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.

Strategic Management of Agribusiness: Determinants and Trends

“…For example, participants stated that 'Taiwanese farmers have abundant opportunities, but numerous innovative actions are restricted by government regulations' (M2), and that 'The government should determine Taiwan's position and strategic values in the global market, and then make policies to guide domestic farmers' (M4). This result agreed with prior research (Hartwich & Negro, 2010;Rosairo et al, 2012), which suggests that the government should have a clear plan to support innovation through various funding schemes, and simultaneously foster agribusiness collaboration.…”

“…Hartwich and Negro (2010) showed that governments support innovation initiatives through various funding schemes that do not explicitly foster collaboration. Rosairo, Lyne, Martin, and Moore (2012) further indicated that agribusiness management problems may increase if governments do not plan to facilitate their policies.…”

A study on entrepreneurial attitudes of upcountry vegetable farmers in Sri Lanka

“…Punj and Stewart (1983) reported that hierarchical cluster analysis can be used as a classification tool in survey research. Knight, Lyne, and Roth (2003) and Rosairo et. al.…”

“…Farmer-owned companies can be considered as an ideal rural socio-economic unit if suitable institutional arrangements are in place for the sustainability of the company (Rosairo et al, 2012). Export production villages that bring producers of a certain value added product into one company, is a rural development concept introduced in Sri Lanka (Kulatunga, 1993) but without much success (Rosairo, 2010).…”

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