What business models lead to production aggregation, and help the linking of farmers to remunerative markets?
This short report addresses two questions asked in a Helpdesk request of February 2016, as follows:
What business models, contractual arrangements or other forms of support lead to production aggregation, and facilitate the linking of farmers to remunerative markets in developing countries? This might include cooperatives, contract farming or other forms of support to agribusinesses; and, What evidence is there that these business models and arrangements deliver (a) improved access to markets? and (b) higher incomes?
Aggregation, the first step in marketing, is the focus of this enquiry. Relatively small-scale supplies from individual farms need bulking into lots that can readily and economically be transported, sorted, processed, and stored by processors, wholesalers, exporters and retailers (‘main buyers’). Aggregation takes place by many and various means, although two important dimensions can be picked out: whether deals take place on the spot or whether they are deferred in time, subject to a promise or contract; and whether farmers sell their surpluses individually or collectively. This gives potentially four archetypes for aggregation, although contracting usually takes similar forms whether the contract is with an individual or group, then three forms stand out: spot market deals by individual farmers; collective sales through producer organisations; and contracting by main buyers of farmers either as individuals or in groups.
Agricultural marketing chains have seen significant changes since the early 1990s, as public marketing boards and state intervention in general have retreated; while in the private sector the rise of the supermarket chains, in some cases with multinational capital and know-how, has led to more vertically-coordinated supply chains with more contracting.
This report focuses on collective marketing and contracting, because potentially these promise to aggregate produce more effectively, efficiently and with greater returns to farmers than individual spot deals. That is why when policy-makers seek to improve aggregation they usually look to establish, or support, some form of collective marketing or contracting.
This report has been produced by Overseas Development Institute for Evidence on Demand with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by DAI (which incorporates HTSPE Limited) and IMC Worldwide Limited.
Wiggins, S.; Compton, J. Factors leading to agricultural production aggregation and facilitation of the linkage of farmers to remunerative markets. Evidence on Demand, UK (2016) vii + 65 pp. [DOI: http://dx.doi.org/10.12774/eod_hd.april2016.wigginsetal]