Identifying challenges to collective
commercialization by SPOs: cross-country
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
Clearly, having in place the organizational
infrastructure does not automatically imply collective
Need to better understand what determines cooperative
performance and why it may be compromised.
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.
The cooperative life cycle framework” specifies that the
“health” of a cooperative evolves according to a life cycle:
– 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’
– Recognition and introspection: A phase in which internal
conflicts and problems of “shirking” emerge, urging the
organization to be introspective and identify collective action
- 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.
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
In Ethiopia, SPOs selected were handling dairy (44) or
In Malawi, selected SPOs handled groundnuts (24),
soybean (54) or rice (20).
Determinants of output commercialization
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
Sources of capital formation by country
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
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
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
Organizations that give out appreciable equity
shares/delivery shares to their members can be
considered as offensive, entrepreneurial
organizations as opposed to traditional, defensive
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
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.