Service Delivery Cost per Farmer vs Target Group

Strength of Relationship 4/5

  • Strong relationship between driver and outcome variables
  • Results are consistent across analytical models used
  • Few limitations regarding sample or indicator

Key Messages

Companies engaging with individual farmers have a service delivery cost per farmer almost three times greater than those engaging with formal or informal farmer groups (definition of target group). This confirms a commonly-held hypothesis in the sector: working with groups of farmers proves a more efficient method of service provision compared to engaging with individual farmers.

We believe these results are due to four main reasons:

  • Reducing the number of touchpoints
  • Enabling cost sharing with farmer groups
  • Restrict complex service offerings based on professionalism
  • Limit capacity investment in informal farmer groups

Keep reading to find out more.

Understanding the role of target group in service delivery cost per farmer

The (actual or perceived) high costs involved in engaging directly with individual farmers restricts many companies from increasing the scope and value of their interventions, and from expanding the number of smallholders they work with. As a result, a considerable focus of the development sector has been on the organization of farmers into groups, in order to reduce costs and create more value for farmers (de Brauw and Bulte, 2021). Our analyses show that businesses working with (formal and informal) farmer groups see a lower service delivery cost per farmer than those working with unorganized farmers.

READ MORE: How we define target group

The cost difference between working with unorganized farmers and working with those in groups is considerable. On average, businesses working with unorganized farmers tend to spend 170% more than those working with (in)formal farmer groups. Our modelling analyses, which control for the estimated relationships between service delivery cost per farmer and all other drivers analyzed, confirm this relationship.

Discover further insights from our machine learning analysis

Link to other outcomes

Working with farmer organizations is often driven by cost considerations, so we can expect that there may be trade-offs when looking at other outcomes. We find that:

  • For Direct Cost Recovery, we found that models engaging with unorganized farmers are associated with lower direct cost recovery compared to those engaging with farmer groups. Companies working with formal farmer groups tended to show the highest direct cost recovery followed by those working with informal farmer groups.  Click here to read more.
  • For Value Creation at Farm-Level, we found that business models targeting unorganized farmers are associated with higher levels of value creation compared to those working with formal or informal farmer groups. Click here to read more 

Diving deeper: what do we think explains these results?

It is helpful to look at the results through two different but complementary lenses. An efficiency lens focuses on how costs can be reduced without compromising quality, while an underinvestment lens focuses on how investments can be increased, with the goal of driving increased direct cost recovery and improved farmer value.

The efficiency lens shows that targeting farmer groups can reduce the service delivery cost per farmer by:

  1. Reducing the number of touchpoints – Engaging with farmer groups allows companies to have less direct interaction with farmers. This is especially important for businesses seeking to scale up their business models
  2. Enabling cost sharing with farmer groups – Well-organized farmer groups often play a role in the last mile delivery of services and procurement, reducing service costs (staff, logistics, etc.) for companies

The underinvestment lens uncovers recurring patterns within business’ approaches to smallholder investment. We observe that companies often:

  1. Restrict complex service offerings based on professionalism – The less stable and professional farmer groups are, the more risky it is to provide more complex and expensive services
  2. Limit capacity investment in informal farmer groups – Less than half of business models invest in the improvement of organizational structures and business management skills. Investment in organizational support is even lower in informal farmer groups, where the need is arguably higher if these groups are to play an effective role as business partners

Clicking on each of the preceding reasons provides a longer overview of our thinking, including more supporting qualitative and quantitative insights.

Implications – so what does this mean for you?

Based on our findings, there are a number of potential next steps for your organization.

What is your role?

Reflections on data limitations and further research

The IDH FarmFit Hub is a living document which we are constantly updating with new data, new analysis, validation by our partners and case studies. We would like to emphasize the following:

Caveats and limitations of our current approach 

Although we believe our analyses and insights offer a solid set of insights that can already be used to inform decision-making, there are a number of caveats that we wish to be open about.

1. Target group is based on the most prevalent type of farmer organization

2. Our quantitative analyses do not fully capture the quality of farmer organizations

Next steps that we have planned to update these findings in the near future  

There are no further updates planned to these insights in the immediate future.

Suggestions for additional research by our peers and partners

1. Research into the appropriate private sector contribution into the professionalization of farmer organizations