The smallholder quality penalty, defined below, is the key concept emerging out of the agriculture supply chains work conducted by LIRNEasia in 2010-12:
The Smallholder Quality Penalty is the financial penalty on the market price imposed on the smallholder by the first-handler (mostly a collector) due to the uncertainty of produce quality. This allows the first-handler to offset potential losses due to the perception of lower quality when selling to the next handler downstream. Thus the SQP exists in most transactions in supply chains that involve smallholders.
SQP is based on perception and maybe partly justified. Smallholders are often resource-constrained and are unable to make the investments necessary to ensure quality. However, even if the smallholders are able to take the necessary steps to improve quality, the perceptions of inferior quality produce persists, reducing incentives to invest in the first place. This creates a vicious cycle that depresses investment by smallholders.
Sriganesh Lokanathan, a member of the team that conceptualized and conducted the research and who was among those who identified as developed the SQP as a key concept, is featured in the Sunday Times.