Investments in this strategy aim to improve market linkages by integrating the value chain, increasing market accessibility, and enabling smallholders to attract and negotiate with larger buyers, access certifications, and grow their businesses. 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?

Smallholder farmers often face many challenges accessing buyers, including high transportation costs, lack of negotiating power, and drops in pricing at common times of harvest. Investments aiming to improve market linkages can improve outcomes in the following ways:

  • Through collective action groups, smallholders can attract larger buyers, access larger markets, negotiate stronger prices, and reduce transaction costs to enhance economies of scale (4, 5).
  • Contract farming can shift sale of yields from highly volatile, informal markets to a more consistent market (2, 6).
  • Certifying smallholders (or facilitating third-party certification) can allow them to access stable, premium prices in commercial markets, regardless of local market fluctuations (7).
  • Strengthening the reliability and quality of smallholder yields by integrating the value chain and designing inclusive business models, alongside increasing market accessibility, can create further stability, encourage good agricultural practice, and help farmers avoid the risk of price volatility (2).
  • A combination of these factors can contribute to higher, steadier incomes for smallholder farmers and more economically stable communities.

What is the scale of the problem?

Studies of several emerging-market countries in Africa and Asia have found that 50–70% of smallholder farmers are not transitioning from subsistence to commercial farming (2). Upwards of 80% to 90% of agricultural goods in most developing countries trade on informal markets, the prices of which are based on arbitrary assessments of supply, demand, and local customer loyalty to certain sellers. An estimated 2% of farmers of 30 or fewer hectares have steady market access (2).

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 choose to sell their yields at sub-optimal prices due to limited market access and time-constrained cash flow needs. Improved access to markets and information about pricing can earn farmers more for their yields.

Rural Communities: Market access is highly correlated with road access and distance to market (2). With limited access to major markets, high transport costs, and limited information about pricing between markets, rural farmers cannot sell for premium prices. Improved access to major markets and comparative pricing information can help rural farmers make more informed decisions about where and when to sell.

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 testing 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, though some are also peri-urban or urban (1). Roughly half of farmers holding 30 or fewer acres of farmland qualify as “vulnerable, market-challenged” or ultra-poor farmers, both characterized by infrequent access to commercial markets (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?

The extent to which this strategy can improve market linkages depends on the investee business and the product they are bringing to market. For this strategy, strengthening links between elements of the value chain to increase market efficiency and smallholder crop value would make an investment’s contribution likely better than what would occur without it.

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?

The potential breadth of impact depends on the fraction of the 450 million smallholder farmers worldwide who lack steady access to formal and commercial markets. While there are no robust estimates for the number of farmers who could receive market linkage-focused improvements, 98% of farmers with holdings of 30 or fewer hectares currently lack steady market access and could likely benefit significantly from improved market linkages (2).

How much change can beneficiaries experience through this strategy?

The amount of change that beneficiaries derive from this strategy depends on the specific market linkages created and the extent to which these effectively increase and stabilize prices farmers earn. Evaluations of related investments 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 (8).
  • 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 that the average household’s hungry season would end by almost 20% (9).

Illustrative Investment

MFarm is an agriculture services and technology company–financed in part by Novastar Ventures–that provides an SMS- and web-based commodity exchange for the five million smallholder farmers in Kenya (10). MFarm agents recruit and support smallholder farmers, in part by aggregating and coordinating collection of produce. Transparency, quality control, and disintermediation help smallholder farmers improve their agricultural practices, achieve higher prices for their produce, and pay lower prices for agricultural inputs through MFarm’s “Groupon” buying model, thereby increasing their incomes.

Draw on Evidence

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

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: 3
Smallholder Participation in Contract Farming and Food Security

Bellemare, Marc, and Lindsey Novak. “Smallholder Participation in Contract Farming and Food Security.” In 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota, no. 169817. Agricultural and Applied Economics Association, 2014.

NESTA: 1
Catalyzing Smallholder Agricultural Finance

Carroll, T., A. Stern, D. Zook, R. Funes, A. Rastegar, and Y. Lien. “Catalyzing Smallholder Agricultural Finance (Sept. 2012). Dalberg Global Development Advisors.” (2012).

NESTA: 2
Comparison of three modes of increasing benefits to farmers within agroforestry tree products market chains in Cameroon

Charly, Facheux, Amos Gyau, Diane Russell, Divine Foundjem-Tita, Charlie Mbosso, Steven Franzel, and Zac Tchoundjeu. “Comparison of three modes of improving benefits to farmers within agroforestry product market chains in Cameroon.” African Journal of Agricultural Research 7, no. 15 (2012): 2336-2343.

NESTA: 2
PROFIT Zambia Impact Assessment

DAI. “PROFIT Zambia Impact Assessment.” 2010.

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: 1
Working with Smallholders: A Handbook for Firms Building Sustainable Supply Chains

International Finance Corporation. (2013). Working with Smallholders: A Handbook for Firms Building Sustainable Supply Chains

NESTA: 1
A Review of Existing Organisational Forms of Smallholder Farmers ’ Associations and their Contractual Relationships with other Market Participants in the East and Southern African ACP Region

Poole, N., & de Frece, A. (2010). A Review of Existing Organisational Forms of Smallholder Farmers ’ Associations and their Contractual Relationships with other Market Participants in the East and Southern African ACP Region. All ACP Agricultural Commodities Programme Paper Series – No.11 (Food and Agriculture Organization of the United Nations), (11).

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.

NESTA: 2
Building Bridges: Value Initiative Program in Jamaica

Morgan, Beverly and Nicardo Neil. “Building Bridges: Value Initiative Program in Jamaica.” SEEP Network, 2012.

NESTA: 2
Engaging smallholders in value chains: Creating new opportunities for beekeepers in Ethiopia

Anand, Shekhar, and Gizachew Sisay. “Engaging Smallholders in Value Chains: Creating new opportunities for beekeepers in Ethiopia.” Oxfam Policy and Practice: Agriculture, Food and Land11, no. 4 (2011): 74-88.

NESTA: 3
Linking Small-Scale Vegetable Farmers To Supermarkets: Effectiveness Assessment Of The GMED India Project

Dunn, E., H. Schiff, and L. Greevey. Linking small-scale vegetable farmers to supermarkets: effectiveness assessment of the GMED India project. No. 166. Micro Report, 2011.

NESTA: 3
Crop price indemnified loans for farmers: A pilot experiment in rural Ghana

Karlan, D., Kutsoati, E., McMillan, M., & Udry, C. (2010). Crop price indemnified loans for farmers: A pilot experiment in rural Ghana. Journal of Risk and Uncertainty, 78(1), 37-55.

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
Value chains, agricultural markets and food security

Food and Agriculture Organization of the United Nations (FAO). “Value chains, agricultural markets and food security.“The State of the Agricultural Commodity Markets In Depth, 2015-2016.

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
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: 1
Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries

Barrett, Christopher B., Maren E. Bachke, Marc F. Bellemare, Hope C. Michelson, Sudha Narayanan, and Thomas F. Walker. “Smallholder participation in contract farming: comparative evidence from five countries.” World Development40, no. 4 (2012): 715-730.

NESTA: 2
Developing markets for dairy production through service development and public-private partnerships in rural Armenia

Suisse. Division de la coopération avec l’Europe de l’Est et la CEI (SDC) and Springfield Centre for Business in Development. “Developing markets for dairy production through service development and public-private partnerships in rural Armenia.” Bern : SDC, 2008.

NESTA: 2
Linking Smallholder Producers to Modern Agri-Food Chains: Case Studies from South Asia, Southeast Asia and China

Sharma, Vijay Paul, Bill Vorley, Jikun Huang, Abid Qaiyum Suleri, Larry Digal, and Thomas A. Reardon, eds.Linking Smallholder Producers to Modern Agri-Food Chains: Case Studies from South Asia, Southeast Asia and China.Vol. 1. Allied Publishers, 2013.

NESTA: 1
What Works for Market Development: A Review of the Evidence

Sunil Sinha, Sunil, Johan Holmberg, Mark Thomas. “What Works for Market Development: A Review of the Evidence.” UTV Working Paper. (2013).

NESTA: 1
Feed the Future learning agenda literature review: expanded markets, value chains, and increased investment

Campbell, R. “Feed the future learning agenda literature review: expanded markets, value chains and increased investment.” prepared for the US Agency for International Development.

NESTA: 2
Outreach, outcomes and sustainability in value chain projects

Creevey, Lucy, Elizabeth Dunn and Elisabeth Farmer. “Outreach, outcomes, and sustainability.” ACDI/VOCA. USAID Microreports 171. 2011.

NESTA: 1
Linking Farmers to Markets for High-Value Agricultural Commodities

Birthal, Pratap S., Awadhesh K. Jha, and Harvinder Singh. “Linking farmers to markets for high-value agricultural commodities.” Agricultural Economics Research Review 20, no. 2007 (2007).

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.