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The Roles and Limitations of Producer Associations
Edward Heinemann
Regional Economist, Eastern and Southern Africa Division, IFAD
What are the roles of producer associations in tackling rural poverty?
 Rural people in Africa, especially the poor, often say that one reason they cannot improve
their living standards is that they face difficulties of accessing markets where they can
obtain agricultural inputs and consumer goods and sell the produce that they grow.
 For smallholder farmers 10-15 years ago, major markets were organised by governments,
and exchanges were not critically influenced by his/her knowledge and organization.
 With the withdrawal of the state from agricultural marketing, a new – and highly uncertain
– market environment has been created, in which prices, whether for selling produce or
purchasing inputs, are now largely negotiated. New commercial relations must be struck
with a myriad of suppliers and buyers. For some farmers, this has created major new
opportunities; for others, it has created major problems.
 Smallholder farmers are ill-equipped to benefit from the new market environment. They
face enormous constraints in physically accessing markets. They also lack information
about markets, business and negotiating experience, and a collective organisation to give
them the power they need to interact on equal terms with other – generally larger, stronger
– market intermediaries. The result is poor terms of exchange and little influence over
what they are offered.
Benefits to small-scale producers
Producer groups, and legally recognised producer associations, can therefore assist small
farmers in:
 understanding markets – how prices are determined and why they are vary according to
place and season – and identifying market opportunities.
 accessing markets – e.g. hiring a vehicle to transport inputs from suppliers or produce to
markets.
 negotiating collectively with market intermediaries, from a position of strength (larger
volumes and aggregated supply) and improved knowledge.
 through the market relations established, accessing production technologies and
information.
 ultimately, sourcing inputs more cheaply, selling produce at a higher price, and increasing
their incomes.
Legal recognition of those groups brings additional benefits:
 supply contracts can be legally enforceable – this reduces risk to producers, and may
result in the intermediary - particularly exporter or processor – providing them with credit
for inputs
 easier access to formal sources of credit – MFIs, commercial banks
Groups established for marketing purposes can also carry out additional activities of common
interest – both economic: crop experimentation, savings and credit activities, etc; and social /
mutual assistance. Groups, and apex organisations of groups, can also provide farmers with a
voice with which to engage governments in dialogue.
Benefits to market intermediaries
Groups can also bring benefits to market intermediaries – traders, agro-processors etc. The
Agribusiness Forum in Zambia and the main cotton processors in Mozambique identified
three major obstacles to doing business with smallholder producers:
 high transaction costs – resulting from having to distribute inputs to, collect crops from,
and keep records on, thousands of scattered individual farmers
 unacceptable levels of risk, resulting from high levels of side selling – a situation
exacerbated by inadequate contract enforcement mechanisms
 expensive extension services, as companies had to complement or replace government
extension service.
Groups can partially solve all three of these problems – reducing transaction costs; lessening
the risk of side-selling; and reducing the cost of extension service provision. This results in a
win-win situation – increased profits for farmers and market intermediaries alike.
Limitations of groups
 Importance of adequate training for group members – not only in technical skills, but also
in eg. basic literacy – this can be costly (several hundred dollars/group) and slow (up to 24
months). So how to reach large numbers of rural producers? (In Mozambique, CLUSA’s
programme led to development of some 900 associations with only 24,000 members – an
important achievement, but less than 1% of rural households). This, plus the limited
capacity of service providers which can provide high-quality support for group
development, mean there are problems of scaling up.
 Composition of group membership – poorest are often excluded, because they are less
able to participate in market-oriented production activities. Women may also be
excluded, though they need not be, if the service provider has an explicit gender focus.
 Groups can provoke hostility both with market intermediaries and governments –
empowerment others can be inconvenient to those who hold power.
 Not all producer groups will survive: in low-potential agricultural areas, where group
development is intrinsically more difficult, CLUSA estimates that over time, some 2030% will break down, and ultimately less than 50% will remain cohesive and viable in the
long-run.
 Groups do not represent an RD magic bullet – they are essential for small people to
interact on an equal footing with larger-scale market intermediaries; but do not solve all of
the problems facing rural populations, and their establishment should be supported only as
a response to a specific set of market access problems.
What strategies and approaches are needed to promote rural producer associations?
 Role of governments not in directly supporting group development, but in (a) financing /
providing space for specialised service providers to do so, and (b) ensuring an enabling
policy environment for association development. In many countries having legal
recognition for associations is slow, costly and bureaucratic; it should be simple and easy
to access by small farmers.
 Need for donors to work with those service providers with a proven track-record of
supporting producer associations, and to assist them to also support the development of
local capacity for service provision.
 Need for the service providers to associate private sector market intermediaries with
development of farmer groups, so as to establish the basis for a long-term commercial
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partnership between the two parties, through e.g. identification of business opportunities,
establishment of contracts, etc;
Importance of applying best practices in the provision of support to groups – a strongly
market-oriented, business-based approach, aimed at building the capacity and selfreliance of the groups – no hand-outs, no spoon-feeding and clear separation from social
interventions.
Strategies adopted should aim at promoting private sector investment in group
development – positive evidence from e.g. Zimbabwe.
Producer associations in a wider context
Support for producer associations can only be one element of a strategy to promote improved
farmer-to-market linkages. Such a strategy must be built on four pillars:
 by giving smallholders the skills and organisation they require to relate more effectively on a more equal footing - with the private sector;
 by helping the private sector to develop and broaden its outreach, and so provide more
competitive and efficient services to smallholders, particularly for input supplies and
produce marketing;
 by financing the provision of essential connecting infrastructure – both ‘hard’
infrastructure, such as roads, and ‘soft’ such as communications, price and market
information, identification of market opportunities; and
 by promoting dialogue between the main stakeholders to generate the policy, institutional,
and legal context required for enhanced market linkages.