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American Journal of Agricultural Economics 91(4): 973-990 Nava Ashraf, Xavier Giné, and Dean Karlan (2009)

This study examines a program that successfully assisted Kenyan smallholder farmers to export their crops, and then describes in an epilogue how the program collapsed and the farmers defaulted on their loans because their products did not satisfy European export requirements.  The authors suggest that the risk of such events is one reason why seemingly profitable export strategies are not more frequently adopted.

Many scholars and policymakers have bemoaned the “missing markets” between smallholder farmers in developing countries and foreign consumers.  If only smallholders could reach international markets without expensive middlemen, the theory goes, rural development might be propelled by leaps and bounds.  Yet why are these markets missing?

One answer has been suggested by Ashraf, Giné, and Karlan, who find that these markets might not be missing at all.  As the eventual collapse of the program they studied anecdotally suggests, smallholder farmers might not sell to foreign buyers because they correctly assess the risk of accessing international markets.  The authors conduct a randomized controlled examination of an export facilitation program designed to address the missing market phenomenon.  Called DrumNet, it aimed to connect Kenyan smallholder farmers to a theoretically more lucrative market abroad.  A larger organization, Pride Africa, developed the DrumNet program in response to the environment faced by Kenyan smallholders.  Kenya’s smallholders lacked information about export opportunities and prices; faced low export profitability due to middlemen; distrusted exporters; lacked access to credit; and lacked a means to transport crops to market.  DrumNet was designed to address these problems by fostering smallholder relationships with banks, retailers, transportation companies, and exporters.  The authors write that DrumNet was “a horticultural export and cashless micro-credit program… with the important difference that, as a third neutral party, DrumNet hoped to bring trust among farmers and the exporter” (975).  Farmers seeking to join the program were required to be part of a registered farmer group; grow French beans, baby corn, or passion fruit; irrigate their land; meet certain financial requirements; attend a four-week agricultural training program focused on improving product quality and safety; and mutually guarantee each others’ loans in groups of five members.

The authors conducted their evaluation in the Gichugu division of Kenya’s Kirinyaga district.  They randomly sorted Gichugu’s 36 active registered farmer groups into three groups: those receiving all DrumNet services, those receiving all DrumNet services except credit, and a control group receiving no services. 

They find that the program made farmers 19.2 percentage points more likely to cultivate an export crop (particularly baby corn).  Additionally, farmers enrolled with DrumNet were more successful in securing formal loans.  However, in 2005, compliance with European EurepGap product standards was made mandatory.  In 2006, the exporter stopped buying goods from DrumNet farmers due to their lack of EurepGap certification.  Farmers defaulted on loans, DrumNet collapsed, and traditional middlemen returned.  The authors report that “the farmers were upset but powerless, and most of them subsequently returned to growing what they had been growing before” (988-9).

The authors conclude that “the program succeeds in getting farmers to switch crops, and that the middle-income farmers were the most likely to participate in the program” (988).  In addition, “credit increases participation in DrumNet but does not translate into higher income gains relative to the no credit treatment group. This suggests that either access to credit is not necessarily the primary explanation for why farmers are not accessing these markets on their own or those who were able to access markets already had some ability to do so, such that increasing credit did not change their income” (988).  A “significant” increase in income was observed only for farmers who did not have access to export markets previous to joining DrumNet.  The authors suggest that the policy implication of this finding is that “such interventions should focus intensely on deepening outreach to new farmers, not merely facilitating transactions for farmers already exporting crops” (988).

The authors note that this export-oriented intervention had successful and unsuccessful aspects.  DrumNet did increase smallholder investment, link farmers to export markets, and build trust between farmers and buyers.  However, because of the failure to fulfill international certification requirements, the “eventual collapse of the transactions thus may have generated a loss of trust, the exact problem DrumNet was designed to solve” (989).