5. Highly uncertain business environment. Specialised producer groups face permanent
threats from crop failure or unexpected changes in the market and legal environment.
Farmers of Dolina Strugu made this experience within a soft fruit producer group in
the middle of the 1990s. It collapsed after a few years due to a dramatically decrease
in prices for soft fruits.
6. Lack of finance. Producer groups in Dolina Strugu could only be successful if they
process and market their products on their own. This requires founding capital that
small peasant farms are not able to provide due to a lack of suitable assets to borrow
money and very conservative lending practices among rural banks (Petrick 2004).
Even if a bank would agree to give credits, a suitable guarantor would be hard to
find. If guarantors are group members, a moral hazard problem between guarantor
and the remaining members appears.
4 Public-private partnerships and their ability to cope with collective action
problems
Gramzow and Petrick (2006) discuss three different governance structures (market, gov-
ernment, community) capable of coping with collective action problems in rural areas.2 Any
of these three structures has unique capacities to respond to certain aspects of local collective
actions, whereas it also contains disadvantages for the development of such initiatives. First,
the privatization of resources, leading to a market-based allocation, forces producers to repre-
sent their productive capabilities as the provision of their products on the market at prices not
equal to the marginal costs offer them lower profits than other producers whose prices reveal
the actual production costs. Consumers were induced to show their private preferences for a
good as the price they pay expresses the worth they attribute to the good. Market allocation
may work poorly in the presence of externalities or even when contracts are incomplete and
difficult to enforce. Second, governmental action in contrast is able to reduce externalities by
implementing property rights or regulations. It may also finance the provision of public goods
where free-riding behaviour cannot be excluded. Nonetheless, in particular higher administra-
tive levels often lack information about local circumstances and therefore do not consider
local problems adequately or fail to provide public goods efficiently. Third, pure community
initiatives, however, possess such local information unavailable for the state. They are also
able to monitor and sanction local initiatives more efficiently due to the existence of common
objectives, beliefs and a high frequency of interaction between individuals which produces
e.g. trust, reputation, reciprocity and solidarity. Unfortunately, the small size of communities
strongly limits the amount of common investments or lead to discrimination of local minori-
ties by the accomplishment of local initiatives.
As we will see below, public-private partnerships (PPP) combine characteristics of all three
governance structures and are therefore able to respond to local collective action problems
like the ones described above. The term public-private partnership covers a wide variety of
institutional interactions (Spielman and Grebmer 2004, p. 8). With respect to the agricul-
tural sector, PPPs were often found in developing countries comprising cooperation between
governments, research institutes and local businesses respectively farmers (e.g. Hartwich,
Gonzalez and Vieira 2005; Spielman and Grebmer 2004). Also in Germany PPPs focus-
ing on rural development issues are newly existing (German Contact Point LEADER+
2005). We define PPPs according to Spielman and Grebmer (2004) and Hartwich, Gon-
zalez and Vieira (2005) as a collaborative effort between private and governmental sectors,
in which each sector bears responsibility and risk, participates in the decision making process
and contributes to the planning and investments to achieve shared objectives. Activities un-
2 A more detailed description of the three governance structures can be found in Gramzow and Petrick
(2006, pp. 12-18).