Breakout Session 5: Linking small farms to markets

Paper "A framework for linking small farmers to markets" by Maximo Torero, IFPRI

Chair’s remarks and key points:  Josefina Stubbs

• The methodology presented combines a farmer typology with the environment farmers live in as a tool to facilitate linking farmers to markets. Showing, for example that constraints are not only found in poor areas or for poor farmers, but also include the right to assets, proximity to markets, access to technology and the right institutions. This methodology not only helps target investment but can also help researchers and policy makers decide where countries can succeed.

• There is no silver bullet for linking farmers to markets; is not simply a question of road infrastructure, but rather the whole market infrastructure must be developed.  

• The frontier and cross-border markets have become a critical issue. How can smallholder farmers get across frontiers to reach outside markets? It was noted that examples from Latin America can help Asian countries.  

• In approaching public-private partnerships, in particular contracting, it was deemed important to make sure that opportunities from PPPs are not captured by farmers with more capacity or by elites. PPPs provide various assets, not only financial but also technology and knowledge transfer, thus there is a need to ensure that small holder farmers are part of the arrangements.

• In terms of PPP governance, the point was raised that private sector does not always respect agreements which stresses the importance of building trust between farmers organizations and the private sector. 

• Effort for decentralization is important, but there are serious constraints including institutional capacity, the strength of farmer’s organizations and access to knowledge and markets.  

Synthesis of discussion

Traditionally, agriculture interventions have focussed on smallholding farmers’ assets and production. Although this has served to remove on-farm constraints, there remains a major limitation in linkages to markets. Thus a paradox of efficient smallholder farmers who are constrained by market inefficiencies and transaction costs. The development of linkages to markets is determined by a variety of factors from transaction costs and information asymmetries, to policy barriers and existence of input markets. In this context, government policy decisions and strategies to develop small farms access to markets is essential.

Interventions to create an enabling business environment must first of all consider the heterogeneity of smallholder farmers, defining these by a typology that takes into account the quantity and quality of their assets, the technologies available to them, transaction costs in markets for outputs and inputs, credit and financial constraints, access to public goods and services, and local agro-ecological and biophysical conditions. In this way, analysis of market constraints will consider both the heterogeneity of farmers and the characteristics of the region in which they operate.

By the logic of the typology, countries can have regions defined in terms of their ‘potential’ to participate in commodities markets, their ‘efficiency’ in doing so, and their poverty levels (see paper by Maximo Torero). This differentiation of regions can help prioritize government interventions. In regions with high poverty, low potential and low efficiency, the policy recommendation is to focus on assistance and conditional cash transfers. In areas with high levels of poverty, high potential and low efficiency, interventions can work to reduce bottlenecks, improve efficiency and facilitate development. Given that the proposed typology was framed on a country scale, questions about frontier and cross- border markets were raised. Moreover, the inequalities among countries were seen as a complication, which tends to limit further market access to disadvantaged smallholder farmers and inequalities to persist. 

It is clear that there are no silver bullets to solve the problems of the complex world of smallholder farming. It is not enough to target regions that are poor or people that are poor, policies also have to take into consideration access to the right assets, proximity to the markets, access to technology and the right institutions. For example, investment in infrastructure cannot be treated as a panacea, and has to be planned not by the quantity of kilometres but also according to where and whom the infrastructure links. Furthermore, decentralization is important, but other constraints have to be looked at such as institutional capacity, the strength of farmers’ organizations, and access to knowledge and markets.    

Contract farming has become a major business arrangement that links farmers to traders, processors, supermarkets, etc. - actors that form part of a dynamic market. Often these contracts are not respected by either the farmers not the contractor and a proposed solution to this problem is public-private partnerships, to facilitate the incentives compatibility with the goals of the contract. Although trust is a crucial aspect, clauses that define price schemes by incentives on productivity and quality, e.g. fix prices and bonus prices, and inclusion of access to credit, are characteristics that can make a difference in farmers’ adherence to contracts. Ultimately, public-private partnerships can facilitate the inclusion of smallholder farmers in contractual arrangements that involve not only financial transactions but also technological and knowledge transfers.