3. The CGIAR Research Program on
Policies, Institutions and Markets
This program identifies how policies, institutions, and markets can
be improved to help poor farmers and consumers live better lives,
through
•effective policies and better public spending
•inclusive governance and collective action
•connecting smallholders to markets, largely through work on value
chains
Started in January, 2012
Eleven CG Centers (led by IFPRI, Bioversity, CIAT, CIMMYT, CIP,
ICARDA, ICRISAT, IITA, ILRI, ICRAF, Worldfish); many partners
4. Markets that deliver for the poor
Goal: making markets function for the poor at
local, regional, and international levels by:
• Releasing constraints to participation
• Enhancing benefits from participation
Major Market Failures:
• Externalities (+/-)
• Merit and demerit goods inefficiency
• Public goods
• Information asymmetry and high
• Monopoly (monopsony) power
• Government failure transaction
costs
5. Innovation 1: Incentives through
contract farming
• Returns to contract farming can be increased for both
parties to the contract—a potential win-win
• Capturing the win requires addressing asymmetries in
information and building information into the contract
• Concrete example in dairy in Vietnam, but applicable to
contract farming in other developing countries as well
• Implemented in Vietnam, Peru and Tanzania
6. Dairy in Vietnam: Information asymmetry
in agricultural markets
Quality determines price but buyer cannot observe; pays on
assumption of low quality. Seller therefore delivers low quality.
How to overcome
the information asymmetry?
• Through 3rd -party quality assessment, monitoring (Young and
Hobbs, 2002; Olken, 2005)
• Evidence from the laboratory for increased efficiency through 3rd
-party enforcement (Wu and Roe, 2007)
• But: Limited external validity of lab experiments? (Levitt and List,
2007)
Field experiment on independent quality verification
8. Dairy in Vietnam: Main Results
• Methodological contribution through collaboration with
private company
• Positive (heterogeneous) impact with regard to input use,
output supply (quantity) and mild effect on household welfare
• Pareto improvement in supply chain
• Trust spillover could have led to underestimation of
treatment effect
• Scope for public role in 3rd-party enforcement of contracts in
many (agricultural) sectors in Vietnam and beyond
9. Innovation 2: Working together for
market access
• By engaging markets collectively, farmer groups can help
smallholders overcome economies of scale and increase their
bargaining power in input and output markets.
• However, collective marketing also involves additional costs:
coordination, time, uncertainty.
• Evidence shows farmer groups have had limited success in improving
smallholders’ access to markets.
• Project goal: Strengthen farmer groups’ market access through
simple innovations in institutional mechanisms in Uganda and
Senegal.
10. Uganda: Working capital
loan intervention
4. Group deducts
Smallholder
Smallholder fees and
B. Trader 1. Farmers distributes
A. Trader
pays farmer deliver payment between
buys output
output to farmers
on the spot from
group,
producer at Intervention:
farm gate
receives no Intervention:
payment yet Working capital
Working capital
loan to allow
loan to allow
groups to make
groups to make
a a partial
partial
payment to
payment to
Itinerant
Itinerant farmers on
farmers on
Farmer group
Farmer group
trader
trader delivery
delivery
2. Group 3. Price and volumes
bulks from
Processor / /
Processor are negotiated and
farmers and
Exporter
Exporter buyer pays for group
delivers to
buyer delivery
11. Uganda: Working capital loan intervention
Key results
• We evaluate the impact of a working capital loan in Uganda that enables groups to make
partial payments on delivery to its members.
• In addition to the loan funds, we introduce a simple voucher/bookkeeping system that allows
farmers to claim the partial payment and better understand deductions when the balance is
paid.
• The intervention reduces the cost of selling through the group, which increases the volumes
sold collectively and the ability to negotiate better prices.
• Preliminary results indicate that the working capital loan almost doubled the amount of
output collected from members for group sales, which resulted in prices 80% higher than
those accepted by farmers selling individually.
• Success in this pilot intervention has motivated groups to apply for loans from microfinance
institutions to increase and sustain the working capital fund beyond the life of this project.
12. Innovation 3: Weather insurance
Problem:
Uninsured risk constrains investment in high-value crops
Innovations in weather index insurance can help insure risk, but demand has
typically been low
Research:
Testing innovative weather insurance products that are high quality, flexible, simple,
and scalable
Understanding what complementary financial products—such as savings and
lending—help farmers manage risk
Evaluating improvements in welfare and investments in high-value crops
Research programs in Ethiopia, Bangladesh, India, and Uruguay
13. Simple Weather Securities
Can we improve the design?
• Weather securities; easy to understand
• Flexible - farmers choose what they cover
• Scalable - do not require redesigning for
each crop (and perhaps not each location)
Demand has been high: In 2012, 1500+
policies issued with 48% of targeted
farmers purchasing in some districts
In 2012 82% of all policies were sold in
villages where group saving and lending
was encouraged.
13
14. Innovations in weather insurance:
Ethiopia
• Late-season rains failed in 2011, policies provided protection to policy
holders
• Widespread improvements in welfare outcomes in villages where there
was both index insurance and increased group saving and lending:
• Durable consumption goods: households were 8-13% more likely to purchase
clothing and footwear.
• Livestock: 28% higher cattle ownership, 37% higher small ruminant ownership, and
21% higher chicken ownership.
• Stated interest to invest further in subsequent seasons:
• Farmers in villages where there was both index insurance and increased group
saving and lending were 21% more likely to say they would spend on improved
seeds and 28% more likely to spend on fertilizer.
Notas do Editor
Economies of scale: Fixed costs involved in transportation and processing fees, which rise the unit cost of output considerably when volumes sold are small. Bargaining power: with higher volumes, farmer groups can get better prices and conditions for their members than individual farmers. Coordination costs: Cost of organizing the group and coordinating activites for a collective sale. Time costs: Collective sales increase waiting periods between harvest and payment for a sale because of the need to wait for everybody to deliver during bulking period and for the group to find a buyer and pay back to individual members, since farmer groups very rarely have cash to pay members for their output directly. Uncertainty costs: uncertainty about the length of the waiting period between harvest and payment, and also trust that group leaders will get a good price and will not appropriate an unfair share of the payment. Evidence of limited success of farmer groups in improving market access: lower share of transactions through groups than directly to traders among Ugandan coffee farmers (Fafchamps and Hill, 2005), low benefits from memberships in farmer groups in Senegal and Burkina Faso (Bernard et al., 2008) and Ethiopia (Bernard and Seyoum-Taffesse, 2012). This project’s baseline survey indicates than more than 60% of the transactions made by farmer group members do not go through the group.
Economies of scale: Fixed costs involved in transportation and processing fees, which rise the unit cost of output considerably when volumes sold are small. Bargaining power: with higher volumes, farmer groups can get better prices and conditions for their members than individual farmers. Coordination costs: Cost of organizing the group and coordinating activites for a collective sale. Time costs: Collective sales increase waiting periods between harvest and payment for a sale because of the need to wait for everybody to deliver during bulking period and for the group to find a buyer and pay back to individual members, since farmer groups very rarely have cash to pay members for their output directly. Uncertainty costs: uncertainty about the length of the waiting period between harvest and payment, and also trust that group leaders will get a good price and will not appropriate an unfair share of the payment. Evidence of limited success of farmer groups in improving market access: lower share of transactions through groups than directly to traders among Ugandan coffee farmers (Fafchamps and Hill, 2005), low benefits from memberships in farmer groups in Senegal and Burkina Faso (Bernard et al., 2008) and Ethiopia (Bernard and Seyoum-Taffesse, 2012). This project’s baseline survey indicates than more than 60% of the transactions made by farmer group members do not go through the group.
Economies of scale: Fixed costs involved in transportation and processing fees, which rise the unit cost of output considerably when volumes sold are small. Bargaining power: with higher volumes, farmer groups can get better prices and conditions for their members than individual farmers. Coordination costs: Cost of organizing the group and coordinating activites for a collective sale. Time costs: Collective sales increase waiting periods between harvest and payment for a sale because of the need to wait for everybody to deliver during bulking period and for the group to find a buyer and pay back to individual members, since farmer groups very rarely have cash to pay members for their output directly. Uncertainty costs: uncertainty about the length of the waiting period between harvest and payment, and also trust that group leaders will get a good price and will not appropriate an unfair share of the payment. Evidence of limited success of farmer groups in improving market access: lower share of transactions through groups than directly to traders among Ugandan coffee farmers (Fafchamps and Hill, 2005), low benefits from memberships in farmer groups in Senegal and Burkina Faso (Bernard et al., 2008) and Ethiopia (Bernard and Seyoum-Taffesse, 2012). This project’s baseline survey indicates than more than 60% of the transactions made by farmer group members do not go through the group.
Economies of scale: Fixed costs involved in transportation and processing fees, which rise the unit cost of output considerably when volumes sold are small. Bargaining power: with higher volumes, farmer groups can get better prices and conditions for their members than individual farmers. Coordination costs: Cost of organizing the group and coordinating activites for a collective sale. Time costs: Collective sales increase waiting periods between harvest and payment for a sale because of the need to wait for everybody to deliver during bulking period and for the group to find a buyer and pay back to individual members, since farmer groups very rarely have cash to pay members for their output directly. Uncertainty costs: uncertainty about the length of the waiting period between harvest and payment, and also trust that group leaders will get a good price and will not appropriate an unfair share of the payment. Evidence of limited success of farmer groups in improving market access: lower share of transactions through groups than directly to traders among Ugandan coffee farmers (Fafchamps and Hill, 2005), low benefits from memberships in farmer groups in Senegal and Burkina Faso (Bernard et al., 2008) and Ethiopia (Bernard and Seyoum-Taffesse, 2012). This project’s baseline survey indicates than more than 60% of the transactions made by farmer group members do not go through the group. In Uganda, we provide a random group of farmer groups (marketing coffee and maize) with a fund that mimics a working capital loan, to be used exclusively to give farmers a partial cash payment as soon as they deliver their output to the group, plus training on a voucher/bookkeeping system to manage the fund. Since many farmers argue that urgent need for cash is the main reason to sell to trader, by reducing the waiting period to get paid associated with collective sales, the intervention aims to make groups a more attractive option. This, in turn, increases the number of farmers selling through the group which increases the group’s bargaining power, and ultimately, the price the group can get. Groups that decided to continue with the intervention applying for microfinance loans belong to NUCAFE, an umbrella organization for coffee farmer groups in Uganda.
Economies of scale: Fixed costs involved in transportation and processing fees, which rise the unit cost of output considerably when volumes sold are small. Bargaining power: with higher volumes, farmer groups can get better prices and conditions for their members than individual farmers. Coordination costs: Cost of organizing the group and coordinating activites for a collective sale. Time costs: Collective sales increase waiting periods between harvest and payment for a sale because of the need to wait for everybody to deliver during bulking period and for the group to find a buyer and pay back to individual members, since farmer groups very rarely have cash to pay members for their output directly. Uncertainty costs: uncertainty about the length of the waiting period between harvest and payment, and also trust that group leaders will get a good price and will not appropriate an unfair share of the payment. Evidence of limited success of farmer groups in improving market access: lower share of transactions through groups than directly to traders among Ugandan coffee farmers (Fafchamps and Hill, 2005), low benefits from memberships in farmer groups in Senegal and Burkina Faso (Bernard et al., 2008) and Ethiopia (Bernard and Seyoum-Taffesse, 2012). This project’s baseline survey indicates than more than 60% of the transactions made by farmer group members do not go through the group. In Uganda, we provide a random group of farmer groups (marketing coffee and maize) with a fund that mimics a working capital loan, to be used exclusively to give farmers a partial cash payment as soon as they deliver their output to the group, plus training on a voucher/bookkeeping system to manage the fund. Since many farmers argue that urgent need for cash is the main reason to sell to trader, by reducing the waiting period to get paid associated with collective sales, the intervention aims to make groups a more attractive option. This, in turn, increases the number of farmers selling through the group which increases the group’s bargaining power, and ultimately, the price the group can get. Groups that decided to continue with the intervention applying for microfinance loans belong to NUCAFE, an umbrella organization for coffee farmer groups in Uganda.