The effect of collective action on smallholder income and asset holdings in Kenya

Highlights

• Participation in producer marketing organizations leads to improved smallholder welfare.

• Achieved through increased income and asset-holdings.

• Participation of smallholders in producer organizations also reduces poverty.

• The impact is significant for medium-scale farmers than poor small-scale farmers.

Abstract

Collective action through rural producer marketing organizations can be significant for improving smallholder welfare thus contributing to rural economic growth and poverty alleviation. The purpose of this paper was to examine the impact of farmer group membership on smallholder welfare and poverty. The study compared farmers in producer-marketing organizations and non-members involved in growing mango from the eastern part of Kenya. Propensity score matching method was used to estimate the average treatment effect of group membership on smallholder welfare and poverty. The heterogeneity across propensity score and farm size for the estimated impact were also determined using the smoothing differencing method. A total of 600 households were interviewed comprising of 400 non-members and 200 members. The study shows that group membership significantly improves smallholder total household income and asset holdings, and reduces poverty. This effect is significant for medium-scale farmers participating in collective action as compared to poor small-scale and large-scale farmers. The important factors which determine smallholder participation in collective action include human capital such as age and education level of the household head, market access, natural and physical capital such as total farm size and number of other crops grown. This study expands on the current literature about the effect of collective action on smallholder welfare by investigating the impact on asset holdings and poverty in addition to the total household income.

Introduction

Domestic food markets are growing in developing countries which are as a result of the increase of middle-class households (Reardon, 2015, Reardon et al., 2015) demanding higher value agricultural produce (Reardon et al., 2013, Reardon et al., 2015, Wiggins, 2014). This is evident in Africa and Asian countries (Reardon, 2015, Tschirley et al., 2015). The rapid increase in urban incomes as a result of urbanization and associated diet diversification attributed to the rise of the middle-class provide an opportunity for rural economic growth and poverty alleviation (Reardon et al., 2013, Reardon et al., 2015). Similarly, a rapid transformation in processing, wholesale, and logistics in the middle segments of the value chain through small to medium-sized enterprises (Reardon et al., 2013), is noted in sectors such as horticultural, dairy, poultry, tubers, and grains which has occurred in some countries in Africa, like, Kenya, Ethiopia, Zambia, Zimbabwe, Nigeria, Senegal, South Africa, Mozambique and Ghana (Reardon et al., 2013). These developments provide increasing market opportunities for smallholders (Reardon et al., 2015).

Despite the changes, smallholders in rural Africa face high levels of poverty (Barrett et al., 2015, Radeny et al., 2012) as result of limited access to market opportunities (Barrett, 2008, Poulton et al., 2010) which is attributed to high transaction costs and imperfect markets (Barrett, 2008, Jayne et al., 2010, Key et al., 2000, Markelova and Mwangi, 2010, Ortmann and King, 2010, Poulton et al., 2010). There is an increased support through non-governmental organizations (NGOs), donor agencies and government through collective action in producer marketing groups to encourage smallholder participation in the emerging markets. However, research has only to a limited extent systematically analyzed the effect of collective action through producer marketing organizations on poverty among smallholders in rural Africa, especially regarding dry land crops. With the exceptions of Bernard et al., 2008, Bernard et al., 2008, Shiferaw et al., 2009 that examined the legumes and cereals in Ethiopia and Kenya respectively, little is known about other drylands crops.

Recent studies have shown that collective action through producer organizations can help smallholders to access domestic urban markets and international markets through increased economies of scale, increased bargaining power and ability to negotiate better prices, facilitates certification and labeling (Markelova et al., 2009, Markelova and Mwangi, 2010). Farmer groups can increase member productivity through access to resources, such as credit, technical assistance, transport, information, new technology, and management skills that would be difficult to attain individually (Abebaw and Haile, 2013, Bernard and Spielman, 2009, Chiputwa et al., 2015, Fischer and Qaim, 2012).

Available evidence, therefore, suggests that smallholders’ can consequently improve their livelihoods through participation in producer organizations thus contribute to the reduction of poverty. However, only a few studies have analyzed the impact of collective action on smallholders’ income and poverty. Most studies focus on general effects with little focus, for example, who is benefiting? (Chagwiza et al., 2016, Fischer and Qaim, 2012, Ma and Abdulai, 2016, Verhofstadt and Maertens, 2014). To understand whether the programs are beneficial to the rural poor it is important to analyze the distribution effects. In previous studies, only income is used as an indicator for poverty and potential indirect effects such as household consumption linkages have been given limited attention (Maertens, Minten, & Swinnen, 2012). It is important to note that since most of these studies are done in rural areas, there is a risk of under-reporting the income levels (Jan, Chishti, & Eberli, 2008). Estimation of poverty based on income reports only transient poverty due to the variations in the income (Carter & Barrett, 2006). Basing the analysis on income alone, may therefore, not be comprehensive. Consumption per household is a more accurately reported estimate of poverty because it includes smoothing through, for example, asset change and accounts for fluctuations in the income (Coudouel, Hentschel, & Wodon, 2002). Previous studies have not considered asset accumulation; however, asset accumulation is a better measure of poverty than income or consumption (Barrett, 2008, Carter and Barrett, 2006).

Therefore, the aim of this study is to investigate the impact of collective action on rural farmers’ livelihood by including simultaneously measures of household income, consumption, and asset holdings. The study was conducted among smallholder farmers in the mango value chain of Kenya. Mango provides an interesting case in which to investigate welfare effects. First, mango is one of the most important horticulture crops in Kenya as it supports a large number of smallholder farmers as a source of food and main income in semi-arid areas (Kehlenbeck, Rohde, Njuguna, & Jamnadass, 2012). Second, the case helps to understand the livelihood strategies for smallholders living in resource-constrained semi-arid areas who have limited opportunities to improve their livelihoods. The mango value chain has been changing with the increased use of improved mango varieties which requires significant amounts of fertilizers and pesticides. Mango is largely traded on the domestic market 98% (Msabeni, Muchai, Masinde, Mato, & Gathara, 2010) which provides a good case to understand the impact of collective action as an institutional mechanism in domestic value chains.

This article contributes to existing literature on the impacts of producer group membership on smallholder welfare and poverty. This is achieved by adding a new perspective on linkages between group membership, consumption, asset holdings and poverty. In sub-Saharan Africa, several organizations have invested in the development of producer groups to enable smallholders’ access high-value markets as a specific strategy for poverty reduction. This study increases our understanding of the effect of this value chain interventions on smallholder livelihoods.

The rest of this paper is organized as follows. The next section reviews the existing evidence on the importance of collective action in assisting smallholders to access input and output markets, and its effect on smallholder welfare. The transaction cost economics theory and determinants of collective action and a brief background of collective action marketing initiative in Kenya are presented. The methodology section outlines data collection and the econometric approach applied to estimate the impact of producer organization membership on smallholder income, consumption and asset holdings. Next, the results are presented and discussed. Lastly, the main findings are summarized; policy implications are drawn and potential further research discussed.