Incentive Structures in Collective Marketing

Collective marketing has appeared as an issue in nearly all countries. Smallholder farmers are (per definition) scattered and need to bulk their products in order to have access to (urban) markets. Bulking can be done through different value chain and agents, like agents and traders, processing companies, state marketing boards or collective marketing arrangements. These different modalities of sourcing compete in offering their services to farmers. In view of this competition, farmers’ organizations involved in collective marketing will face challenges, related with 1) the logistic efficiency of providing these services; and 2) the organization and governance of the arrangement. Successful collective marketing experiences have resolved both challenges by organizing and fine-tuning their internal management and transaction modalities with members and non-members e.g. related with pricing, payments, and quantity or quality requirements. The research focused on the incentive structures (e.g. internal rules, contract conditions, control systems) that have developed in their transaction with the farmers and that have proven effective and feasible in the prevailing market conditions. The comparative research reviewed existing studies, and selected several successful experiences for more detailed case-study research. As these best practices are always context specific (e.g. type of commodities, supporting institutions, scale of the organization, etc.), a comparative framework was used that made these conditions explicit.

An ESFIM-research Brief has been complied with ten ‘common tensions’ (agency dilemmas) in collective marketing Based on these tensions, case-study evidence was collected to be used in an on-line tool to exchange experiences. These tensions are: ‘Regulating Member Supply’, Quality Assurance Systems’, ‘Coping with Working Capital Constraints’, ‘Anticipating Side-Selling’, ‘Ways to Dispose of Profits’, ‘Free-riding on Member Investments’, ‘Different Risk Preferences and Time Horizons’, ‘Supervision of Professional Staff’, ‘Individual Liability for Group Actions’, and ‘Managing Political Aspirations’.

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RESOLVING THE CHALLENGES OF COLLECTIVE MARKETING by Giel Ton, June 2010

Smallholder farmers are -by definition- scattered and, therefore, generally there is a need to bulk their produce in order to access urban markets or the processing industry. Bulking can be done through different modalities and by different type of actors, like middle-men and traders, processing companies, state marketing boards or collective marketing arrangements. This bulking has a strong logistic component and a need for working capital (trade finance), and requires a cost-efficient way of organisation and control of transactions. The present research wants to improve the capacities of collective marketing arrangements, like cooperatives, producer associations, village enterprises, etc.  to resolve the challenges  of collective marketing in face of competition. The ESFIM Research Brief n04 – collective marketing lists ten areas where the tensions between members and the organisation tend to be located, and for which organisations have found (often quite innovative) solutions that may inspire other organisations to implement similar solutions in their specific conditions.