Firms change behaviour then increase productivity/ revenues

This page lists evidence linking changes in firms’ behaviour, which resulted from a development agency or donor programme, to increases in these firms’ turnover or profits. First, overviews of the evidence relating to the following intervention types are provided: 

Summaries of individual publications can be found below the overviews.

1) Business Training Programmes

Business training programmes have been widely implemented to encourage better management practices, often with the expectation that these would ultimately result in increased turnover or profits. While many studies find positive effects on profits, a World Bank literature review by McKenzie and Woodruff (2012) notes the lack of statistically powerful evaluations of the effect of business training on business performance. The two strongest studies reviewed do find positive, statistically significant effects on profits. However, in the study by De Mel, McKenzie and Woodruff (2012) positive effects on the profits of female entrepreneurs in Sri Lanka were only achieved if training was combined with a grant. Moreover, only for new entrants could the effect (43% higher profits than the control group) still be observed after two years. Berge et al. (2011) find that training of micro-finance clients in Tanzania increased profits by 20-30% overall, but that it had no significant effect on female clients. This suggests that in certain contexts, additional constraints operate which prevent women from benefiting from business training.

2) Information Communication Technologies

Access to Information and Communications Technology can provide firms with market information which allows them to adjust their behaviour to increase profits. The World Bank’s 2012 Information and Communications Technology Report reviews the available evidence on the impact of ICTs on poor farmers and traders. Many – though not all – studies find that the dissemination of market information through radio or SMS helps farmers by improving their bargaining power or choices in their markets. According to Svensson and Yanagizawa (2008), radio programmes set up by the Market Information Service Project in Uganda, which reach about seven million people per week, have increased farm-gate prices for maize by 15%. In Sri Lanka, a randomised controlled trial by Lokanathan, de Silva and Fernando (2011) investigated the effect of receiving real-time price information via mobile phones, combined with the provision of training and phone credit (approx. 1.8 USD per month). The treatment group of farmers increased their daily prices by 23 per cent, 19 per cent more than the control group. Similarly, by comparing 300 farmers who received market prices via SMS through the Esoko Platform in Ghana with 300 control farmers, Subervie (2011) establishes that the service has enabled users to receive 10% higher prices for three crops. Other studies have find that use of mobile technologies increases the profit margins of traders. A study by Aker (2008) exploits the quasi-experimental nature of the phased introduction of cell phone coverage in Niger, concluding that cell phone access enabled traders to achieve 29% higher profits than traders in non-cell phone markets.

3) Agricultural Market and Value Chain Interventions – including sustainability certification

A number of impact evaluations of value chain development programmes can be found in the impact assessment section of the DCED Value Chains Database. Selected evidence is highlighted below.

Promotion of quality standards in contract farming can increase the prices farmers are able to command for their produce. Sida’s ‘Export Promotion of Organic Products from Africa (EPOPA)’programme, initiated in the mid-1990s, supported farmers in Uganda and Tanzania to access training in organic agriculture and marketing their produce for export. The programme is estimated to have enabled 80,000 farmers to sell organic produce to exporters for the first time, and thus to receive 10-25% higher prices. An independent review by Bolwig and Odeke (2007) conducted formal household surveys of 172 organic and 159 conventional coffee and pineapple farmers in Uganda. Organic pineapple farmers earned significantly higher revenues than their conventional counterparts (UGX 3,835,500 in 2005, versus UGX 1,824,345). The organic farmers’ coffee revenue exceeded that of conventional farmers by 26% in 2005/06 (UGX 817,616 versus UGX 646,901), although this difference was not statistically significant. However, 84.2% of coffee farmers reported an increase in income since receiving organic certification. An Evaluation of the Sustainable Trade Initiative (IDH) (2014), a public-private coalition promoting the adoption of sustainability standards, finds that even though certified farmers were able to get higher yields and prices, they may are likely to have only modest or no net income benefits due to higher input costs. Similarly, a study of the effects of voluntary sustainablity standards in Ethiopia’s coffee sector (Minten et al., 2015) finds that organic and fair-trade premiums are small and only one third of them is being passed on to farmers, leading to only USD 20 in additional incomes a year at best.

Other research on the impacts of sustainability certification also shows mixed results. All of the following studies have used propensity score matching in order to adjust for selection bias, to make sure that any observed differences between certified and non-certified farmers are indeed due to certification and not other farmer characteristics:

  • Chiputwa et al. (2014) compare the effects of UTZ certification, UTZ and Fairtrade, and UTZ and Organic certification of farmers in three central Ugandan villages. They find that Fairtrade certification increases per capita consumption expenditures by 30% and reduces the probability of being poor by 50% compared to non-certified household; the effects of both UTZ and Organic certification are statistically insignificant. Fairtrade farmers below the poverty line are also found to be relatively less poor than UTZ and organic farmers.
  • Kamau et al. (2010) find positive welfare effects of UTZ certification supported by the NGO Solidaridad in Kenya’s coffee sector: Overall, the impact of the program ranges from higher coffee prices and coffee incomes, increased access to greater amounts of credit for agricultural purposes, increased incomes from other crop enterprises or off-farm activities, greater savings by households and increased investments on land.
  • Jena et al. (2012) evaluate impacts of Fairtrade certification in Ethiopia. They showed that certification contributes to higher incomes among coffee farmers, although the impact on poverty was insignificant.
  • Ruben and Fort (2012) also used PSM in their study of Fairtrade impacts in Peru. They did not find significant income gains, although certified households were able to accumulate more wealth, possibly due to lower price risk.
  • Arnould, Plastina, and Ball (2009) looked at Fairtrade impacts in Peru, Guatemala, and Nicaragua. While they find positive price effects, impacts on household welfare were small and uneven across the three countries.
  • Bolwig et al. (2009) find that of Organic certification in Uganda contributes to higher farm revenues.
  • Ruben and Zuniga (2011) studied the impacts of different sustainability certification schemes in  Nicaragua: Using propensity score matching they compare the impact of Fairtrade, Rainforest Alliance, and Starbucks CAFE. They showed that Fairtrade farmers receive better prices. (Rainforest Alliance and Starbucks CAFE lead to higher yields and quality performance.)

Further evidence on sustainability standards can be found under the framework link between productivity and income.

4) Public-Private Partnerships

By sharing the cost (and risk) of investment in particular activities, public-private partnerships often aim to alter the behaviour of firms in order to achieve commercial gains which will also benefit the poor.

  • A private sector-led initiative entitled the Malawi Cotton Seeding Treatment Programme received a grant of £290,000 from DFID’s Business Linkages Challenge Fund to improve cotton seed varieties. The new varieties were sold at subsidized prices to farmers who contracted to sell their cotton to the ginning firms which initiated the programme and committed to funding it for the next three years. After two years, 180,000 farmers were involved in the programme; Malawi’s national crop production increased by 265% in three years, enabling smallholder farmers to increase their income significantly (information taken from UNCTAD).
  • In 1999, Coca-Cola SABCO launched an innovative delivery-scheme to integrate low-income entrepreneurs in Ethiopia and Tanzania into its core business operations by employing them to bring Coca-Cola products to local vendors in small, hand-pushed carts. This new delivery scheme was set-up with $37 million in financial support by IFC (comprising a $15 million loan, a $12 million guarantee, and $10 million in equity). According to a report by the IFC (2010), the SABCO system now creates more than 12,000 jobs and $500 million in revenue annually. Roughly 50,000 dependents rely on distributor income.

Further examples of impacts on turnover reported by partnership projects can be found here.

Summaries of individual publications

Business Training Programmes:

Suresh De Mel, David McKenzie and Christopher Woodruff (2012), “The demand for, and consequences of, formalization among informal firms in Sri Lanka“, Policy Research Working Paper 5991, World Bank, Washington, DC. The authors evaluate the impact of the ‘Start-and-Improve Your Business’ training programme on female entrepreneurs in urban Sri Lanka. For those women who already owned businesses, training alone was found to lead to some changes in business practices but had no impact on profits, sales or capital stock. The combination of training and a grant lead to large and significant improvements in business profitability eight months after training – although this impact had largely dissipated two years later. For new entrants, however, the combination of training and a grant was found, two years on, to have resulted in 40 per cent higher sales and 43 per cent higher profits than the control group. Two implications of this study which merit further research are that business training may be more effective when combined with grants, and have more impact on new businesses. Furthermore, the results of the study indicate that follow-ups may need to be continued over a number of years if the impact of business training programmes is to be fully understood.

Lars Ivar Oppedal Berge, Kjetil Bjorvatn and Bertil Tungodden (2011), “Human and Financial Capital for Microenterprise Development: Evidence From a Field and Lab Experiment”, CMI Working Paper 2011:1. This study examines the impacts of business management training deliverd to clients of PRIDE, Tanzania’s largest micro-finance institution, by comparing 319 trained to 325 non-trained entrepreneurs. 6 months after training ended, the men who had received training were 12 per cent more likely to be using marketing initiatives and 25 per cent more likely to be keeping records than those who did not. Moreover, profits were between 20 and 30 per cent higher amongst those who received training, due to an increase in sales of the same level. This study did not, however, find any significant impact of training on the business performance of females.

Information and Communications Technologies:

Sriganesh Lokanathan, Harsha de Silva and Iran Fernando (2011), “Price transparency in agricultural produce markets: Sri Lanka”, Strengthening Rural Livelihoods: The impact of information and communication technologies in Asia, Practical Action. This randomised controlled trial investigates the effect of receiving real-time price information via mobile phones, combined with the provision of training and phone credit (approx. 1.8 USD per month). The treatment group of farmers increased their daily prices by 23 per cent, 19 per cent more than the control group. Surveys conducted by the authors show that a better understanding of real-time price trends allowed farmers to choose harvesting times and when to enter the market to realise higher prices for their crops. Farmers also reported that, by following price trends for crops outside their expertise, they were able to improve their knowledge of higher value crops and thus their ability to choose the right crop-mix so as to hedge against price volatilities and maximise profits.

Agricultural Market and Value Chain Interventions:

Grolink and Agro Eco. (2008), “Organic Exports – A Better Way to Life? Export Promotion of Organic Products from Africa”. Sida’s ‘Export Promotion of Organic Products from Africa (EPOPA)’ programme, initiated in the mid-1990s and considerably scaled up between 2002 and 2007, supported farmers in Uganda and Tanzania to access training in organic agriculture and marketing their produce for export. Aside from this monetary investment, Sida also worked to provide a better institutional environment for organic certification, and identified and partnered with exporters. The programme enabled 80,000 farmers to sell organic produce to exporters for the first time, and thus to receive prices between 10 and 25 per cent higher – depending on the crop – due to the ‘organic premium’. The average increase in income was 33% – although Sida notes that in absolute terms this was substantial only for farmers producing high-value crops such as cashews, fresh fruits and spices. For producers of other crops, the increase was often far from large enough to lift income above poverty levels.

Chiputwa, Brian, David Spielman and Matin Qaim (2015): Food Standards, Certification, and Poverty among Coffee Farmers in Uganda, World Development, Vol 66, February 2015. This study empirically assesses the impacts of different sustainability standards on smallholder coffee producers in Uganda, including UTZ, UTZ & Fairtrade, and UTZ & Organic. The authors interviewed 62 UTZ farmers, 108 UTZ & Fairtrade farmers, 101 UTZ & Organic farmers, and 148 non-certified control farmers in three villages with similar agricultural conditions in central Uganda. Effects of certification were estimated using propensity score matching to adjust for selection bias, and checked with various robustness tests.Fairtrade certification is found to increase per capita consumption expenditures by 30% and to reduce the probability of being poor by 50% compared to non-certified household; the effects of both UTZ and Organic certification are statistically insignificant. Fairtrade farmers below the poverty line are also found to be relatively less poor than UTZ and organic farmers. Reasons for these differences may be that only Fairtrade farmers were guaranteed a minimum price and sold value-added ‘green’ coffee beans; they also received a premium, used for investments in infrastructure and training, and were able to sell to any buyer (others were limited to one). However, the authors caution against general conclusions about the impacts of different sustainability standards, suggesting further comparisons in the same regional context.

Practical Action (2008), “Promising practices in Participatory Market System Development: Transforming Livestock Markets in Northern Zimbabwe” Practical Action. This case study reviews the organisation’s 30-month project to develop the cattle market in Guruve District, Zimbabwe. By initiating new commercial relationships between farmers and suppliers of veterinary drugs and a new public-private partnership to train skilled farmers as paravets, the £50,000 project increased the uptake of veterinary services amongst an estimated 20,000 farmers. These services improved the quality of cattle for sale and thus the price of cattle from the region, which rose 8 per cent in real terms over the course of the programme. Moreover, premature deaths decreased, leading to the off-take rate (the proportion of cows being sent for slaughter each year) increasing from 5 per cent to 10 per cent in the same period.