Effect of social capital on performance of smallholder producer organizations: the case of groundnut growers in Western Kenya

Abstract

Due to poor market and physical infrastructure, high transaction costs, pnce risk, and information problems, past liberalization and structural adjustment policies have not been able to improve market access, hence decreased commercialization for smallholder farmers. The private sector that replaced public sector has largely failed to make the investments needed for effective market coordination. Consequently, over the past few decades, scientists and development agencies have highlighted production and marketing challenges faced by smallholder farmers and suggested various forms of policy intervention. Collective action has been one of the recommended interventions in production and marketing through producer and marketing organizations. Collective action arises when people come together because of constraints and to take joint action and decisions to accomplish an outcome. Hence, it is vital to know what governments can do to better support the farmer organizations. Collective action (in form of farmer organizations) is widely recognized as a positive force for rural development in Africa. However emerging empirical evidence suggests that farmer organizations perform differently. Are there certain structural factors or characteristics of farmer organizations that contribute to or inhibit effective performance? The current study therefore seeks to examine the role of social capital on the performance of farmer organizations. Social capital refers to the quality and depth of the relationships between people in a group or community. It is the obligations and expectations, information channels and social norms. In particular, the study assesses the effect of various dimensions of social capital on (i) commercialization of smallholders' produce and (ii) on the performance of the farmer organizations' marketing function. It uses data collected in 2007 from 225 farmers selected by membership to farmer organizations in 45 farmer organizations in western Kenya. The effect of social capital on commercialization and performance of the organizations' marketing role is tested using econometric techniques. Two econometric models are estimated. Both objectives of the study were addressed by estimating ordinary least squares (OLS) regressions. The findings of the study suggest that, among the social capital dimensions, diversity among members in the farmer organization, frequency of attendance to the farmer organization's meetings, level of solidarity and level of trust in the organization positively influenced household's level of commercialization. Level of democracy in decision making and density of membership to other formal and informal organization did not spur commercialization at household level. The findings of the second objective indicated that diversity among members in the farmer organization, frequency of attendance to the farmer organization's meetings, level of democracy in decision making, level of solidarity and density of membership to other formal and informal organization positively influenced the performance of a farmer organization. An increase in the level of trust among the members in the farmer organization had a negative influence on its performance. The conclusion derived from the results therefore indicate that, smallholder farmers participating in farmer organizations' activities and with higher levels of social capital were more commercially oriented in their production. Social capital also enhances the performance of farmer organizations as marketing intermediaries. The findings highlight the role of social capital on farmers' access to lucrative markets and hence integration into the market economy. Keywords; social capital, collective action, agricultural commercialization and performance offarmer organizations