Service Delivery Cost per Farmer vs Target Group
Key Messages
Companies engaging with individual farmers
have a
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 (
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.
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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:
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 modelsEnabling 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:
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 servicesLimit 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?
- Benchmark your service delivery cost per farmer, direct cost recovery and value creation at farm-level against comparable peers. Our data shows trade-offs between service delivery cost per farmer and the other outcome areas when farmer groups are targeted or not. Given these trade-offs, evaluate whether your level of investment is commensurate with how much you charge for services or the value created at farm level.
- If you are designing and/or improving your business model, consider what is important for you. If you are focusing solely on farmer impact, reaching farmers individually could be the best approach. If you care about scale and efficiency, you may want to consider to work with farmer groups.
- If you are not engaging with farmer groups:
- Reflect on whether aggregating farmers is an option without compromising the quality of services being delivered.
- Check tools and resources on the AMEA toolbox to understand best practices in aggregating farmers, assessing the extent to which they would be capable of absorbing responsibilities and what capacity building you may need to provide in the interim.
- If you are already engaging with farmer groups:
- Include farmer segmentation and graduation structurally into your business model and set the right incentives to ensure loyalty. Take a look at this Farmer organization segmentation innovation guide to see how you can tailor the services provided to farmer organizations to their needs and risk profile.
- Reach out to Farmfit Business Support so we can analyze your business and work with you to find opportunities to improve your engagement with farmer organizations and help mitigate potential trade-offs between cost and value creation.
- Using farmer groups to support last mile delivery can save a lot of time and money. However, ensure that your farmer groups are capable of absorbing such responsibilities by investing in building their organizational capacity. Check tools and resources on the AMEA toolbox on how you can professionalize farmer organizations.
- Utilize our insights to better understand the risks and financial trade-offs that investees may experience based on whether they target organized or unorganized farmers
- Assess which financial products and modalities can be developed to meet the varying needs and risk profiles of formal and informal farmer groups. For instance, consider how lower risk products such as group bank accounts and village savings and loans associations (VSLAs) can allow ‘unbankable’ farmer groups to build up the credit history needed to later access loan products
- Professionalizing farmer groups often has high upfront costs and limited direct return for companies in the short term. Consider how concessional finance can be leveraged to subsidize the capacity building required to professionalize farmer
- Support farmer organization professionalization with targeted capacity building. Capacity building and governance strengthening within farmer organizations are key success factors to increasing their effectiveness as business partners in agricultural value chains and professional, well functioning farmer organizations can help business models to scale efficiently.
- Ensure that interventions build longer term capacity in farmer groups with attention towards succession plans and institutionalizing improvements. While donors and support organizations tend to invest substantially in farmer organizations, professionalism often regresses once support has ended (
Gordon and Chell, 2022 ). Donors and support organizations should align with companies to ensure the private sector can provide ongoing support to maintain the organizational capacity of farmer groups - Coordinate and drive standardization in approaches to farmer organization professionalization. There are many fragmented and unaligned efforts toward farmer organization professionalization. Usage of tools to standardize capabilities (e.g., SCOPEinsight) and common approaches to graduating farmer organizations can improve the efficiency of technical assistance and business development services
- Assess the legal framework used to classify farmer organizations. Consider how effective rules and regulations are in indicating the professionalism of farmer organizations. Check whether the requirements to formalize a farmer organization are consistent with the internationally recognized IWA 29 standards for a professional farmer organization
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.
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
de Brauw, Alan; and Bulte, Erwin. 2021. African farmers, value chains and agricultural development: An economic and institutional perspective. Palgrave Studies in Agricultural Economics and Food Policy. Cham, Switzerland: Palgrave Macmillan. https://doi.org/10.1007/978-3-030-88693-6
Gordon, Ann; and Chell, Matthew. 2022. Producer Organizations Access to Finance: Lessons from the Cocoa Sector in Côte d’Ivoire. Agribusiness Market Ecosystems Alliance
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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
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