INTRODUCTION 9
Issue 2: Poorer Households Tend to Participate Less in RPOs Despite the potential benefits of collective action, there is limited evidence that the poorest of the poor either participate in or benefit from such orga- nizations when the latter are specifically formed for the purpose of commer- cializing surplus output. For instance, a study by Thorp, Stewart, and Heyer (2005) examines 80 case studies of collective action organizations and finds that the chronically poor are rarely included in these types of groups; it also concludes that their exclusion contributes to a vicious cycle of chronic pov- erty.4 Chirwa et al. (2005) argue that this failure to participate may reflect several factors: lack of productive assets (land, livestock, or equipment), financial assets (cash to pay membership fees), or social capital (access to a collective action organization based on ethnicity, social status, social ties, or other such characteristics).
Several types of mechanisms may contribute to this apparent exclusion of the poorest. First, RPOs may be inclusive at the community level but are likely located in more prosperous villages that have higher market opportuni- ties, lower pressure on land, better cropping opportunities, or lower envi- ronmental risks (Chirwa et al. 2005; Bernard et al. 2008). Second, within a community, poorer households may choose not to participate in these orga- nizations if the benefits they would derive from it would be too low. Note that the household’s gains from participating in the RPO can be measured as the per-unit gain in transaction costs obtained through product aggregation, multiplied by the household’s level of production. The per-unit gain itself is the difference between the per-unit transaction cost the smallholder faces when selling her product alone and the per-unit transaction cost that she faces when selling through the RPO. For very low levels of production, even though the per-unit transaction cost gains will be high, the overall benefits will be low because of the small quantity to be commercialized, so that the overall benefit may not be sufficient to outweigh the costs of participating in the organization.5
Third, RPOs themselves may choose to restrict their memberships to house- holds with sufficient production levels. Indeed, in the case of a pure marketing organization, the value of each additional member will depend on her con-
4 Note, however, that even if groups do exclude the very poorest, they may nonetheless contrib- ute to poverty reduction provided they are formed among the poor (Thorp, Stewart, and Heyer
2005). 5 A similar problem arises for high levels of production. Although the quantity to be commercial- ized is high, the gains in per-unit transaction costs are low, leaving the overall benefits from membership relatively low. The overall gains from membership are greatest for smallholders with an intermediate level of production, suggesting an inverted U-shaped relationship between the benefit from participation and the farmer’s production level.
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