TechnoServe Coalition for Smallholder Sourcing

The TechnoServe Coalition for Smallholder Sourcing is dedicated to generating evidence on innovations in smallholder sourcing that improve outcomes for farmers and companies, as well as promoting broad-based adoption of effective innovations.

Context

The pathways out of poverty are limited for a large population of rural sub-Saharan Africa, but the most tangible pathway involves the commercialization of agriculture. Millions of sub-Saharan smallholder farmers are involved in contract farming, also known as outgrower schemes – direct, mutually beneficial contractual relationships with large agribusinesses that provide them with valuable access to inputs, credit, agronomic training and markets. Close to 2 million smallholders are incorporated into 20 of the region’s largest outgrower programs, many of which involve large multinationals that have the potential to exert significant influence on the commercialization of African agriculture.

Opportunity

While these large scale contract farming programs present a powerful opportunity to reduce poverty, they often fall short of their potential due to a variety of factors, including:

  • Side selling and difficult contractual environment: farmers defaulting on part or their full contract by “side selling” to other buyers (often to avoid repaying input loans or when they have an immediate need for cash) results in significant losses for companies. Designing and enforcing contracts that effectively control for side selling is inherently challenging when working within weak developing country legal frameworks and with poor, remote smallholder farmers. Companies often bear a disproportionate amount of risk, but have little legal recourse if and when farmers default on their contracts. Smallholders, on the other hand, typically have limited cash flow, and therefore may have few options outside of defaulting in the face of emergencies or lower than expected production volumes.
  • High costs of intermediation: companies sourcing from smallholder farmers typically have to invest heavily in building their own market infrastructure – from physical infrastructure to input markets, access to finance and market information – as market linkages to smallholders are often poor to nonexistent. In addition, companies must invest in providing agronomic training for farmers in order for smallholder production to meet minimum company volume and quality requirements.
  • Low productivity and quality: while smallholders in contract farming schemes generally achieve higher productivity levels than those not under contract, yields and quality levels among smallholders are still lower and less consistent than those achieved by the commercial farmers that traditionally supply large agribusinesses. Smallholders face a range of obstacles that pose direct and indirect challenges to productivity and quality, including poorly functioning or non-existent agricultural support systems and services, as well as norms and identities that are not aligned with commercial farming.

While there are significant challenges to smallholder contract farming, the economic incentives for overcoming them are clearly aligned between farmers and companies.  A number of innovative approaches with potential to effectively address these challenges were identified during a preparatory research phase for this initiative -- from mobile supply chain solutions to behavioral interventions, performance incentives, mechanization, and savings and credit initiatives, among others. These innovations have clear causal linkages to improved outcomes for companies and farmers, and many have demonstrated effectiveness in addressing persistent challenges through initial studies. However, these innovations have yet to be broadly adopted across smallholder contract farming operators.

Strategy

The TechnoServe Coalition for Smallholder Sourcing is dedicated to generating evidence on innovations in smallholder sourcing that improve outcomes for farmers and companies, as well as promoting broad-based adoption of effective innovations. Launched in 2015, the Coalition will be composed of three private companies operating contract farming schemes at scale in sub-Saharan Africa, and a high caliber research partner, IDinsight, during a three-year proof of concept phase. Designed with innovation, experimentation, agility and openness as its core values, the Coalition’s vision is to ultimately expand the reach of outgrower schemes and enhance their value to both companies and farmers through the adoption of improved practices.

Innovations to be tested span a broad spectrum in terms of scale and scope and include the following:

  • An SMS-based platform to enable regular, two-way communication between the company and its outgrower/supplier base.
  • A farmer data management system to uniquely identify farmers and enable stratification and better targeting of credit and extension services among the company’s outgrower base.
  • A concentration farming scheme where farmers are provided access to 5 to 10 hectares of land on a company-managed farming block with access to on-site services such as mechanization, inputs and agronomic advice.
  • Integration of a staple crop (maize) into a company’s product portfolio to encourage farmer loyalty for core cash crops and to diversify company costs and risks.
  • An input sale strategy of offering a high-quality agricultural input for sale to farmers at the time and place that they receive cash from the sale of cash crops.
  • An intervention grounded in the behavioral sciences aimed at encouraging timely planting among farmers through a just-in-time planting reminder via SMS.
  • An initiative to pilot and test the effectiveness of concrete farmer engagement and extension strategies aimed at better engaging and supporting female outgrowers.

Results

In 2016, the Gulu Agricultural Development Company (GADC) in northern Uganda piloted an input sale strategy for offering high-quality hybrid maize seed to its farmers that they could buy at the time and place that they sold cash crops. A randomized evaluation found that this strategy increased adoption of hybrid maize seed by 40 percent. The principles of this simple and inexpensive innovation, tested in a real business setting, can be applied across many settings to cost-effectively increase adoption of improved inputs and other beneficial goods and services. View the full report. 

Partners

Plexus Cotton Mozambique operates a cotton ginning and export business in the Cabo Delgado and Nampula provinces of Mozambique. PML is leveraging data to provide stratified and targeted support to higher potential farmers, and is testing a behavioral strategy to boost productivity by encouraging timely planting.

Gulu Agricultural Development Company (GADC) is a diversified agricultural company focused on cotton, sesame, chili and sunflower export. GADC sources from over 80,000 smallholders throughout the northern region of Uganda. GADC is incorporating a staple crop into the company’s crop portfolio to strengthen farmer loyalty and spread company overheads.

SAN-JFS operates a cotton ginning and export business in the Niassa province of Mozambique, providing inputs to and purchasing cotton from 30,000 smallholders across the province. SAN-JFS is piloting a farming model involving company-managed farming hubs, and leveraging SMS technology to strengthen farmer loyalty and satisfaction.

IDinsight is a unique client-service organization that helps social sector managers generate and use evidence to inform program decisions. The IDinsight team combines top-tier consulting experience with deep impact measurement expertise to help social sector organizations amplify their impact. IDinsight’s core service tailors rigorous impact evaluation methodologies – including, but not limited to, randomized controlled trials – to the decision-making needs of governments, NGOs and other development stakeholders across Asia and Africa. The IDinsight team has coordinated over 40 monitoring and impact evaluation engagements in Africa and Asia, and has a team of over 50 full-time staff based in Zambia, Kenya, India and the United States.