Blog: Linking export markets to small African farmers

The creation of export opportunities for farmers in developing countries is generally seen as a promising instrument to increase the income of the rural poor. Some call this a need for frugal innovation while others may refer to a need for market or process innovation. In practice a diverse set of policy interventions of governments and NGOs focuses on inclusion of the poor. This is certainly a legitimate and appealing goal. However, successful inclusion also requires proper selection: only those who can and are committed to create the necessary strategic resources and capabilities for the targeted opportunity should be involved.

 In our research we highlight Farmers Market Organizations (FMOs) as an organizational option for smallholders to improve their competitiveness in export supply chains. FMOs are cooperative organizations that support the income generating activities of their members. In competitive supply chains these organizations may help farmers to create access to strategic resources that allow them to appropriate a fair share of the value created. Key features of these resources are that they are valuable and difficult to copy. Acknowledging that smallholders are severely resource constrained, FMOs may play a crucial role in the creation of these strategic resources. Moreover, in most countries these FMOs are operating in weak institutional environments (widespread corruption, market failures, no access to formal bank loans, etc.). This environment can be seen as a disadvantage, however, this also implies that there is room for FMOs to create collective organizational resources that address these problems.

An example may help to explain the argument. Recently we visited several FMOs active in sesame production in Ethiopia. The world market for sesame is attractive thanks to a growing demand in Asia. For individual smallholders getting access to those markets is a major challenge. However, organized farmers in cooperatives may make an important difference. Access to formal bank loans may be facilitated through the cooperative and access to new production techniques and mechanization services are more easily arranged. We even observed that local groups were able to challenge inconsistent regulations imposed by domestic market authorities. Yet, this only works if the cooperative is well organized. In practice this appears a major challenge as most of the cooperatives in Ethiopia are stagnant and face major organizational problems. However, some are dynamic and create entrepreneurial activities. In particular their organizational resources appear to have unique strategic value and explain why their performance is superior.

 The creation of strategic resources generally requires targeted investments by committed members. Commitment that is expressed through a willingness to sell to the FMO, a willingness to invest financial resources in the FMO and a willingness to participate in the management of the FMO. Crucial conditions for this are clearly specified targets (market opportunities), proper selection of members and well-defined property rights for those who invest. We observed that many FMOs in Ethiopia fail to fulfill these conditions and, encouraged by their local governments, operate as if they are community oriented cooperatives that should provide services to all the villagers. The drawback is that most villagers are not committed to invest in the organization of these services as they are available to all, even to those who behave opportunistically and do not invest.

In most market environments FMOs compete with private traders and, therefore, have to be competitive and entrepreneurial. New business models and new business relationships are needed. Experiences all over Africa show that there is room for cooperatives in these markets. Collective action can be a useful strategy to create access to new markets and to develop strategic resources, but only if a committed member base exists. This requires proper targeting, appropriate selection mechanisms to screen members and well-defined property rights to avoid free riding threats.

Want to know more? Don’t hesitate to contact the author of this post:

Clemens Lutz (c.h.m.lutz@rug.nl)

Clemens Lutz (2015), Community-oriented versus market-oriented cooperative organizations in developing countries: is open membership an indicator for success or failure? In John B. Davis and Wilfred Dolfsma (eds), The Elgar Companion to Social Economics,  pp. 409-423, Edward Elgar

Clemens Lutz, Getaw Tadesse (2017). “African Farmers Market Organizations and Global Value Chains: Competitiveness versus Inclusiveness”. Review of Social Economy, Vol 75 (3), 318-339

Steffen Eriksen, Clemens Lutz and Getaw Tadesse (2017). “A list experiment revealing support for farmers’ market organizations in Ethiopia” Journal of Development Studies, Doi: 10.1080/00220388.2017.1299138