Producers Collectives in Sustainable Agri-value Chain1

KV Raju2
Piyush Kumar Singh3
Abstract
This paper explains the various determinants of sustainable agri value chain in the Indian
context of increasingly small holder agriculture. This paper highlights the importance of
producers collective and suggests that pro-producer agriculture value chain can provide a
way for poverty reduction and social development. This paper outlines the comprehensive
role of agri producers collective in agri value chain in improving its various components i.e.
various agricultural practices; post harvest losses in agri- business activities; producers
collectives including ecosystem service agendas. A brief literature review has been
summarized focusing on issues and challenges faced by small holder farmers in India.
Authors explain the option to study agri value chain based on dominance by different
members of the value chain. The paper suggests that opportunity for producers collectives to
significantly contribute the sustainable agri value chain.

Keywords: Producers collective, sustainable growth, agri- value chain, governance

mechanism.

Paper for Rural Entrepreneurship and Enterprise for Inclusive Growth 3rd National Rural Management
Symposium, 20-21November 2014at KIIT School of Rural Management, KIIT University Bhubaneswar
2
Senior Professor and Director, Development Management Institute, Patna
3
Assistant Professor, Development Management Institute, Patna

1. Introduction
Multi-functional Role of Agriculture is becoming the driving force for the country sustainable
growth, because the farming systems provide the base for easy delivery of environmental and
socio-cultural benefits. Seventy-five percent of the worlds poor live in rural areas and
depend on agriculture as their primary source of income. Given the World Banks estimate
that economic growth in the agricultural sector is twice as effective in reducing poverty as
growth in other sectors of the economy. Hence, the implementation of drivers such as
sustainable farming practices, adopting the post-harvest agri-business activities downstream
and, through collective action, certainly increment in economic growth will be significantly
noticeable. Strengthening agricultural value chains may be among the most effective ways to
address global poverty4. The present article therefore emphasis on the rural livelihood
enhancement through the intervention of agricultural value chains to bring about the
meaningful approach for poverty reduction, environmental stewardship and efficient primary
production.
2. Small holding farmers
A conventional definition of smallholders as farmers with less than 2 hectare plots allows the
estimation of the phenomenon of small farms at over 525 million (IFPRI, 2005) globally,
hosting approximately 2 billion people (Hazell, 2011). Smallholder farming is a phenomenon
characterized by a wide spectrum of conditions across the rural developing world. The land
holdings in India are highly fragmented, scattered and heterogeneous. The pressure on limited
arable land is increasing with increase in population. This is reflected with increase in
number of land holdings by 83.31% in 35 years from 1970-71 to 2005-06 and decrease in
size of holdings by 46.52% from 2.3 ha to 1.23 ha for the same period (Table 1).
Beyond the differing farm sizes, the heterogeneity is also apparent in a) farming attitude
(subsistence, commercial), b) existing land tenure regimes, and c) the presence or absence of
other non-agricultural income and employment sources for the smallholder family members.
Asia smallholding farms constitute 87%, Africa 8% while the rest 5% are located in Europe
and America (Chand et al., 2011). In Asia, India stands second in smallholdings after China
due to highly fragmented, scattered and heterogeneous land holdings. Presently, 63% farm
holdings are below 1 ha while over 86 percent of holdings are less than 2 ha accounting for
nearly 49% of the operated area (APCAS, 2010). The pressure on limited arable land is
4

The World Bank, World Development Report 2008 (Washington, DC: World Bank Group, 2007).

increasing with the diversion of agricultural lands into non agricultural domains due to
urbanization and increasing population (Fig 1).
Table 1 Number and Area of Operational Holdings in India from 1970-71 to 2005-06
Number of Operational Holdings (in 000)
1980-81
1990-91
2000-01
2005-06

Category of
Holdings

1970-71

Marginal (Less
than 1 hectare)

35682
[50.6]

50122
[56.4]

63389
[59.4]

75407
[62.88]

83694
[64.77]

Small
1-2 hectares

13432
[19.1]

16072
[18.1]

20092
[18.8]

22694
[18.92]

23929
[18.52]

Semi medium
2-4 hectares

10681
[15.2]

12455
[14.0]

13923
[13.1]

14020
[11.69]

14127
[10.93]

Medium
4-10 hectares
Large (10
hectare and
above)
Over All

7932
[11.3]

8068 [9.1]

7580 [7.1]

6577
[5.48]

6375
[4.93]

2766
[3.9]

2166 [2.4]

1654 [1.6]

1230
[1.03]

1095
[0.85]

70493
[100]

88883
[100]

106637
[100]

119931
[100]

129222
[100]

1970-71
14545
[9.0]
0.41
19282
[11.9]
1.44
29999
[18.4]

Area Operated (in 000 ha) & Average (in ha)

1980-81
1990-91
2000-01
19735
24894
29814
[12.0]
[15.0]
[18.70]
0.39
0.39
0.40
23169
28827
32139
[14.1]
[17.4]
[20.16]
1.44
1.43
1.42
34645
38375
38193
[21.2]
[23.2]
[23.96]

2005-06
32025
[20.23]
0.23
33100
[20.91]
1.38
37897
[23.94]

2.81

2.78

2.76

2.72

2.36

48234
[29.8]
6.08
50064
[30.9]
18.1
162124
[100]
2.3

48543
[29.6]
6.02
37705
[23.0]
17.41
163797
[100]
1.84

44752
[27.1]
5.9
28659
[17.3]
17.33
165507
[100]
1.57

38216
[23.97]
5.81
21071
[13.22]
17.12
159435
[100]
1.33

36583
[23.11]
4.38
18715
[11.82]
12.99
158322
[100]
1.23

Note: Total May not tally due to rounding off. Figures in brackets are %ages to all classes
Source: Ministry of Agriculture and Cooperation http://www.indiastat.com/agriculture/2/agriculturallandholdings/153/stats.aspx

This is clearly reflected in the shrink of average size of holdings from 1.69 ha in 1985-86 to
1.1 ha in 2010-11 (ICAR, 2011). As per the predicted estimates of ICAR, (2011) estimated
drop in farm holding will be 0.24 ha and more than 95 % of the holdings will be under the
category of small and marginal holders in 2050.

Fig. 1 Food demand by 2050

Source: N Alexandratos and J Bruinsma, 2012, World Agriculture towards 2030/50: the 2012 revision, ESA
Working Paper No. 12-03, Rome, FAO

The heterogeneity in small holders is also apparent in terms of farming attitude, existing land
tenure regimes, and distribution of farms land into various activities for non-agricultural
income and employment of the family members. The reasons behind these noticeable
problems are the globalization and liberalization due to which small holders are incapable of
meeting the demands of higher value market or consumer-driven markets (Fig 2). Small

holders remain far behind in the run of the higher vale market majorly because of lack of
knowledge and adaption to new production standards, grades, and quality and food safety
regulations.

Fig 2. Changes in consumer preference

Source: FAO, WFP and IFAD, 2012. The State of Food Insecurity in the World 2012

On the other hand, poor infrastructure in the rural sector starting from the roads, rural energy
provision, communication infrastructure (which in turns hinders access to market
information), rural finance and insurance services, health and education services, plays a
major role in developing negative relation between small holders and markets.
Lack of
Capital

Inadequate
farming and
extension
services

Low Output
due to Poor
Infrastructure

Constraint
of Small
Holder
Farming

Poor
Business
Skills

Market
Efficiency
Low

Fig 3. Problems associated with small holding farming

All these factors (Fig 3) make the system dynamic, making smallholder farming a landscape
in continuous evolution. Therefore, for the rural livelihood enhancement it is of prime
importance that small farms get commercially oriented into a small business to bring about

the abundant range of employment. Such execution will not only help in up gradation of the
primary (if not the sole) household income, but will build up the source of subsistence and
food security for partially cultivated as a secondary source of income for most of the poor
rural people.

Formation of small business unit will encompass an ample spectrum of

potential market targets in a form of the local staple outlets, or traditional cash crops markets,
or non-traditional high value crops for domestic or export market channels.
3. Producers Collectives
Cooperatives and producers organizations open a new avenue for the smallholder producers
by bridging the gap between productivity and market accessibility through a guaranteed
market for produce and access to machinery and modern technologies equipments (Fig 4).
They facilitate various multiple linkages with institution/organization to spread awareness
and strengthen the policies and procedures to boost productivity and help farmers to adapt
changing organizational conditions. Offering of crop agricultural extension services by
cooperatives have positive impact on performance. Beyond that they often offer social
services and building of physical infrastructure in rural areas.

Fig 4. Potential impacts of producer organizations

Collectives often out-compete the middlemen on one important dimension, offering more
consistent, reliable, and generally higher price to their farmer suppliers than local middlemen
through signing forward purchase contracts several months in advance of the harvest to
supply products to buyers. But the major advantage of middleman over the collectives is that
they are able to offer cash at the time of harvest whereas on the other hand, most of
collectives lack sufficient working capital and they pay their suppliers until they ship the
product and are paid months later by their buyers.

Solution to this problem is adopting value-chain financing, where cooperatives can pay their
farmer members or suppliers competitive prices at the time of the harvest strengthening the
long-term viability and fulfilling their contracts with international buyers. The value chain is
an innovative and proven approach for agriculture system which goes beyond the yield
productivity and addressing the issues

of harvest, post-harvest, marketing and

commercialization. Value chain supports the system by tailoring and improving efficiency
along the harvesting, storage, processing, packaging and shipping phases as well as in the
final uses of food.
The trendy notion of sustainable intensification encompasses all farming technologies and
approaches that specifically strive to improve the productivity of land while minimizing the
environmental impact (Godfray et al., 2010). However, the value chain perspective goes
beyond the single yield productivity at farm gates and expands the analysis to include
harvest, post-harvest, marketing and commercialization activities, where the management of
the environmental dimension encompasses improving efficiency along the harvesting,
storage, processing, packaging and shipping phases as well as in the final uses of food. The
food waste flow is indeed a significant phenomenon Figure 5.

Fig 5. Food eaten/lost

(Source: United Nations Environment Programme {UNEP}, 2009)
The food waste exacerbates the short fall in production vis-a-vis increase
in consumption as depicted in the Figure 6.

Fig 6. A substantial gap between production and demand

(Source: Source: USDA PSD database, February 2013: Maize, wheat, rice, soybeans,
rapeseed, sunflowers, barley, rye, sorghum, oats)

4. Frameworks for Understanding Agri value Chains

Daniele Guidi outlines a comprehensive framework in Sustainable Agriculture Enterprise:
Framing Strategies to to Support Smallholder Inclusive Value Chains for Rural Poverty
Alleviation (CID Research Fellow and Graduate Student Working Paper No. 53 October
2011). Starting from the underlying multi-functionality of agriculture principle mentioned
earlier, the conceptual framework for Agri Value Chain analysis can benefit from insights of
welfare and institutional economics, business management and organization theory (Fig 6 &
Fig 7).
Theoretical insights for Agri Value Chain

Poverty reduction dimension is to be informed by Sens theory of poverty as

capabilities deprivation, and the resulting attention given to qualitative aspects of
poverty and the multiple dimensions of capital asset endowment in rural livelihoods
frameworks.

Regarding the economic dimension, the theory of transaction cost economics is

valuable to analyze farmer participation behaviour. As small farmers participate in
value chains, increasingly conceiving their activity as a business venture, a risk
management perspective needs to be adopted. The notion of transaction costs is thus
useful in explaining their decision making options and constraints, in addition to the
business decisions of the downstream intermediaries, buyers and retailers.

The theory of business management offers valuable insights through two concepts: a)
the notion of entrepreneurship of farmers, which has been empirically tested as a
relevant factor contributing to rural development and poverty alleviation; b) the
notion of competitive advantage both within and outside the value chain, which offers
insights into the dynamics of power, value creation, value addition, and information
asymmetries in value chain relations.

Sens theory of
poverty

Theory of
transaction cost
economics

Agri- Value
Chain

The theory of
business
management

Organization
theory

Fig 6. Theoretical insights for Agri - Value chain

From organization theory, the conceptual framework borrows the notion of
organizational fit (Korten, 1980), for which a good systemic performance is
dependent on synergies derived from a good blending of roles, tasks and
organizational variables among the collaborating actors. In a rural development
context, the corollary of such a notion is that fit has to be reached through a
learning process, which thus moves away from blueprint planning approaches and
adopts a more dynamic, adaptive and error-embracing approach. It is useful to
visualize agri value chains in terms principal drivers as depicted in Figure 2.

(Source: Adopted from poole et al, 2010)

Figure 7: Classification of Sustainable Agriculture Value Chain Approaches

Agriculture Value Chain

Corporate
Driven Chain
Value

Intermediary

Producer

Hybrid network

Driven Models

Driven Models

Models

Direct
Buyer
Model

Retailer
Driven
Model
Figure 8: Different Agricultural Value Models

A. Corporate Driven Value Chains

These exhibit a predominant role of the downstream corporate buyers in shaping the
organization of the smallholders market linkage, or in excluding the participation of
smallholders in favour of large farms and plantations. Typically the main driver is the
paramount need of the buyer to assure a certain volume and quality of supply for either

processing or the final consumer markets. In this context, the norms and standards related to
quality, volume, consistency and timing of supply become the most important objectives
pursued. The adoption of sustainable agriculture practices can be present or absent depending
on the farming and crop context, as the environmental profile of the value chain is typically
not one of the main drivers, unless the business model explicitly incorporates social corporate
responsibility goals and/or intends to supply organic certified retail markets. Two variants
worth distinguishing are as follows.
a) Direct Buyer Models. The chains anchor actor is typically a large agro-industry, such as a
processing corporation or a large specialized supplier of an agricultural commodity. The
common institutional arrangements include a network of owned and operated storage
facilities, or some kind of advanced logistic systems, local processing or packaging plants,
and formalized contract farming agreements.
b) Retailer driven Models. The global retail industry have been redefining the quality, safety
and logistical standards that are pre-requisites to establish and consolidate market linkages
with suppliers and ultimately with producers. In such a context, the perish-ability of the
produce, the phyto-sanitary standards, the demand for homogeneity and aesthetic features,
together with timely production schedules and tightly planned delivery schedules become
crucial requirements and thus potential entry barriers for small farmers unable to collectively
adapt to such new and demanding conditions. In these value chains, small farmers
possibilities are dependent on the capacity of their collective organizations to metabolize the
technical and management skills needed to meet such standards. Weak farmer organization
management and lack of pro-poor intermediation can favour less equitable terms of trade.
B. Intermediary Driven Models
These are led by heterogeneous public or private sector actors, and accordingly the
institutional arrangements can vary. Public agencies and NGOs stimulate value chain
approaches for development goals. Private sector intermediaries (i.e., input suppliers, traders,
wholesalers) are motivated to supply commercial services. Where it does not exist yet, the
public agency or the NGO contributes to the organization of a collective farmers institution.
The common denominator, in all intermediary driven models deemed to be sustained, is that
the institution facilitating the downstream and upstream linkages performs its function in a
way that reduces transaction costs for all value chain participants.
C. Producer Driven Models

In general, these are such that smallholders are linked to markets through a bottom-up
empowerment process which aims at establishing and/or consolidating their collective
organization. This can be done more or less formally. A leader farmer, for instance, could
take the entrepreneurial responsibility to organize and collect the produce of neighbouring
small farmers. In other cases, formal institutions are created to manage the smallholders
community as a single market operator, such as through the formation of an association of
producers or the establishment of an agricultural cooperative. These organizations result in
the sharing of fixed costs, economies of scale in the purchase of inputs, and in marketing
(Torero, 2011). Exogenous agents (public extension programs or NGOs) can act as
facilitators, but eventually have to trigger an endogenous willingness to bring about a
sustainable business venture.
D. Hybrid network Models
A new way to conceive business development is emerging that essentially focuses on the
convergence between a) the natural profit motive of the private sector enterprise and b) the
goals and needs of the wider societal and environmental context in which the business will
grow and mature. The underpinning idea is that embracing a vision of shared value creation
by the private sector firm (Kramer, Porter, 2011), in a rural developing world context, can
align poverty alleviation and rural welfare enhancement with solid business growth. These
new business models, opening to a modality of multi-stakeholder network formation, find an
added value formula in forging partnerships between private firms, government agencies, and
civil society (Wilson et al., 2009). This collaborative network behavioural choice can
stimulate innovation as well as mutually reinforcing feedbacks, therefore supporting
sustainable returns on natural, economic and social capital.
More balanced combinations of shared objectives in terms of coordination and cooperation in
the governance of the value chain allow the participants to create a platform for a) genuine
negotiation of the different priorities at stake, b) genuine effort to address the trade-offs and
c) proper business acumen to leverage the synergy potentials. Some cases describe value
chains clearly initiated by a social entrepreneur, but often times there seems to be either an
immediate or progressive dynamic of alliance building, with shared responsibilities and roles,
where the mixed network of agents can be seen as a whole. It is often the case that some
sort of co-ownership arrangement allows small farmers to truly upgrade in value chain
management and control: one such mechanism is that farmers cooperatives or producers

collectives, become shareholders of local or international marketing or processing

corporations.
5. Producers Collectives to meet Future Challenges
With the neo-liberal policies of the last 2 decades, small as well as medium-size farmers were
given little or no attention by governments, and by most of the multilateral agencies. During
the last 15 years very little attention has been given to agricultural development and to the
development of producers collectives, farmers cooperatives and other producers interest
organizations. Consequently, during the last 15 years, very few development agencies,
NGOs, bilateral or multilateral organizations have supported agricultural development. And
even fewer agencies have been defending, promoting or supporting agricultural cooperatives.
At the same time, very few governments continued to see rural cooperatives as important
tools for development and allies in the fight against poverty. This situation has led to a
dramatic negative trend in Agriculture. This trend needs to be reversed for meeting future
challenges.
The food world is facing a daunting challenge to meet the needs of 9 billion people by 2050.
Agriculture is not only expected to produce more food, but also more raw materials for
biofuels, bio-chemicals and fibres. Nearly doubling current agricultural production with
fewer resources (land, water and phosphate resources) in a manner that is both socially
acceptable and environmentally sustainable seems to be an enormous task. This is illustrated
by the fact that in the year 2012 still about a billion people suffer from hunger and
malnutrition.
Producers collectives seem to provide answers. Rio+20 document affirms that co-operatives
are key for sustainable development

We acknowledge the role of cooperatives and microenterprises in contributing to

social inclusion and poverty reduction in particular in developing countries.

We resolve by [2020 / 2030] to sustainably increase agricultural production and

productivity, including through improving the function of markets and
international support mechanisms, particularly for the developing countries, with
a view to increasing public and private investment in agriculture and rural
development. Key areas for investment and support include: sustainable
agricultural practices; rural infrastructure, storage capacities and related

technologies to significantly reduce post-harvest and other food losses and waste
throughout the food cycle; research and development on sustainable agricultural
technologies; developing strong agricultural cooperatives and value chains; and
strengthening urban-rural linkages.

We are encouraged by government initiatives to create jobs, for poor people in

restoring and managing natural resources and ecosystems, and we encourage the
private sector to contribute to decent work and green job creation for both women
and men, and particularly for the youth, including through partnerships with
small and medium enterprises as well as cooperatives.( Friday, 22 June 2012 Rio
declaration acknowledges co-operatives: Posted on 23 June 2012 by Ajay Jha)

6. Conclusions
a. Smallholder Integration in Agri Value Chain is Necessary
Smallholder inclusion presents of number of challenges such as how small-scale farmers can
be linked to markets and be integrated into the farm-to-consumer value chains in a way that
makes it possible to benefit more from the economies of scale and to capture more value for
their products. Moreover, the process of productivity growth through farm (and off-farm)
investments and adoption of modern farming techniques have to be facilitated.
b. Small holder Agriculture Viability is Crucial

Food and Agribusiness (F&A) companies in the value chains will have to source more from
smallholders in the decades to come. This implies a transition process in which small-scale
producers are stimulated to become economically self-sustaining and small-scale farming is
turned into a scalable and competitive business, producing food for local and international
food markets in an environmentally sustainable way. A value chain approach to smallholder
inclusion is crucial for breaking the barrier of low-farm-income trap.

c. Collaboration across Actors in Agri Value Chain is critical

Small farms often lack access to affordable financial services, knowledge and education,
market information, land, water and fertilizers. They must therefore unite in strong producer
organisations or - even better - in cooperatives. By working together, they are able to
overcome the drawbacks of their small size and fragmented production structure. There are
various ways to increase food production, such as improving yield per hectare, cropping

intensification, increasing arable land, reducing post-harvest losses, storage and transport
losses, improving irrigation technology and reversing land degradation. However, achieving
these gains in practice will require an exceptional level of collaboration among stakeholders
in the agricultural value chain, including governments, companies, multilateral institutions
and civil society organisations.
d. Rural Advisory Services Trigger Change
However, it is not just physical resources that co-operatives can pool. The most powerful
resource that farmers are able to share once organised into co-operatives is knowledge.
Rural public and private advisory services work directly with co-operatives and farmer
organisations around the world, to provide them with the information and services they need
to produce more food for their families, and build booming local businesses. This support can
range from linking farmers to the latest innovations in scientific research, to improving the
efficiency of water use, to providing training on how to successfully market their produce.
But this crucial stream of information does not flow in just one direction. Farmers themselves
also have important knowledge and innovations that are specific to their particular
circumstances. Systems like this need to be scaled-up, to offer smallholder farmers the
chance to work themselves out of hunger and poverty. We need a standardised way to share
information that takes into account the diversity of rural life, and offers best-fit approaches
for plural situations, rather than scaling-up a "one-size-fits-all" approach
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Research Fellow and Graduate Student Working Paper No. 53, Harvard University
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