Leveraging institutions for collective action to improve markets for smallholder producers in less-favored areas

Using survey data from the community, producer marketing groups (PMGs) and farmhouseholds in Kenya, this paper investigates the potential of rural institutions (farmerorganizations, their rules and enforcement mechanisms) for remedying pervasive marketimperfections and facilitate access to new technology in rural areas. Qualitative andquantitative analyses show that while the functioning of markets is constrained by hightransaction costs and coordination failures, PMGs present new opportunities for smallproducers through vertical and horizontal coordination of production and grain marketing.They pay 20 to 25% higher prices than other buyers and facilitate the adoption of improvedvarieties that help increase marketable surplus. Their accumulated assets and tradedvolumes are influenced by participatory decision making, member contributions and initialstart-up capital. While participation declines with farm size, the associated benefits dependon marketed amounts. Moreover, the time lag to payment for deliveries makes PMGs lessattractive marketing channels for the poor. The success of such groups requires policysupport, increased capital access, rural finance and market information.