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From Guatemala, A New Framework for Exploring the Role of Rural Enterprises

Guatemala Impact Study

In addition to providing us with new insights about the lives of smallholder farmers affiliated with four of our coffee clients, the data from Improving Rural Livelihoods helped us to refine our impact framework — a model that Root Capital uses to map how services provided by clients can lead to improvements in rural incomes for producer households.

We believe this framework can serve as a springboard for practitioners partnering with rural enterprises. It offers a model to assess and strengthen the relationship between these businesses and the farmers with whom they work.

What inspired the updated framework?

Through our fieldwork and past impact studies, we had developed the mutually beneficial cycle, with the enterprise at the center, linking small-scale farmer households with buyers. This diagram did not, however, delve into the dynamics of the relationship between the rural enterprise and farmers.

Mutually Beneficial Cycle

Mutually Beneficial Cycle

In this study, we asked farmers to describe the principal benefits of cooperative membership for their households. These are some of the reasons why farmers would join a cooperative in the first place. By analyzing responses, we found that among well-functioning groups (three of the four groups studied), the most frequently mentioned benefits were:

  • Higher prices (among the groups, 25-63% above the local market price)
  • Access to credit and advances (generally used for coffee production expenses)
  • Access to agronomic assistance (provided mainly as centralized training)

The Impact Framework below synthesizes how these services can improve farmer livelihoods. The framework complements the universal theory of change developed by the Initiative for Smallholder Finance by expanding on the relationship between producers and rural enterprises.

Impact Framework

A New Impact Framework

How does it work?

Higher price
refers to the higher price generally paid by the enterprise, enabled by its commercialization and links to high-value export markets, often with premiums for certifications and quality. Higher prices are a primary incentive for members to join and remain in the enterprise.

Credit & advances are essential because of the deferred cash flows that characterize most small-scale agricultural production. Farmers need to invest in yield-enhancing inputs, such as fertilizers, months before their crops are harvested and sold. These payments put more cash in the hands of farmers earlier, preventing them from having to side-sell coffee at lower prices to traders.

Agronomic assistance & inputs provide farmers with the knowledge and tools needed to adopt best management practices to increase production and improve quality, while in many cases also improving the environmental health of their farms.

Member relations refers not to a single service, but rather to the sum of interactions between the enterprise and members that builds farmer loyalty. The relationship includes management, governance and decision-making, and communication with members, as well as preexisting contextual factors such as community cohesion and the organization’s history. When the relationship between the enterprise and producers is strong, producers are less likely to side sell.

The ultimate goal is for farmers to receive higher and/or more stable income so that their economic situation and quality of life improves. Higher income is also the bridge for the process to continue into the next harvest, giving farmers the resources and incentive to invest in their farms. Finally, higher and more stable income reinforces the producer’s trust, encouraging him or her to deliver a higher proportion of the harvest to the cooperative and earn the price premium on a greater volume of coffee.

Understanding the drivers of impact

Within Root Capital, the framework has helped us to revise the list of indicators to include in upcoming producer-level surveys. We’ve also used the framework to update our social due diligence tool to make sure we’re capturing sufficient information about the services that likely contribute to farmer-level impact.

For practitioners, the framework provides a basis for assessing the strength of the relationship between the enterprise and its farmer members, helping to show the areas in which the business is strong and highlight opportunities for improvement. Practitioners collecting social data can use the framework to determine how to best target their support to partner businesses.

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