Investments in this strategy aim to improve farmer access to good, stable pricing by reducing information gaps or transport costs, enhancing storage options, allowing farmers to produce higher-quality goods or earn certifications, or simply enabling farmers to negotiate with larger buyers. The sections below include an overview of the strategy for achieving desired goals, supporting evidence, core metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What is the problem the investment is trying to address? For the people experiencing the problem, how important is this change?

With their smaller crop yields and cyclical sales practices—with many farmers of the same crop seeking to sell simultaneously due to shared growing cycles—smallholder farmers often lack negotiating power when selling. Smallholders struggle to earn consistent, stable prices for their crops, due in part to limited accurate pricing information, storage capacity, or access to large-scale buyers. Investments aiming to improve pricing available to farmers can improve wellbeing by:

  • allowing smallholders to grade, sort, and process their yields, negotiate stronger prices for their crops and livestock, attract larger buyers, and reduce transaction costs to enhance economies of scale through collective action (4, 5);
  • supplying products that reduce information gaps for farmers, thereby promoting informed decision-making, reducing the unpredictability of market prices, and easing compliance burdens (6);
  • enhancing farmers’ ability to store their harvests to withstand pricing drops, which allows them to earn steadier and less volatile income while also preserving their access to harvested food to protect against local shortages (6,7,8);
  • certifying smallholders (or facilitating third-party certification) to improve access to stable, premium pricing regardless of local market fluctuations (9); and
  • through a combination of these factors, contributing to steadier and increased income for smallholder farmers and more food-secure and economically stable communities.

What is the scale of the problem?

Upwards of 80% to 90% of agricultural goods in most developing countries trade on informal markets, which often have no formal grades, traceability, or standard measures, and prices which are set through arbitrary assessments of supply, demand, and local customer loyalty to certain sellers (2). Further, 70% of farmers in Africa do not sell their goods through cooperatives, an approach that can significantly improve both prices earned and access to steady buyers (2). Since most smallholder farmers trade through informal markets and lack regular access to commercial markets (estimates place steady market access at 2% of farmers with 30 hectares or fewer), volatile and sub-premium pricing is very common (10).

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who/What is helped through this strategy?

Low-Income, Farm-Dependent Households: Over two billion of the world’s poorest individuals live in households that depend on agriculture for income and nutrition (1). Low-income smallholders—farmers cultivating fewer than two hectares—often sell their yields according to their personal timed cash flow needs. When many farmers sell at once, prices drop. With improved access to better, more stable pricing, farmers can both increase earnings and plan for their needs more accurately.

Rural Communities: Distance and high transport costs often limit smallholders’ access to major markets. Furthermore, many have limited information about pricing in major markets, which can make decisions between selling locally or in larger hubs risky. Rural farmers therefore often sell at prices below the premium their products could command with improved access to major markets and comparative information about pricing.

Young Farmers: The next generation of smallholders is maturing with knowledge of—and often access to—mobile phones and computers. These young farmers may gain more from this strategy, since they may be more amenable to using technology to improve their farming techniques, access support, compare market prices, and test innovative approaches and non-traditional market linkages (2).

What are the geographic attributes of those who benefit?

Most of the world’s 450 million smallholder farmers live in Asia, with smaller numbers in Africa, Latin America, and the Middle East and North Africa; most are in rural locations, although some are also peri-urban or urban (1). Volatile pricing is particularly pronounced in rural markets of sub-Saharan Africa (3).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

Is the investment’s contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How Much and Who?

For this strategy, increasing access to major commercial markets and premium pricing, as well as improving farmers’ ability to negotiate pricing, would make an investment’s impact better than what would likely occur without it. The extent to which this strategy can improve access to better, more stable pricing depends on the investee business and the product they are bringing to market.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many can receive the outcome through this strategy?

Given that prices for many agricultural commodities have fallen dramatically since August 2008, price volatility is a challenge for most farmers in emerging markets. There are no strong estimates regarding the number of farmers who might be helped by marginally less volatile pricing, though of course all would benefit from earning higher prices. The potential breadth of impact depends on the number of smallholder farmers who earn sub-optimal prices for their yields.

How much change can beneficiaries experience through this strategy?

The amount of change beneficiaries can derive from this strategy depends on the product delivered and the extent to which it effectively increases and stabilizes the prices that farmers can earn. Examples of outcomes from investments in this area include the following:

  • In Costa Rica, one evaluation found that farmers participating in the specialty coffee segment receive an extra USD 0.09 per pound produced, a 13% increase compared to those participating in conventional channels, while marketing through cooperatives yielded an extra USD 0.05 per pound, a 7% increase (11).
  • In a Madagascar-based study, participating in contract farming reduced the duration of the average household’s hungry season by about 10 days and increased the likelihood in any given month by almost 20% that the average household’s hungry season would end (12).

Illustrative Investment

The Costa Rican coffee cooperative Asociación de Productores Agropecuarios de las Comunidades de Acosta y Aserrí (ASOPROAAA), financed in part by responsAbility, primarily produces micro-lot coffee (13). This approach to production is more expensive, with higher-quality inputs and more labor required, but farmers receive much higher prices for their product, which can lead to substantial income gains. The cooperative also supplies its members with working-capital and fixed-asset loans, as well as training opportunities. responsAbility’s loan to the organization supported ASOPROAAA in purchasing its members’ coffee at the requisite price premiums, thus ensuring it could fulfill its export contracts.

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 3
Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya

Ashraf, N., Giné, X., & Karlan, D. (2009). Finding missing markets (and a disturbing epilogue): Evidence from an export crop adoption and marketing intervention in Kenya. American Journal of Agricultural Economics, 91(4), 973- 990.

NESTA: 3
Selling low and buying high: An arbitrage puzzle in Kenyan villages

Burke, Marshall. “Selling low and buying high: An arbitrage puzzle in Kenyan villages.” In Working Paper. 2014.

NESTA: 1
10 Facts About Hunger

WFP. “10 Facts About Hunger.” 2015.

NESTA: 2
Samarth - Nepal Market Development Programme (NMDP) Annual Results Report Year 4

Nepal Market Development Programme (NMDP). “Samarth – Nepal Market Development Programme (NMDP) annual results report year 2.” 2014.

NESTA: 3
Diversification and Its Impact on Smallholders: Evidence from a Study on Vegetable Production

Joshi, P. K., Laxmi Joshi, and Pratap S. Birthal. “Diversification and its impact on smallholders: Evidence from a study on vegetable production.” Agricultural Economics Research Review 19, no. 2 (2006): 219-236.

NESTA: 1
Food price volatility: How to help smallholder farmers manage risk and uncertainty

Blein, R., and R. Longo. “Food price volatility-how to help smallholder farmers manage risk and uncertainty.” Round Table organized during the Thirty-second session of IFAD’s Governing Council(2009).

NESTA: 1
Commercialising cassava: new opportunities for Universal Industries and Malawian smallholders

Scarampi, Adriano. “Commercialising cassava: New opportunities for Universal Industries and Malawian smallholders.” Business Innovation Facility, 2013.

NESTA: 3
Tuning in the market signal: the impact of market price information on agricultural outcomes

Svensson, Jakob, and David Yanagizawa Drott. “Tuning in the market signal: the impact of market price information on agricultural outcomes.” Document de Travail (2010).

NESTA: 2
Do farmers benefit from participating in specialty markets and cooperatives? The case of coffee marketing in Costa Rica1

Wollni, Meike, and Manfred Zeller. “Do farmers benefit from participating in specialty markets and cooperatives? The case of coffee marketing in Costa Rica1.“Agricultural Economics37, no. 2?3 (2007): 243-248.

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.