2.4.4. Lessons from the Field
Participation in value chains does not necessarily translate into increased benefits for MSEs—producers must also be able to access higher-value markets and more profitable functions within the chains. In many cases, upgrading is key to profitable and sustainable MSE participation and horizontal linkages can provide opportunities for upgrading through collective learning, cost and risk sharing, enhanced management capacity and better access to support services. The following examples from the field reveal some lessons learned about developing strong horizontal linkages and the types of benefits that can result.
Horizontal linkages can help producers upgrade and move into higher-value markets. When the Guatemalan textiles industry faced fierce competition from mass-marketed products made in China and India, it realized it had to become more competitive and developed a strategy focused on high-quality, differentiated products and producer cooperation so they could learn the new designs, upgrade their skills, and market their products.
Collaboration can increase the bargaining and advocacy power of individual firms. The Kenya Horticultural Exporters Association negotiated a more favorable EUREPGAP agreement with buyers who agreed to drop some of the most stringent requirements, thus allowing more farmers to participate in the high-value export market.
Linkages among lead firms can promote national or regional branding and the development of quality standards. In the Philippines, collaboration by industry leaders in mango exports led to the development of an internationally recognized standard and the branding of Philippine mangoes.
Linkages can facilitate collective learning, which can drive innovation, increase demand and grow markets through product diversification and new product development. Specialty coffee producers in Rwanda undergo continual learning in coffee grading, processing and cupping that facilitates the emergence of a common language of quality and taste characteristics and ensures they are able to respond to constantly changing quality requirements. This collective learning opened up opportunities for producers to deal directly with buyers and introduced them to higher-value organic and FairTrade certification protocols.
National culture plays an important role in how horizontal linkages are perceived and can act as a barrier to their formation, even in the face of strong evidence that they would be effective. The horticulture sector in Guatemala provides significant market opportunities (supermarkets) and strong potential for horizontal linkages among producers. However, a historical lack of confidence in the group concept and low levels of trust between producers and buyers hamper group development.
Conversely, cooperation resulting in clear economic benefits can promote trust among historically conflicting parties. In Egypt, dairy processors formed an association that broke down decades-old barriers of mistrust and through collaboration led to a dramatic increase in product development and diversification. The association also facilitated the development and acceptance of industry grades and standards.
Assisting a lead firm to upgrade can stimulate producers to form horizontal linkages to respond to new or increased demand. In Bangladesh, the Job Opportunities and Business Support project recruited a consultant with expertise in Italian footwear to help a local firm increase its access to export markets. This assistance drove up demand and, as the number of orders for shoes rose, clusters of entrepreneurs began joining forces to form producer groups to meet the growing demand. As these groups grew, they began supplying multiple export firms, which in turn began cooperating with one another on large orders.
Linkages that facilitate collective learning may be necessary to address cross-cutting constraints to producer and industry competitiveness. With issues such as soil and water resource management, horizontal linkages make it possible for best practices to be quickly identified, systematized and shared with other industry players. Ethiopian coffee producer groups adopted leeching ponds at washing stations to channel coffee cherry pulp and filter the water before returning it to the ground supply. At the end of the processing season, the groups drained the ponds and used the composted pulp to mulch their coffee trees.
Collective action is another form of cooperation (though it may not be perceived as such). Collective action occurs when many smallholders sell or buy at a single point to resolve scale and transaction cost issues. Collective action can also be used to deal with issues such as trust gradually.
ICT can strengthen relationships and increase the effectiveness and bargaining power of groups by giving them access to information. The Self Employed Women’s Association (SEWA) in India provides loans to members for the purchase of cell phones, which enable them to obtain market information and confirm buyer-seller meetings. SEWA also breaks down large handicraft orders and distributes them via cell phone to individual member artisans, and uses video to disseminate technical information to illiterate members.
Professional management and a common vision among members help reduce fraudulent and opportunistic behavior, increase trust and social capital, and ensure good governance and sustainability. Despite years of government misuse of the cooperative system, the USAID Agricultural Cooperatives in Ethiopia project won producers’ trust by assisting producer groups to form unions, purchase bulk inputs and consolidate production, and by introducing innovative organizational development including professional management and training for all members. The unions eventually took on the task of advocating with government on behalf of members, resulting in the granting of authority to unions to directly export specialty coffees and import fertilizer, bypassing parastatal and other intermediaries.