Rural productive alliances pair commercial buyers with small rural producer organizations. By increasing the rural producers’ participation in modern supply chains, these alliances increase incomes and employment. They also create incentives for buyers and smallholders to establish mutually beneficial relationships by ensuring consistent quality and delivery of products.
It is not easy for smallholder farmers to enter into and benefit sustainably from modern agricultural value chains. The supermarket revolution has changed the parameters of market demand: exporters, agribusinesses, and supermarkets require large quantities of consistently high-quality goods that meet sanitary and phytosanitary standards and arrive on time. Small-scale producers are often consigned to selling in less demanding, less financially rewarding venues, such as open-air markets or through intermediaries. Smallholders’ poor knowledge of distribution channels and prices also undermines their ability to negotiate with buyers.
Support for the creation of rural productive alliances—an economic agreement between formally organized producers (cooperatives or associations) and at least one buyer—can remedy these challenges. Producers achieve economies of scale, can ensure product quality and traceability, and improve their position in the value chain through their involvement in basic processing (selecting, grading, and packaging). A revolving fund enables the organization to develop financial management skills and obtain seed and long-term capital, both key components of long-term competitiveness.
How it works
Rural productive alliances are often developed with government and donor support. In these cases, the cycle begins with a call for proposals to producer organizations and their commercial partners. The producer organization prepares a draft business plan which, if selected, is developed into a full-fledged business plan with the help of a selected private service provider. The private service provider also submits pre-investment feasibility studies. Ultimately, plans with satisfactory technical, financial, and market feasibility receive funding.
Alliance agreements typically specify:
- Product characteristics, such as size and varieties to be produced.
- Quantity to be produced or bought.
- Production modalities: how a product will be delivered, by whom, and when, as well as grading and packing requirements.
- Payment modalities and price determination criteria.
- The buyer’s contribution, such as technical assistance, specific inputs, and arrangements for input reimbursement.