Feed the Future
This project is part of the U.S. Government's global hunger and food security initiative.

Hunger-Free World Needs Prosperous Farmers!

Ending hunger and securing food for all is one of the crucial Sustainable Development Goals (SDG). But food security entails sustainable and sufficient production, equitable distribution and efficient consumption of nutritious food, implying that a flourishing agriculture sector is the first necessity for achieving the goal of hunger-free world.

ILO data (2016) indicates that the agriculture sector primarily comprises small farmers (60 percent), and most of the smallholders are poor. Also, due to high transaction costs involved in dealing with them, many small farmers are excluded from remunerative global value chains. Hence, they lack opportunities to improve economic returns and remain trapped in a vicious cycle of poverty, which consequently affects the production and distribution of healthy food. Overall, a "hunger-free world" would ultimately need strategies to bring small farmers out of poverty.

Are farmer cooperatives a panacea?

Policymakers throughout the world are emphasizing farmer cooperatives as a strategy to include smallholders in agricultural value chains and to enhance their incomes. For instance, when farmer groups in Central America were strengthened, retail companies preferred direct partnerships with these groups to better control production processes and to ensure compliance with the quality norms in international markets. These partnerships benefitted farmers in the region. Taking clues from this experience, The Indian government established legal and institutional frameworks for nurturing farmer producer companies (FPCs). The government plans to promote 5,000 FPCs involving millions of small farmers with the expectation that farmers would own the destiny of their produce to increase their returns.

Yet, in a progressively individualizing world, binding smallholders in a group and expecting them to perform complex business activities would not be a cakewalk. As M. Olsen propounded in 1971, voluntary group activities seldom lead to benefits for all members, even when individual and group interests merge together. Besides, often there exists socio-economic heterogeneity and mutual distrust among members. Hence, smallholder groups suffer with internal pressures and conflicts when they perform business activities.

In addition, modern day markets are becoming too complex to decipher for poor smallholders. Consider this example: Due to its utility as guar gum, a typical semi-arid crop of guar bean (cluster bean) experienced price appreciation of 1,000 percent during the phase of shale gas revolution in the U.S. (2011-12). Within a mere two years, prices normalized when the industry got its synthetic substitute. Very few experts would have anticipated the cross-linkages between the petroleum sector and crop prices. Such complex price variations in different markets have enormous impact on poor smallholders.

Along with the price fluctuations, issues such as global warming and frequent weather extremities are also becoming additional sources of uncertainties for FPCs. Hence, it is difficult for smallholders to operate in complex scenarios and generate revenue surplus. Thus, both internal dynamics and external sources of uncertainties are affecting incomes of the farmers.

How do farmer groups deal with uncertainties?

This summer, I conducted dedicated research to analyze how FPCs manage complexities embedded in value chains and arrive at business-related decisions collectively. I chose four distinct cases from different geographies that are dealing with different commodities. After thorough analysis, I realized successful cooperatives adapt to win the contingencies. When company management sense the risks and opportunitie, learn different approaches, and improvise based on their experiential learning, FPCs emerge as successful to earn profits.

For instance, in one of the FPCs I studied, the management sensed the decreasing average prices of soybean in the domestic markets. Management learned  about quality norms prevalent in international markets and improvised production processes to comply with the standards. Thereby, better returns could be secured during the subsequent year.

I arrived at the conclusion: adaptive capacity of FPCs depends on leadership, their saving capability and internal communication strategy. Thus, with higher adaptive capacities, smallholders could withstand both internal and external uncertainties. I developed the following schematic to explain the model of successful companies:

chart of Complex adaptive value chain systems

TCC: Tension Containment Capacity (to manage internal conflicts), Ton G. (2015)

AC: Adaptive Capacity (ability to manage external uncertainties)

Embedded optimism in research finding!

I realized that it is possible to build adaptive capacity of farmer groups externally through a well-designed training program and by conceptualizing relevant financial models. I firmly believe the strategy of promoting adaptable farmer groups is a promising way to improve farmer incomes. It can also help in harnessing the potential of remote areas to boost global food production and to secure food for all.