Assessing the performance of supply chains from a smallholder perspective: a model of farmer-buyer engagement and its application in Nepal

Abstract

This study considers supply chain performance from the perspective of smallholders. It draws on Transaction Cost Economics to develop a model explaining dyadic relationships between smallholders and their buyers. The model extends the traditional vertical coordination continuum to incorporate missing dyads and informal markets. It aims to identify factors that constrain marketing choices available to smallholders, limiting the chain’s robustness from their perspective. The model is used to analyse the supply chain for organic fresh vegetables in Kathmandu, Nepal, and to derive policy recommendations from the analysis. This chain is characterised mainly by relational contracting between smallholders and their immediate buyers. There was also evidence of vertical integration by some buyers, and of growers selling on informal markets. However, there was no evidence of spot market trading or of conventional contracting. Despite this, the chain offered smallholders a range of dyads with different risk-reward trade-offs. It is concluded that government agencies could play a key role in building a more robust chain by helping these parties to deepen and extend their relational contracts, by establishing standards and rules for organic produce traded in municipal spot markets, and by facilitating farmer marketing groups and advising them on production plans, technology and participatory guarantee systems. The government could also improve physical infrastructure, mandate extension staff to facilitate and witness contracts, and provide contractual parties with easy access to legal recourse for small claims.