Linking smallholders to high value crop markets: how does the group approach work?

GLOBALGAP certification involves investment not only in human capital – farmer training – but also in infrastructure, such as grading sheds and pesticide stores, and changes in production inputs, such as switching to specific approved pesticides. The initial investments required for certification are non- divisible; however, by splitting costs across a group of farmers, the initial investment cost per farmer can be reduced. Thus certification as a group – through Option 2 or 4 certification 15 – provides the opportunity to achieve economies of scale, which is furthered by being able to purchase inputs in bulk, thereby reducing variable costs. Theoretically, accredited and certified standards can decrease transaction costs from the supermarkets’ perspective. However, at the production level, standards increase transaction costs in terms of implementation and monitoring. These costs increase with the number of producers an exporter deals with. Therefore, unless smallholders are organised as a group, they can lose some of their comparative advantage in relation to larger-scale producers. According to the standards’ guidelines, group certification (as opposed to certification as an individual farmer) requires an internal monitoring and control system, thus acknowledging (indirectly) that farmers are single decision-making units. This internal monitoring and control system means that some of the transaction costs are shifted from the exporter to the producer group.

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