Farmer Value Creation vs Target Group
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Strength of Relationship 3/5
- Strong relationship between driver and outcome variables
- Results are largely consistent across analytical models used
- Several limitations regarding sample or indicator
Key Messages
The organization of farmers into groups has long been touted as a scalable pathway to reducing the cost of working with smallholder farmers; as well as for improving outcomes for smallholder farmers. However, when it comes to the
Target group as a symptom of context. More intimate and customized business models.
However, working with individual farmers is often a very costly and a non-scalable approach – we discuss this further in our analysis of Service Delivery Cost and Target Group. Therefore, working with farmer organizations is the norm in the majority of contexts. In such contexts, we find that it is beneficial for a farmer to be part of a farmer organization, where they can benefit from:
Better access to services and markets. Improved bargaining power. Improved decision-making control for women and youth.
Therefore, while business models working with unorganized farmers may create more value on average, in many contexts it pays for farmers to be part of a farmer organization.
Keep reading to find out more.
Understanding how target group relates to value creation
It is widely believed that being a member of a farmer organization is generally beneficial for a farmer’s income. The analytical approach that we’ve taken does not directly test this hypothesis, but rather, assesses whether businesses that mainly engage with unorganized farmers create more value at farm-level compared to those working with formal or informal farmer groups. Our analyses show that businesses engaging with unorganized farmers are associated with creating approximately twice as much value on average as those working with formal or informal farmer groups.
That said, there is broad distribution of farmer value created across business models, particularly those working with unorganized farmer groups. Nonetheless, higher farmer value creation for business models working with unorganized farmers does hold when we use our more rigorous
Further investigation into the data suggests there is a degree of nuance behind these results. For this reason, we have triangulated the results with a variation of the farmer value creation indicator, by looking at
Combining the two results, we can see that:
- Businesses working with unorganized farmers are associated with the highest absolute value creation and relatively high proportional value creation
- Businesses working with formal farmer groups are associated with considerably lower than average value creation, but the highest proportional increases in income
- Businesses working with informal farmer groups tend to underperform in value creation, both on a dollar-value and proportional basis
Ultimately, we see a very nuanced story here. When triangulating our quantitative results with external literature and our own qualitative insights, we find further complexities. In the analysis further below, we dive deeper into the nuances behind the data.
Link to other outcomes
When viewing the relationship between target group and the other two outcomes analyzed in the Hub, we find that:
- For
Service Delivery Cost per Farmer , the cost of service delivery is significantly lower when working with farmer groups, regardless of whether they are informal or formal. Click here for more details - For
Direct Cost Recovery from Services , our data shows a weak relationship with target group. Direct cost recovery is highest for business models engaging with formal farmer groups, but the differences are small. Click here for more details
In the following sections we investigate possible explanations further, including the nuances behind these results, as well as their implications.
Diving deeper: what do we think explains these results
The data paints a somewhat complicated picture – there’s no shying away from that. At a first glance, it appears that models working with unorganized farmers create significantly more value per farmer on average, compared to those working with farmer groups – a result supported by our more rigorous machine learning results. However, we also see that models engaging with unorganized farmers have a similar relative impact on income as those engaging with formal farmer groups. This is the case when looking at proportional income uplift. Diving deeper into our quantitative and qualitative data highlights two compelling reasons explaining these trends:
Target group as a symptom of context – Business models engaging with unorganized farmers tend to serve farmers that are either already better-off, have larger land holdings or are producing high value crops. Such farmers often also see high value creation on an absolute basis. On the other hand, farmers engaged in business models that target formal farmer groups tend to have lower starting income – these farmers consequently have low absolute value creation but high relative value creationMore intimate and customized business models – Our data highlights that businesses typically adopt more customized and intimate business models when working with unorganized farmers – contributing to higher farmer value creation, but with trade-offs in terms of a high cost to serve
Given that (i) context often dictates whether farmer groups are prominent and (ii) working with unorganized farmers is often too expensive and not scalable for many businesses, most businesses target farmer groups in their business models. Thus, a logical follow-up question is whether farmers are better off as part of a farmer organization in such contexts where farmer organizations are the norm. We believe the answer is generally yes, for three main reasons:
Better access to services and markets – In many value chains, businesses will often only engage with smallholder farmers if they are organized into groups. In such value chains, being part of a group improves, or can even be a prerequisite to access to services and markets.Improved bargaining power – Being part of a farmer group often means that farmers can negotiate better prices for services as well as for their produce, by marketing their produce collectively.Improved decision-making control for women and youth – Many farmer organizations are established to allow for certain groups of farmers, such as women and/or youth to coordinate activities with more independence from their households. The emergence of these groups has been shown to create value for their members.
Implications – what does this mean for you?
Based on our findings till date on this topic, we see the following implications for different audiences:
- If you are not engaging with farmer groups, check the tools and resources on the AMEA toolbox to understand best practices in aggregating farmers, assessing the extent to which they would be capable of absorbing responsibilities and what capacity building you may need to provide.
- If you are already engaging with farmer groups:
- Include farmer segmentation and graduation structurally into your business model. Take a look at this Farmer organization segmentation innovation guide to see how you can tailor the services provided to farmer organizations to their needs and risk profile.
- Reach out to Farmfit Business Support so we can analyze your business and work with you to find opportunities to improve your engagement with farmer organizations.
- Well-functioning farmer groups can bring value to farmer and to your business. Ensure that your farmer groups have the right capabilities and resources to deliver the most value to their members. For instance, consider investing in building their organizational capacity. Check tools and resources on the AMEA toolbox on how you can professionalize farmer organizations.
- Supporting farmer organizations get access to finance can help them unlock value for their members. Assess what financial products can be developed to meet the varying needs and risk profiles of formal and informal farmer groups. For instance, consider how lower risk products such as group bank accounts and village savings and loans associations (VSLAs) can allow ‘unbankable’ farmer groups to build up the credit history needed to later access more complex products such as loans .
- Professionalizing farmer groups often has high upfront costs and limited direct return for companies in the short term. Consider how concessional finance can be used to subsidize the capacity building required to professionalize farmer groups.
1. Support farmer organization professionalization with targeted capacity building and governance strengthening. These are key success factors to increasing the value that they create for their members, while often being beyond the ability (and/or willingness) of individual private sector actors to undertake on their own.
2. Ensure that interventions build longer term capacity in farmer organizations with attention towards succession plans and institutionalizing improvements. Such changes can help safeguard the value that farmer organizations create for their members in the long term. While donors and support organizations are already heavily investing in farmer organizations, professionalism has often regressed once support has ended (
- Assess the legal framework used to classify farmer organizations. More professional farmer organizations are associated with creating higher value for their members. Consider how effective rules and regulations are in indicating the professionalism of farmer organizations. For instance, check whether the requirements to formalize a farmer organization are consistent with the internationally recognized IWA 29 standards for a professional farmer organization.
- Invest in the capacity building of farmer organizations to make them more effective conduits for poverty alleviation and rural economic development. Well-trained, resourced, and supported farmer organizations are more likely to create more value for their farmers.
Reflections on data limitations and further research
The Hub is an living document which is constantly updated with new data, new analysis, validation by our partners, etc. For the results on this page, we would like to emphasize the following:
Major caveats and limitations of our current approach
Although we believe our analyses and insights offer a solid set of insights that can already be used to inform decision-making, there are a couple of caveats that we wish to be open about.
Our quantitative analyses do not fully capture the quality of farmer organizations Our quantitative analyses employed look at the median farmer
Next steps : Updating FarmFit findings
Conduct farm-level analyses with our farmer survey data
Suggestions for additional research by our peers and partners
Further research into business development services associated with higher value creation
de Brauw, Alan; and Bulte, Erwin. 2021. African farmers, value chains and agricultural development: An economic and institutional perspective. Palgrave Studies in Agricultural Economics and Food Policy. Cham, Switzerland: Palgrave Macmillan.
https://doi.org/10.1007/978-3-030-88693-6
Gordon, Ann; and Chell, Matthew. 2022. Producer Organizations Access to Finance: Lessons from the Cocoa Sector in Côte d’Ivoire. Agribusiness Market Ecosystems Alliance
Peters, Bram. 2018. Income Intervention Quick Scan: Producer Organizations. Farmer Income Lab Intervention Quick Scan. Wageningen Centre for Development Innovation
Farmer Income Lab (2018). What Works to Increase Smallholder Farmers’ Income
