Farmer Organisation Segmentation

What is this guide and why does it matter?

This guide contains actionable steps on how businesses can design and implement Farmer Organization (FO) Segmentation within their smallholder-inclusive business models. Companies often work with farmer organizations to provide goods and services to smallholder farmers more efficiently and to give farmers more agency over their livelihoods. We discuss this in our analyses of Service Delivery Cost & Target Group and Farmer Value Created & Target Group, respectively. For companies, implementing FO segmentation can improve farmer organization efficiency, reduce the company’s risks and service costs, and optimize impact by grouping farmer organizations with similar profiles (e.g., needs, performance, and level of professionalism). FO segmentation is often, but not always, accompanied by graduation support. This guide reflects on how to combine the two and whether or not to do so. The information in this guide is based on the evidence and direct experience of companies that have implemented FO segmentation in a variety of contexts.

This guide is for companies that are either segmenting or looking to implement FO segmentation. It can also serve development or support organizations that help companies with their FO segmentation and graduation strategy.

What is Farmer Organisation Segmentation?

The term Farmer Organization (FO) refers to a local association of smallholder farmers. FOs come in a variety of levels of organization, formality, ambition, and asset ownership. They are also subject to different regulatory environments, in some cases, having to meet clear legal governance and reporting standards and in other cases, operating under much less formality. Their primary goal is to improve the livelihoods of their members through collective action by increasing bargaining power and facilitating access to goods and services, information, and markets. Formal and informal farmer groups, as well as cooperatives, Village Savings and Loans Associations (VLSAs), and Savings and Credit Cooperatives (SACCOs) are all types of FOs.

Farmer Organization (FO) segmentation categorizes FOs into different groups or levels, whereby the provision of goods, services and incentives are tailored to each group depending on needs, profile, organizational capacity, performance or any other relevant factors. Additionally, some businesses may also choose to support farmer organizations with graduation. Through training and support, Farmer Organization graduation enables FOs to transition to a higher level by building professionalism and encouraging better performance.

FO segmentation applies the same logic as, but takes a different entry point to, Farmer segmentation, where the focus is on tailoring services at the level of the individual farmer (rather than FO level). For more insight into Farmer segmentation, check out this brief.

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How does it typically work?

FO segmentation can take different forms, depending on the context and value chain. There is no one-size-fits-all approach. This guide provides an overview of the key considerations for any company designing or strengthening an FO segmentation strategy. The graphic below provides an illustration of how FO segmentation typically works. This guide’s section on “How to implement FO segmentation” provides more detailed guidance on how to design, optimize, and complement an FO segmentation strategy.

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  1. Develop a segmentation strategy.
  2. Assess all FOs in a standardized way and categorize the FOs into pre-defined segments based on the outcome of the assessment.
  3. Provide each FO with the support, goods, and services defined by their segment.
  4. Provide each FO with the rewards defined by their segment, when earned.
  5. Repeat the assessment of the FOs to monitor performance and professionalization.
  6. Evaluate whether the purpose and function of the strategy require adjustment, and make amendments as needed.

Why implement it?

Companies often work with FOs to reduce the costs of engaging with individual farmer organisations. In our analysis of Service Delivery Cost and Target Group, we demonstrate how working with farmer organisations can generate efficiency. However, variation among farmer organisations means that treating them all the same may not deliver the required outcomes. Please click below for more details on the benefits that farmer organisation segmentation can bring for different actors:

Context matters: What are enabling conditions for Farmer Organisation Segmentation?

Context also plays a major role in the viability of FO segmentation and graduation. From implementing innovations across businesses in different contexts, we are able to identify the conditions in which FO segmentation and graduation flourishes. For comparability, this list of contextual factors is standardized across all innovation guides and thus may not be exhaustive for FO segmentation in particular.

  • Value chain
  • Perishability
  • Geographical dispersion of farmers
  • Degree of farmer organisation
  • Policy environment
  • Digital infrastructure
  • Rural Infrastructure

Why not? Key limitations, risks and unintended consequences

From the perspective of the implementing organisation, there are a number of limitations that should be taken into consideration before you implement Farmer Organisation segmentation (and graduation), including:

  • Complicating business operations
  • Increased data collection costs 
  • Unclear return on investment of graduation support  

Similarly, there are unintended consequences that can emerge as a result of segmenting and graduating FOs. These can impact (certain segments of) farmers, the environment, local community, partner organisations and other stakeholders. For instance

  • Limited farmer recognition
  • Farmer misrepresentation 
  • Assessment fatigue
  • Damage to the local environment  

Smarter design choices can help mitigate some of the limitations, risks and unintended consequences of segmenting and graduating FOs. Read on further to see how you can smartly design your intervention.

How to implement Farmer Organisation Segmentation

This section first outlines the steps involved in segmenting farmer organisations, before providing key recommendations on how segmentation can be optimized to improve key performance outcomes. This section also includes insight into how to add a graduation strategy. Click on each of the sub-headings below for more details. 

How to get started 

From our work supporting companies in the design and initial implementation of Farmer Organisation segmentation, we propose the following four steps with an optional fifth step for a graduation strategy:

How to optimize your Farmer Organisation Segmentation strategy

From our work supporting companies on the ground, we have identified a number of enhancements that can be made to improve outcomes for companies, farmer organisations, and farmers.

How to complement your FO Segmentation strategy

The successful implementation of innovations such as FO segmentation can often be supported by other innovations implemented simultaneously. From our experience, the following innovations work well alongside FO segmentation:

  • Contract farming - Signing contracts with farmer organisations contributes to the transparency and formalization of the relationship. Moreover, the contract can include clauses regarding expected targets, minimum prices, and quality premiums, which can be used as additional criteria to segment FOs on or as a reward in a graduation scheme.
  • Farm Information Management System – This allows FOs to digitally facilitate data collection and storage, which allows a company to have better quality, more up-to-date information on FOs for evaluation, comparison, and ultimately, segmentation. Click here to access a guide on implementing FMIS.
  • Direct input financing - Providing pre-financing to FOs for the purchase of inputs can benefit the FOs as they can purchase in bulk at lower prices. It can also help them overcome working capital constraints. This innovation can be used as an incentive for FOs to graduate to more professional or higher performing FO segments. 
  • Tripartite financing agreements - The company and a financial institution working together to develop a financing scheme, where the risk and administrative burden of the loan are shared between the organisations, increases FOs access to capital and generally provides them with better terms (e.g. lower interest rates, repayment schedules aligned with harvesting periods, longer loan duration). It is typically, a reward for better performing FO segments. Click here for more details on tripartite financing agreements 

What is the impact of FO segmentation?

There are a number of ways in which segmenting Farmer Organisations can impact outcomes:

Where to find more inspiration