Facilitating Smallholder Farmers’ Market Access
In the OIC Member Countries
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the government may provide technical and market information directly, but other options
include subsidizing or contracting this activity to the private sector and/or NGOs.
Promote Institutional and Organizational Arrangements That Will
Reduce Transaction Costs and Facilitate Market Linkages
Linking smallholder farmers to markets involves high transaction costs. Such farmers are
usually more geographically dispersed, less specialized, and produce smaller marketable
surpluses than other farmers, which adds to the challenge of transmitting information to
them about new technologies and consumer preferences. They may have insufficient
output to invest individually in transport and essential storage infrastructure. Dispersed
smallholders also may face monopolistic competition, in which one or only a few buyers
retain most of the bargaining power. Given these circumstances, government has an
important role in helping to facilitate collective action by groups of farmers, including
fostering the growth of effective producer organizations, associations, and cooperatives
to reduce transaction costs. Reducing transaction costs is particularly important for
transforming agri-food supply chains, because individual smallholders cannot fulfill the
volume and quality requirements of modern food chains. Neither donors nor governments
are well suited to provide the business development and management training that
producer organizations need to operate more effectively; those skills are delivered better
by private service providers or NGOs with the appropriate capacity. What government and
donors can provide, however, is indirect support—for example, through instruments such
as demand-driven funds to support producer organizations’ developmental needs.
Aside from producer organizations, other institutional arrangements are evolving to
better link smallholder farmers to markets. One promising approach is productive
alliances, which have four building blocks: organizing farmers, linking them to markets,
investing in production and marketing, and providing technical assistance. In productive
alliances, the main instrument for forging the links between producers or producer
organizations and agribusiness has been competitively allocated matching grants.
Contract farming is another avenue for enabling small-scale farmers to enter markets
that are normally out of their reach, owing to distance, standards, processing
requirements, or other factors. Smallholders who have access to assets and capital and
regularly produce marketable surpluses are in the best position to benefit from contract
farming arrangements. In contrast, contract farming may not be suitable for asset-poor
smallholder farmers or even the majority of smallholders, who are largely subsistence
farmers (unless they are part of an effective producer organization, with requisite
management and financial capabilities). Government and donors can facilitate contract
farming in several ways. An enabling policy environment, a supportive business
environment, and stable macroeconomic situation are all important. Enabling policies
include those related to competition, employment and labor, environmental issues, health
and safety, land, agricultural inputs, and agricultural R&D. The existence of reliable
dispute resolution mechanisms is vital to support the development of contract farming.
Court processes in many countries can be costly and prone to corruption and delays,
whereas alternative dispute resolution mechanisms can offer a more practical, efficient