The authors state that "governments and research and development organizations are increasingly interested in understanding and promoting rural agroenterprises as a way to combat rural poverty." They look at the implications of market orientation for small-scale agricultural producers and the implications of integration for small farms and firms. They conclude that agroindustrialization, which is changing agriculture and rural communities in developing countries, forces farmers and entrepreneurs to change the way they do business. Collective action and networking, a better understanding of how to develop and support those networks, and less traditional forms of organization, such as agricultural cooperatives, is necessary for the development of an "efficient and equitable agribusiness sector." from TextPoverty alleviation ,Property rights ,Collective action ,

Berdegué, Julio A.

Johnson, Nancy

English

Research Papers in Economics

FOCUS 11  •  BRIEF 13 OF 16  •  FEBRUARY 2004
COLLECTIVE ACTION AND PROPERTY RIGHTS
FOR SUSTAINABLE DEVELOPMENT
Property Rights, Collective Action, and Agribusiness 
NANCY JOHNSON AND JULIO A. BERDEGUÉ
G
overnments and research and development organizations
are increasingly interested in understanding and
promoting rural agroenterprises as a way to combat rural
poverty.Attention to rural agroenterprises and processes of
agroindustrialization in general are related to two fundamental
global economic tendencies. First, increasing income levels and
demographic changes such as increased female labor force
participation have fueled demand for high-value and processed
products.At the policy level, structural adjustment and liberal-
ization policies have reduced barriers to trade globally and
allowed markets to reach even the most isolated rural areas.
Taken together, these trends are fueling a process of agroindus-
trialization that is transforming agriculture in the developing
world.The changes are most visible in Asia and Latin America,
but Africa is beginning to show similar effects.
Agroindustrialization brings major opportunities but also
many challenges, especially to poor farmers and small agroen-
terprise entrepreneurs. Market forces cannot be denied, but
governments and other organizations must be proactive to
ensure that benefits are socially and economically positive and
equitably distributed.
The agroindustrialization process has three main character-
istics. First, there is the growth in off-farm agriculture-related
activities, such as the supply of farm inputs or the processing,
distribution, and sale of farm products.The suppliers, farmers,
and distributors form supply or product chains.The second
characteristic of agroindustrialization is an increased level of
integration among actors in the supply chain, ranging from loose
coordination to contracting and even subsidiary relationships.
Finally, changes in products, technologies, and market structures
accompany these shifts in number and integration of actors.
IMPLICATIONS OF MARKET ORIENTATION FOR
SMALL-SCALE AGRICULTURAL PRODUCERS
Market orientation means adjusting production processes and
products to respond to specific consumer demands and market
signals and trends.Although many small farmers in developing
countries will continue to grow subsistence crops,increased
production for the market is the trend in many countries.What
small farmers grow and how they grow it are increasingly deter-
mined by what urban consumers want.Agroindustries are
important economic actors that link producers with consumers.
Agroindustrialization processes are often accompanied and
stimulated by liberalization of economic policy.This reality
means that agroindustries—and the producers supplying
them—must be competitive internationally to survive.To be
competitive, agroindustries typically work only with those
farmers who produce the best-quality products at the lowest
possible cost. Often, the competitiveness of the agroindustry is
strengthened through strict grades and standards, imposed on
their farmer-suppliers through contracts. In negotiating and
enforcing those contracts, power relationships between agroin-
dustries and farmers—especially small and poor farmers—tend
to be highly asymmetric, favoring industry.
Agroindustrialization processes are often accompanied by
privatization of land and other natural resources.The rationale
is to facilitate the development of markets that permit transfers
of assets toward the highest-productivity uses.Typically this
situation has meant a net transfer of productive assets from
small farmers and poor rural communities to commercial
growers and large-scale corporations, both domestic and multi-
national.Where customary rights and communal ownership
were important, the shift to private property may disadvantage
those whose access rights are not recognized under the new
regime.To the extent that these people are more marginalized
in a society, there is the risk of widening existing inequalities.
Similar patterns can be observed with shifts away from tradi-
tional labor exchanges toward wage labor.
Where the costs of accessing markets are high due to
poor infrastructure, inadequate technology, or information
barriers, collective action can help small producers be more
competitive.A study of Associative Peasant Businesses in Chile
found that cooperation benefited producers in markets where
transaction costs were high and where product differentiation
was important. In traditional markets for undifferentiated
crops, no benefits to association were found.Associations were
also found to be good vehicles for introducing new managerial
and farming practices that enhanced farm profitability. Only
about a fifth of these small farmer associations achieved their
objective of helping their members participate in new markets,
despite extensive government support.The reasons for their
many failures included, among others, their inability (1) to
develop and enforce adequate systems of rules to direct
relations among the members and between each of them and
the organization; (2) to establish effective networks with public
and market agents; and (3) to become competitive in the
market in which they operate. Collective action is not a substi-
tute for competitive behavior, but rather a vehicle for it.
IMPLICATIONS OF INTEGRATION FOR SMALL
FARMS AND FIRMS
More striking than the changes in agricultural products and
practices is the integration that has occurred in agroindustry
over the past decade.The rise of mega-processors and retailers
has resulted in very little produce being traded on the open
market.A striking example is the rise of supermarkets in Latin
America,which in a decade moved from 10–20 percent to
50–60 percent of the retail food sector.Collective action can
FOR FOOD,AGRICULTURE,
AND THE ENVIRONMENTNancy Johnson (n.johnson@cgiar.org) is a senior scientist with the Centro International de Agricultura Tropical (CIAT) in Cali, Colombia; Julio A. Berdegué
(jberdegue@rimisp.cl) is the president of RIMISP in Santiago, Chile.
sometimes allow producers to rebalance market power relation-
ships and gain bargaining power in negotiations with big buyers.
A driving force behind this integration is the need to coor-
dinate the timing and quality of purchases and deliveries all along
the supply chain.Perishability was behind early integration,but
other factors relating to economies of scale in the management
of information about consumers and their preferences,for
example,reinforced the trend.
In agricultural production,the increasing use of contracts by
processors reflects this integration. Contracting can be positive
for many farmers, but the smallest ones are often bypassed
because the transaction costs associated with managing the
contract outweigh any productivity advantage the small farmer
might offer. Since contracting is characterized by economies of
scale, collective action among farmers, such as producer associ-
ations, can make them competitive in an integrated supply
chain. Collective action among farmers is,however,difficult to
organize,coordinate,and manage.A similar situation faces small
agroenterprises.Even where farms and firms do not operate
under contract,cooperating can help them negotiate better prices
for inputs and outputs,manage crises,or improve local infrastruc-
ture.
Well-organized farmers have competitive advantages,but
collective action at the local level is not likely to be enough to
allow small rural enterprises to fully exploit new market oppor-
tunities.Whether they are acting individually or collectively,
farms and firms need to stay informed about technological and
managerial innovations as well as emerging market opportunities
in broader networks.A growing array of service providers—
formal and informal,public and private—now exists to offer
technical assistance,from quality control to marketing to
financial planning.Firms that identify and take advantage of these
services are more competitive.A study in Colombia found that a
10 percent increase in the number of relationships that an
agroenterprise maintained with other actors was associated
with increases in income per worker of up to 18 percent.This
means that for farms and firms that participate in technically
demanding,information-intensive supply chains,managing their
relationships can be as important as managing their production
processes.
External contacts are important,but internal relationships
are also key to firm performance and survival.Increased
attention to promoting small enterprises is often accompanied
by a push to form and legalize businesses.Decisions about how
businesses should organize themselves are often made on the
basis of legal costs and potential access to government subsidies
for certain types of businesses.Different organizational struc-
tures,however,have fundamental differences that firms need to
consider.Cooperative forms of organization are based on
economic and social objectives and require high levels of
commitment and collective action to function.In practice these
levels of commitment are often hard to maintain,even if the
groups are subsidized. Partnerships have lower legal and admin-
istrative costs,but they assume high levels of trust among the
partners,a condition reflected in the shared,unlimited liability
for the firm’s obligations.Corporations have the highest adminis-
trative costs,but they may be the best structure for firms where
investors do not share high levels of trust and are likely to
change frequently.Evidence from Colombia shows that no one
organizational structure is best for either economic perform-
ance or social impact.The appropriate structure depends on the
individual characteristics and objectives of the members.
CONCLUSIONS
Agroindustrialization is transforming agriculture and rural
communities in developing countries.As a result,farmers and
entrepreneurs need to change the way they do business.Part of
the solution is precisely that:to think about and organize them-
selves as a business and to be more attentive to market signals
and opportunities.Because they are in markets that are not
perfect,investment in collective action and networking can bring
high returns.
The reality of agroindustrialization also means that the
public and private sector research and development organiza-
tions that support agriculture and rural development must
reevaluate how best to support agroenterprise development
through policy,technology,and institutional innovations.High-
value products and opportunities for adding value should
complement the focus on productivity improvement in undiffer-
entiated commodities.Capacity building in business skills,accom-
panied by more and higher-quality business development
services,can improve the competitiveness of small rural busi-
nesses.A better understanding of how to develop and support
networks and innovative forms of organization beyond tradi-
tional agricultural cooperatives is also needed.On a more funda-
mental level,organizational and institutional innovations often
arise in response to high transaction costs associated with
market failures.Ameliorating these market failures,especially in
the area of information and communication,will contribute to a
more efficient and equitable agribusiness sector.  
For further reading see T.Reardon and J.A.Berdegué,“The
Rapid Rise of Supermarkets in Latin America:Challenges and
Opportunities for Development,” Development Policy Review,
September 2002,20 (4):371–388;J.A.Berdegué and G.
Escobar,“Agricultural Knowledge and Information Systems
and Poverty Reduction” AKIS Discussion Paper (Washington,
D.C.:World Bank,2001),http://lnweb18.worldbank.org/ESSD/
essdext.nsf/26DocByUnid/95644AEDD7FE7F3785256B9E0014
4BAD/$FILE/Akis_and_poverty.pdf;a summary of this paper
was published by the Overseas Development Institute as J.A.
Berdegué and G.Escobar,“Rural Diversity,Agricultural
Innovation Policies,and Poverty Reduction,” AgREN Network
Paper 122 (London:Overseas Development Institute,2002).
International Food Policy Research Institute
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CGIAR System-wide Program on
COLLECTIVE ACTION AND 
PROPERTY RIGHTS
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Property rights, collective action, and agribusiness

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