Factors affecting the performance of farmer companies in Sri Lanka: Lessons for farmer-owned marketing firms

Abstract

Sri Lanka introduced farmer companies to link smallholders with high-value markets. This study examines how the institutional, group, and management characteristics of these farmer companies affect their performance. Theories about causal relationships are tested using a combination of qualitative and quantitative methods. The results indicate that farmer companies perform better when shares are tradable between members, and patrons pay and receive market-related prices for their inputs and products. All directors should be nominated by shareholders and voting should be conducted by secret ballot. To strengthen accountability, the right to hire and fire executive managers should vest with the board of directors and should not be appropriated by government agencies that facilitate these companies. Although directors and managers should monitor shareholder views, they must take policy and strategic decisions themselves as failure to centralize decision-making results in severe influence problems. Farmer company performance is compromised by the absence of well-defined and regularly observed processes to develop and implement strategies, and by inadequate or inappropriate management skills. These management problems may diminish if government facilitators had a clear exit plan from the time the company is established as this would help to focus their attention on the critical task of empowering farmer shareholders to direct and administer their company.