Identifying challenges to collective commercialization by SPOs: cross-country learning

 

Fleur Wouterse

Motivation

SPOs (smallholder producer organizations) widespread throughout rural Africa.

Expected to play an important role in smallholder up- and downstream value chain integration through lowering the costs of doing business.

However, many SPOs are dormant or unable to generate collective action.

Clearly, having in place the organizational infrastructure does not automatically imply collective action.

Need to better understand what determines cooperative performance and why it may be compromised.

Motivation

Theory Cooperatives and farmer organizations are

institutional arrangements, the importance of which has re-emerged recently to organize small farmers in developing countries in the wake of agricultural market liberalization.

The advantages of organizing farmers into groups include a reduction in the transaction costs of accessing input and output markets, as well as improving the negotiating power of smaller farmers vis-à-vis large buyers or sellers.

The history of traditional cooperatives suggests that cooperatives have not always been successful at serving the needs of its members.

Cooperatives suffered from various organizational problems and a lack of clearly defined property rights assignments resulting in opportunistic behavior (such as free-riding, moral hazard, agency problems, etc.), bureaucratic inefficiencies, and under-investment.

Theory The cooperative life cycle framework” specifies that the “health” of a cooperative evolves according to a life cycle:

Theory – Economic justification: Why shall we form a coop?

Usually the initial justification is to generate countervailing power in order to gain access to the market.

– Organization design: Who can be a member? How will equity capital be acquired? Who has residual claim rights? Who has residual control (or decision) rights? Which sanctions are to be defined and how will they be enforced?

– Growth, glory and heterogeneity: Typically, organizations cannot hold on to their success; they tend to expand their membership base and over- celebrate their initial achievements, thereby overlooking the rise of internal problems associated with growing heterogeneity in members’ socio- economic preferences.

– Recognition and introspection: A phase in which internal conflicts and problems of “shirking” emerge, urging the organization to be introspective and identify collective action problems.

Theory- Choice: tinker, reinvent or exit.

There is now a renewed interest in a new type or “new generation cooperative” that addresses the weaknesses of the traditional cooperatives by strengthening the assignments of property rights to its individual members and reducing the incentives for opportunistic behavior.

Data

SPO level data collected in 250 organizations in 2013 during November-December 2013 through platforms and a quantitative survey.

For Senegal, data were collected from 50 SPOs in horticulture.

In Ethiopia, SPOs selected were handling dairy (44) or grains (60)

In Malawi, selected SPOs handled groundnuts (24), soybean (54) or rice (20).

Organizational descriptives

Input provision and output commercialization services

Determinants of service provision

Determinants of output commercialization services

SPOs handling grain or horticultural produce are less likely to engage in output marketing

SPOs established with external support less likely to engage in output marketing

When the SPO sells shares to members, this strongly increases the likelihood of its engagement in collective marketing. WHY?

SPOs that sell shares have been carefully designed during the second phase of their life cycle.

In particular, they have set rules for capital formation.

Sources of capital formation by country

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Challenges to collective commercialization

The most prominent challenges – • members’ inability or unwillingness to wait for payment; • the lack of trust of members in the capacity of SPOs to

effectuate these collective sales • side-selling

directly relate to collective action aspects. A second set of prominent challenges relates to the

availability/functionality of equipment/machinery and inputs

What sets SPOs apart from firms or individual smallholders is that these organizations are owned by their members and that value-adding and income generation is thus realized through collective action.

The second set of challenges relates to lack of investment in collective assets and point to members’ reluctance to invest in the organization and thus the absence of “collective entrepreneurship”.

Conclusions

Organizations that give out appreciable equity shares/delivery shares to their members can be considered as offensive, entrepreneurial organizations as opposed to traditional, defensive ones.

The key to collective action in terms of output bulking and marketing appears to lie in collective entrepreneurship: risk-bearing, multiple level rent-seeking, patron-owned firms in the agriculture and food sectors.

To trigger collective action and generate real benefits to members, reinvention of dormant SPOs would thus need to involve redesigning the organization in this direction.