Productive Alliances — a business approach that supports smallholder farmers in organizing collectively to improve their buying power and establish links to off-taker markets through business plans—is one proven way of meeting these challenges. The World Bank Group has been supporting governments in implementing PAs through investments in capacity building for POs to strengthen their governance and market orientation; financing of productive assets to improve productivity and integration into value chains; and technical assistance to promote technology adoption by farmers and help producer organizations become more competitive to access new domestic and/or export markets. These interventions have led to greater participation of smallholder farmers in agrifood markets, higher sales by producer organizations, improved farmer incomes, and expanded employment opportunities alongside agriculture value supported—contributing directly to the World Bank Group’s mission of job creation.
Challenge
Agriculture remains the primary source of income and employment for many poor families in rural areas in low-income countries, where the agrifood system accounts for more than 30 percent of gross domestic product (GDP) and about 70 percent of all jobs. Smallholder farmers engaging in agriculture production, however, face multiple challenges in seizing emerging market opportunities driven by urbanization, rising incomes, and shifting consumer preferences in urban centers. Despite the growing demand for diverse, high-quality agrifood products, smallholder farmers often struggle to compete. Their low productivity stems from a combination of factors, including insecure land rights; poor processing, storage and/or transport infrastructure; imperfect land and labor markets; limited access to information; lack of access to agriculture technologies; limited access to credit; and undersupplied agriculture services such as R&D, agriculture extension, biosecurity measures, food safety, land administration, agricultural statistics, and other business development support.
These constraints limit smallholders’ ability to achieve higher yields and consistently high product quality—both of which are essential if they are to participate in and compete within agrifood markets and become a reliable supplier for off-takers and other buyers. These constraints undermine access to value chains and higher value markets and push smallholder farmers to sell in traditional, typically low-return outlets such as open-air markets. In turn, the disadvantages faced by smallholders undermine efforts to encourage inclusive growth, job creation, and poverty reduction.
Yet this challenging landscape is not without opportunity. The rapid pace of global agrifood market integration, urbanization, rising incomes, and evolving consumer preferences is creating new entry points for linking family farmers to markets—particularly those farmers who can upgrade their production and organization capacities. However, capturing these opportunities requires more than market signals. It demands well-targeted investments and an enabling policy environment to address these constraints and equip smallholders to compete in domestic and international agrifood markets.
Approach
For over 20 years, the World Bank Group has supported PAs to improve market access for smallholder farmers. PAs bring together key actors: producers (typically smallholder farmers organized in cooperatives), buyers (such as wholesalers, retailers, processors, and off-takers), service providers (including micro, small, and medium-size enterprises providing inputs and services, or financial institutions), and the public sector (often represented by the Ministry of Agriculture).
These stakeholders collaborate around a jointly developed business plan, prepared by a Producer Organization (PO), to access new, higher value-added markets. These business plans include technical, financial, and socio-environmental components, and market feasibility studies to determine their viability and identify the productive assets and services needs to reach the business plan’s objectives and meet specific market opportunities. For example, a cooperative might require equipment, tools, or small infrastructure to develop a cold chain facility to comply with buyer standards. The business plan is then financed through a matching grant that partially covers the costs of the proposed investments. The rest of the required investment is financed by the PO through counterpart funding, which in some cases is fully or partially funded by a loan from a financial institution. Technical assistance may also be offered to strengthen the PO’s administration capacity, facilitate access to financial services, support farmers and buyers in commercial agreements, and connect farmers to other enabling public policies such as food safety, school feeding programs, certification schemes, and trade promotion events.
While POs are often the main entry point for support, the strength of the Productive Alliance lies in its holistic structure: aligning incentives across all partners to ensure that farmers are not just producing more, but producing what the market wants—reliably, competitively, and sustainably.
In addition to financing and technical assistance, the WBG has contributed to shaping the PA model through knowledge work, including operational learning and impact evaluations. A 2016 regional study in Latin America, helped distill lessons and good practices that have guided the design and scale-up of PA operations in this and other regions.
The World Bank Group’s support for PAs began in the Latin America and the Caribbean region, where it has expanded to multiple projects and impacted the livelihoods of hundreds of thousands of rural families. Building on the success of the approach demonstrated by rigorous impact evaluations, and building on learnings from the region, the World Bank Group now supports PAs across the globe.
Results
The PA model has had widespread impact, benefiting over 1.6 million family farmers in Latin America and the Caribbean alone, from over 30 World Bank-supported PA projects in the region since 2002, with total investments exceeding $1.8 billion. PAs have led to a 50 percent average increase in sales for participating POs and a 22 percent increase in incomes of family farmers, as demonstrated by rigorous impact evaluations in Bolivia, Brazil, and Colombia. They have generated considerable returns on investment (ROI) with a Financial Internal Rate of Return (FIRR) ranging from 18 to 25 percent, helping farmers move from low-value, informal business to higher-value and more formalized agrifood markets.
In Brazil, the productive alliance work was implemented in various States, such as the state of Bahia which is home to almost a million farmers, over 75 percent of whom are smallholder farmers working on less than 50 hectares. In Bahia’s semi-arid region, farmers often work under harsh agroecological conditions and are poorly integrated into markets. The reasons for this lack of integration include weak bargaining power due to their small scale, and agriculture input market failures such as limited rural financial markets, and limited knowledge and information services (TA and extension).
The World Bank Group’s Brazil Bahia Sustainable Rural Development Project, launched in 2014 and closed in 2022, assisted smallholder farmers through the PA approach in gaining access to markets and boosting their incomes, supporting the adoption of Climate Smart Agriculture (CSA) and good farming practices. The project helped improve agricultural productivity and resilience by reducing risk and vulnerability, and linked farmers to markets. It helped farmers to increase incomes, food security, and nutrition, while reducing gender inequality.
The project financed 1,169 POs across 326 municipalities, reaching 38,783 rural households. It achieved a 29 percent increase in the average real net revenue of the beneficiary POs, with increases reaching 71 percent for those led by women. For project beneficiaries, food security levels increased from 46 percent to 58.2 percent, with an average increase of 14 percent in the dietary diversity value of surveyed vulnerable beneficiary households. A survey of beneficiaries indicated that the project also increased households’ resilience to shocks—notably the COVID-19 pandemic and the subsequent food price crisis.
Based on lessons learned from the Bahia project and other similar operations in Brazil, a Family Farming Multiphase Programmatic Approach was prepared for Brazil, which was approved for an overall financing envelope of $1,289 million, where Bahia was approved as the first operation.
In Honduras, sharp inequalities persist in the rural sector. Small-scale producers with less than five hectares of land—minifundios—represent 72 percent of all farm units, but lack access to key assets such as land and financial capital, technical capacity, modern production technologies, and markets. Additionally, unsustainable land management practices amplified the growing risks they faced from frequent disasters and climate change. The Honduras Rural Competitiveness Project (COMRURAL), launched in 2010, was designed to contribute to inclusive market access and the adoption of climate-smart agricultural practices to increase food security, incomes, productivity, and competitiveness among organized rural small-scale producers through their participation in productive alliances. A unique feature of COMRURAL is that it involved financial institutions in its design; the contribution of this feature to the success of COMRURAL provides important lessons for subsequent projects.
By 2021, when the project closed, COMRURAL had exceeded all of its major targets by significant margins. The project implemented 163 PAs, with almost 13,000 direct beneficiaries in the agricultural sector. Critically, rural producers participating in the project achieved an increase of 23.5 percent in the productivity of the land they farmed. Using business plans developed through COMRURAL, rural POs increased the value of gross sales of their members by 25.5 percent. COMRURAL’s success has led to the creation of a series of projects: COMRURAL II is closing, while COMRURAL III, approved by the World Bank’s Board in 2021, is in implementation.
In Malawi, the agriculture sector contributed about 30 percent of the country’s GDP in 2015, brought in 85 percent of export earnings, and employed 64 percent of the labor force. However, rural smallholder farmers, who comprised around 80 percent of producers and accounted for 70 percent of agricultural GDP, faced significant challenges, with weak market links, poor infrastructure, and inconsistent policies which hindered agricultural commercialization efforts. A weak investment and regulatory environment stifled agricultural enterprise development and limited opportunities for value addition.
Launched in 2017, the Malawi Agricultural Commercialization Project (AGCOM) aimed to accelerate the commercialization of agriculture value chain products by allowing the market to lead the selection of specific value chains with strong commercial potential based on feasibility studies. The project design was based on the premise that organized farmers are generally better positioned to aggregate and commercialize their output and integrate into domestic and regional value chains, reaping significant market benefits. The project originally targeted five value chains for increased commercialization; by the time it closed, 11 agricultural value chains—comprising diversified agricultural products such as fish, baobab, banana, pineapples, horticulture, goats, macadamia, tea, beans, poultry, cotton, honey, and dairy—had exceeded their sales volumes by 50 percent of baseline figures. In addition to this, 365 Producer Organizations had increased sales values to $18 million against a project target of $10 million. At project closure, 72,873 farming households were provided with agricultural assets and services, against a target of 40,000, reaching 364,400 beneficiaries in total.
In Malawi, as elsewhere, the success of the Productive Alliances approach hinged on targeting the right subset of smallholder farmers. This group comprised the group known as transition farmers: they were relatively more productive, already mobilizing to aggregate, and had the financial capacity to meet the self-contribution required for matching grants. By prioritizing farmers who demonstrated readiness for commercialization and a willingness to coinvest, AGCOM was able to foster greater ownership, sustainability, and scalability of outcomes. A key factor was the overall mindset change that the project fostered among this subset of entrepreneurial smallholder farmers—partly through investments in awareness and sensitization campaigns—which solidified ownership of assets and ultimately helped amass approximately $5 million in smallholder farmer contributions.
Beneficiary Quote
“The grant from AGCOM has transformed our business. With reliable access into the lake to fish, a smoke-free drier, and a lucrative market, we now have the capacity to meet demand, in terms of both quantity and quality.”
World Bank Contribution
Since the establishment of the first PA projects in Colombia and Bolivia in the early 2000s, the World Bank Group has invested almost $2.3 billion in establishing and supporting over 30 projects globally. The World Bank Group has recognized the need for the IBRD/IDA, IFC, and MIGA to collaborate to mobilize private finance and improve results for agrifood system development. IFC’s agribusiness investments in lower- and lower-middle-income countries, for example, have a good record of including smaller producers in value chains.
Partnerships
Government ministries serve as the implementing agencies for PA. In Honduras, for example, the Ministry of Agriculture and Livestock implemented technical aspects of COMRURAL. Buyers, including supermarket chains, agro-processors, hotels, and exporters, are another critically important group of stakeholders, as they represent a reliable market for the goods produced. For this diverse group of businesses, PA offer both economies of scale and quality of produce. Finally, World Bank Group project teams often work together with technical experts from other development organizations, notably the Food and Agricultural Organization (FAO), to support market feasibility studies, the design of extension service technical assistance programs, and economic and financial analysis.
Looking Ahead
The World Bank Group is currently conducting a global study to assess the effectiveness of PA in improving outcomes for POs and family farmers. The study is a follow-on analysis to the landmark 2016 regional assessment in Latin America that focused on Pas in Brazil, Bolivia, Colombia, Honduras, Guatemala, Haiti, Jamaica, Mexico, and Peru. Building on this initial phase, has expanded to countries in Africa, Asia, and Eastern Europe and Central Asia. The ongoing study’s main objective is to generate evidence on how PA investments have enhanced market access for PO and to identify the key factors that drive or constrain these outcomes. Key deliverables of the study include: (i) a global assessment of PA, summarizing lessons learned and comparative results across regions; and (ii) a practical guideline to support task teams and implementing agencies in designing and implementing more effective PA operations.
The food system is the biggest employer in developing countries, in both the formal and informal sectors. This system—which includes agriculture, as well as jobs in food processing, transportation, restaurants, and others—will continue to be a major engine for job creation and for improving the quality of existing family farming jobs. As the World Bank Group prioritizes employment to help governments around the world create jobs, it will be increasingly important to harness the potential for job generation through Productive Alliances. And as climate change and biodiversity loss contribute to growing food insecurity, resilient systems—including thousands of small producers in PAs—will help feed the world.
