Business models for linking smallholder farmers to markets. The case of banana producers in Meru County, Kenya

Abstract

Recent research emphasizes adopting business models that not only improve market linkages but also enable inclusion of smallholder farmers in high value markets along the value chains. While evidence points to positive impact of business models choice, studies seldom exploit the extent of their impact on smallholder gross income. Besides, socioeconomic and institutional factors associated with such choice of the models are discussed incoherently, hence less understood. The objectives of this study were: to identify and characterize various business models used by banana farmers to link with other value chain players; to determine the socioeconomic factors that influence the choice of business models by the farmer and to investigate the effect of business models on the gross margin of farmers participating in the value chain. In this study, a multistage sampling technique and systematic sampling was conducted and 146 banana farmers in Meru County sampled. An assumption was made that there was mutual exclusivity in choice of a business model. Broadly, three categories were identified: buyer-driven, producer-driven and intermediary-driven business models. Farmers who chose buyer-driven models were more likely to link to markets through processors, exporters, retailers and often engaged in contract marketing. They were motivated by higher price, provision for farm input, increased profits and market availability to their produce. Those in producer-driven models exploited collective action in farmer groups and co-operatives including sharecropping. Farmers who chose intermediary-driven models were more likely to engage in joint ventures with traders, wholesalers, NGOs and Government. Multinomial logit results showed that sex, age, education level, group membership, income and having someone to initiate the market linkage process positively influenced choice of the business model. Smallholders (79.45%) realized a gross margin of below USD 200 per month. This high-resolution evidence of how socioeconomic and institutional factors affect choice of business model and the consequent influence impact of the model on gross margin can inform researchers and policy-makers on best approaches to use in linking smallholders to markets.