricultural loans.” FOs provide members with the information they need to market their produce effectively, and offer produce in bulk quantities so members benefit from lower transportation costs as well as increased bargaining power.

Through collective action, FOs are also able to provide supermarkets/wholesalers with the required number of fruits and/or vegetables. That means that the market for the produce that smallholders have grown and harvested is pre-established. Not having to put long and tedious thought into where the money for their families’ next meal will appear from is a much-needed relief to smallholder farmers.

In addition to collective selling, FOs can help smallholder farmers through collective buying and bulking of critical inputs such as seeds and fertilizer. Rather than farmers buying the 2-kilogram bag of fertilizer, the FO will enable farmers to take advantage of the cheaper 10-kilogram bag.

The farming household’s gains from participating in the FO can be measured as the per unit gain in transaction costs and market price obtained through aggregating the inputs/produce multiplied by the household’s production. Tanguy Bernard et al (2010) concludes that “for very low levels of production, even though the per-unit transaction cost gains will be high, the overall benefits will be low because of the small quantity to be commercialized, so that the overall benefit may not be sufficient to outweigh the costs of participating in the organization.” However, without more randomized controlled trials that display a similar outcome, we cannot take Tanguy Bernard et al’s conclusion as the final word about the need for farmers’ organizations. Our opinion is that if the FO operates informally and does not ask the smallholders to part with their precious few resources, unless they are amenable to it, everyone involved wins.

Once the LEAD project is completed in 2017 and the farmers are trained to increase their negotiating power, BRAC could make them aware of the process to formalize their farmers’ organization and link them to market actors. The process of registering takes considerable time and is often quite slow, depending on the viability of the group. However, formalization is important for the farmers to continue receiving credit. Moreover, according to IFAD, “although time consuming, moving from unregistered or registered groups to more formal organizations is essential to secure long-term viability.”

This may be true, but after all, it should be the decision of the producers themselves, as it requires both time and resources. The goal of the project is to empower the producers to make the best decision for themselves.

Tarini Mohan is program advisor at BRAC USA.

Categories
Agriculture, Entrepreneurship
Tags
business development, entrepreneurship, farmers, inclusive business, NexThought Monday, pricing, small and medium enterprises