Simulating the role of trust in supply development
Abstract:
Fostering of inclusive business aiming to involve low-income communities in value chains is a recent approach to alleviate poverty in developing countries. The approach requires new impact assessment tools to measure changes in farm income and transaction cost, and behavioural change in value chain relationships. An agent-based simulation is proposed for the assessment of a project developing sorghum production and marketing in Meru County, Kenya, by establishing contracts between a local processor and smallholders, and offering services and loans. The simulations indicate that the approach will lead to increased farm incomes. Trust between farmers and the processor and mutual trust in farmer groups are the key success factors. Continuity of the contract system depends on the extent to which contracted farmers can be trusted not to side-sell when market prices are high. However, the production remains at the increased level even if the contract system breaks down after some years.