Essays on producer organizations : Business models, social inclusion and food safety

Summary

Agri-food value chains in developing countries are experiencing rapid transformations because of increased urbanization, incomes, and supermarket retail chains, which have led to tighter food safety requirements. These changes call for upgrading and coordination of activities and decisions by actors in the chain to ensure value chain efficiency and to meet customer’s demands. Although wide literature is available on value chain upgrading and coordination, most research adopts a chain-wide perspective. Little has been done to understand the role of specific actors like POs. Yet, POs form the main channel through which smallholders are included in agri-food value chains in developing countries. More so, previous studies focus on economic upgrading while little attention has been given to social upgrading. Scholars are beginning to question whether economic upgrading leads to social upgrading.

The present thesis aims to gain insights into the role of POs in value chain coordination and upgrading in agri-food value chains, and assess the relationship between economic upgrading and social upgrading.

The thesis addresses this general aim using four research questions and by using both qualitative and quantitative methods. Chapter 2 takes a first step in answering the general aim by focusing on the business models of POs. With the changing coordination and upgrading strategies of value chains, POs are expected to change their business models as they adopt coping strategies. However, not much is known about the business models of POs. Thus, Chapter 2 fill this gap by answering the following question:

RQ1: What are the business model components of POs and what typology of PO business models can be derived?

Based on key informant interviews with managers and members of the board of 22 POs, experts from the government, and NGOs together with observations of PO activities and meetings, qualitative data was obtained to explore business models of POs. The study finds that key activities, key resources, members, governance structure, cost structure, and revenue streams, customer segments, legal form, and member and customer value propositions are important business model components of POs. Four types of business models of POs were derived including bargaining, cooling, hub, and processing. A processing PO is associated with the highest level of vertical integration and economic upgrading, while a bargaining PO is associated with low economic upgrading and vertical coordination in value chains. Cooling and hub POs facilitate intermediate levels. Because of its focus on improving competitiveness in value chains, we consider a processing PO as more business-oriented than bargaining, cooling, and hub POs. A bargaining PO is a typical example of a traditional organization or in other words, a less business-oriented organization.

Chapter 3 extends the scope of the initial study by including a survey of smallholders in bargaining and processing POs to examine social inclusion. The purpose of this study is to assess the determinants of smallholders’ membership and participation in decision-making processes in POs. This will help in explaining social inclusion in POs, thus contributing to understanding social upgradining in value chains. The following research question was addressed:

RQ2: What factors determine farmers’ membership and their participation in decision-making in POs?

Using the economic utility theory and multinomial logit analysis of quantitative data from the 595 smallholder dairy farmers, results show that membership in bargaining POs favors farmers with hired labor and those in remote locations. Farmers who are more educated, own pure breeds, and have a large number of cows are likely to belong to processing POs compared to non-membership. Furthermore, farmers who are located in less remote areas are more likely to be members of processing POs versus non-membership. A sequential logit model was employed to analyze smallholder participation in three decision-making stages: attending the AGM, speaking up in the AGM, and serving on the board. The relationship between membership in processing POs and participation is negative. Membership in processing POs reduces the likelihood to speak up in the AGM and to serve on the board. We find that farm assets such as ownership of pure breed cows, number of cows, and farm size are positively associated with attending the AGM of bargaining POs while young farmers and women are excluded from the decision-making process in processing POs. Likewise, the probability of small farmers and those with low social capital to participate in the processing POs is low. The study provides insights into the role of POs in social upgrading in value chains.

Chapter 4 offers further insights into the role of POs in social upgrading by examining who benefits from inclusion. It is argued that women control fewer resources, have less decision-making power over household income, and face time constraints because of their triple burden of productive, domestic, and community responsibilities (IFPRI, 2020). This creates barriers to women's participation in agri-food value chains. POs have been recognized as promising channels for women smallholders to overcome agricultural production and marketing challenges by facilitating access to markets, information, training, and inputs, and increasing women empowerment. Chapter 4 examines the effect of membership in POs on women empowerment by answering the following question:

RQ3: What is the effect of household and woman membership in POs on women empowerment?

The effect of PO membership is distinguished by the type of PO and the gender of a member. Quantitative data was used from 267 men and 207 women in member and non-member

married households, and an entropy balancing technique and regression models were employed to assess the membership effect. Empowerment indicators are drawn from the Women Empowerment Livestock Index (WELI) tool and include

(1) decisions about agricultural production; (2) decisions related to nutrition; (3) access to and control over resources; (4) control over and use of income; (5) access to and control over opportunities; and (6) workload. We find that household membership in a bargaining PO, that is, regardless of whether the man or the woman in the household is the member, increases women’s ownership of cows, their control over decisions on buying and selling of cows and dairy production while household membership in processing POs increases women’s control over dairy production decisions. Distinguishing the membership effect by the gender of the member, we find that woman membership in bargaining POs increases women’s ownership of cows but woman membership in processing POs has no significant effect on this outcome. The paper suggests that the type of PO has implications for women empowerment with bargaining POs appearing to be more empowering than processing POs.

In Chapter 5, we gather empirical evidence from smallholders on economic upgrading through POs. The study focuses on process upgrading regarding improvement of food safety control measures. Food safety is the main determinant for coordination and upgrading in value chains and for inclusion of smallholders. The study examines the effect of membership in POs on the adoption of food safety measures. The research question asked is as follows:

RQ4: What is the effect of household membership in POs on the adoption of food safety measures?

We assess whether and to what extent membership in POs affects farmers’ adoption of food safety measures, and explore the differences in membership effects across POs. Using a literature review and 11 expert interviews, we identify four categories of food safety measures related to production: milking, milk storage, milking area, and animal health. The expert interviews aided in rating the importance of each category on milk safety and in generating the food safety indexes for the categories. We then used the food safety indexes to empirically evaluate the effect of membership on the adoption of the food safety measures across the four categories. For this empirical estimation, a quantitative survey with 595 smallholder dairy farmers in Kenya was employed. Using the propensity score matching technique to control for selection bias, our results show that membership positively and significantly improves smallholders’ adoption of food safety measures related to milk storage and the cleaning of the milking area. Notably, the estimation of the membership effects across POs reveals that members of processing POs achieve higher adoption levels of food safety measures than members of bargaining POs. The effect size of membership in processing POs is larger than that of membership in bargaining POs. We confirm that adopting vertical integration entails following strict food safety control measures.

In sum, the four research questions have contributed to understanding value chain coordination and upgrading through POs. Regarding business models of POs, we show that where low coordination and economic upgrading exist in value chains, POs perform traditional functions of collection and bulking to improve economies of scale. However, as the need for coordination and economic upgrading increases, POs vertically integrate into processing, provide additional services such as inputs and technical training, hire professional managers, improve value proposition for members and customers and adopt strict food safety control measures. The typology is useful in formulating a business model design when establishing a new PO. For researchers, the typology is important for analyzing the impact of different POs on smallholder livelihoods and the performance of the organizations.

In terms of the relationship between economic upgrading and social upgrading, bargaining POs are associated with low economic upgrading, but high social upgrading. Processing POs are associated with high economic upgrading, i.e., high food safety compliance, access to technical services, and vertical integration. However, this results in a trade-off where poor and women farmers are excluded from value chains. If development practitioners aim to promote inclusive growth, supporting bargaining POs is recommended. For processing POs, provision of additional services such as financial and technical training to the poorest farmers would be needed to improve inclusion in highly upgraded value chains.