Aggregating Smallholder Farmers in Emerging Economies

Abstract

The agricultural sector plays an important role in emerging economies even though most farmers are trapped in the poverty cycle owing to their smallholdings. Aggregating farmers through formal or informal cooperatives (coops) can enable them to: (i) reduce production cost; (ii) increase/stabilize process yield; (iii) increase brand awareness; (iv) eliminate unnecessary intermediaries; and (v) eliminate price uncertainty. To examine whether these effects will benefit the members of such aggregation when they compete with other individual farmers, we present separate models to capture the essence of these five effects. For each effect, we find that it is beneficial for a farmer to be part of the aggregation only when the size of the aggregation is below a certain threshold. Also, while certain effects are beneficial to the market as a whole, other effects are hurtful due to higher market price and/or lower production quantity.

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