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1 Leaping and Learning: Strategies for Taking Agricultural Successes to Scale in Sub-Saharan Africa Workshop on linking farmers to markets in East Africa Nairobi, Wednesday 11 July 2012
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Leaping and Learning:
Strategies for Taking Agricultural Successes to Scale in Sub-Saharan Africa
Workshop on linking farmers to markets in East Africa
Nairobi, Wednesday 11 July 2012
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Contents Leaping and Learning: ...........................................................................................................................................1
Strategies for Taking Agricultural Successes to Scale in Sub-Saharan Africa ........................................................1
Workshop on linking farmers to markets in East Africa ........................................................................................1
Nairobi, Wednesday 11 July 2012 .........................................................................................................................1
Presentation from distinguished guest. Dr Wilson Songa, Agriculture Secretary, Ministry of Agriculture, Government of Kenya .......................................................................................................................................3
A framework for linking smallholders to market, Steve Wiggins, ODI ..............................................................4
Case study: One Acre Fund, Stephanie Hanson ............................................................................................. 10
Case Study: Agribusiness Value Chain Financing :The Case Of Equity Bank, presentation by Florence Kariuki ....................................................................................................................................................................... 11
What works in linking smallholders to markets? Summary of feedback and discussion from the first round of café tables .......................................................................................................................................................... 16
What needs to be done to promote links from smallholders to markets? Summary of feedback and discussion from the first round of café tables ............................................................................................... 21
Summarising the day...................................................................................................................................... 24
Steve Wiggins ............................................................................................................................................. 24
Gordon Conway ......................................................................................................................................... 24
Annex A: List of those attending and contacts ................................................................................................... 26
Annex B Linking smallholders to markets: the issues ........................................................................................ 28
No secrets for agricultural development ....................................................................................................... 28
Framework for thinking about links from smallholders to market ................................................................ 28
Formulating an appropriate business case ................................................................................................ 29
Finding an appropriate approach .............................................................................................................. 33
Finding an organisational model ................................................................................................................ 34
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Presentation from distinguished guest. Dr Wilson Songa, Agriculture Secretary, Ministry of Agriculture, Government of Kenya
This workshop comes at a good time. It is a time when we are telling our small scale producers that farming is no longer going to be just a way of life: farming has to be a business. And we cannot have farming as a business without the markets.
In whatever small way, some marketing systems are now undergoing rapid transformation. Traditional market channels are being replaced by much more coordinated links between farmers, processors, and others. This has been made possibly primarily by consumers. They are becoming more demanding about food quality, safety, and changes in feeding habits — such as the younger generation in Kenya that now prefers rice more than what used to be traditional foods like maize and beans, partly because it takes less time and fuel to make rice.
Most of the linkages with the farmers have been established mainly by the buyers of farm produce, with little or no assistance from agribusiness. To date, there has not been much emphasis on the need for activities to make these linkages work; but things are now changing. Any farmer producing now has a market in mind; aware of where the surplus will go. Even small-scale producers are now producing surpluses owing to increases in productivity, coming from technological change — new seed, fertiliser, and analysis of soil type. This makes the small-scale producer begin to play an active role in the markets.
How do we ensure success? Linkages do not just happen: there are some requirements. Need to ensure commitment from buyers. There has to be increased demand for coordinating the productive process. So we are moving to a rather complex situation – how to achieve this?
Efficiency is one element. A value chain is as good as its weakest point. One of the weakest points to date has been the marketing.
For buyers and producers, want to ensure that costs of production are lowered as much as possible. Kenya is sending teams to learn from Ethiopian dairying, which is coming up very efficiently using small scale production. Capacity building is required all along the value chain. For small-scale producers this is an enormous task.
Agriculture should be driven essentially by non-state actors or the private sector. We will need to have strategies to see that the production, processing, and the final market requirement are met with a view to ensure sustainability.
Moreover, the challenge is not a one-off. We can have an excellent system one year, but our experience here is that the next year then may be very different. So how do we then build in the necessary resilience that is crucial for this kind of farming system?
So to ensure that food security is assured, we need also to ensure that production is as diversified as possible. In most areas where food security has been achieved, there is diversified production. In many communities where poverty has been overcome, this has been a result of moving from mono-cropping to a much more diversified production — by spreading risk, not merely depending on one commodity.
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Which would be the success factors for linkages?
We expect that for producers to be successful, for buyers to be successful, we will have to identify the appropriate skills for these groups. And this goes for the entire value chain. When it comes to capacity building, we must also bear in mind that agricultural cannot operate in isolation. We must find a link to the other sectors; most importantly education, health, and infrastructure. In the past agriculture linked well with health, but not with the others. Imagine if from day one they had borne in mind nutrition, where would they be now?
If they had developed closely with the infrastructure sector—when the Ministry of Roads is planning, we have to be in communication so roads are also planned for areas where we are promoting crop production and investing in irrigation. That is how we enhance efficiency in the whole system.
As for now I think in the public sector, we have come to acknowledge that we have not done very well in aiding the private sector. Hence we are now in the process of seeing how to facilitate non-state actors to play a more significant role.
One area where we are actually going quite far is the area of provision agricultural extension service. This service need not be only provided by the public sector. A good example is floriculture in Kenya, a flourishing export industry, where public extension is not significant. This is to be expected in an industry where growers must respond immediately in a competitive environment: they cannot wait for an extension officer to come and visit at home. Therefore, extension service needs to be graduated; only those farmers who cannot afford it should be provided with public extension service. As much as possible, let us move out of that expectation of waiting to be given that free service.
We have only one day for this important workshop. It is up to us to make the best of it. When you see Sir Gordon and Steve here you know this is serious business.
It is through linkages that we manage to achieve more.
It is true now there is some light coming from the African continent. It is up to us to make that light shine brighter, or to have it remain as it is. We cannot afford to have it remain as it is.
A framework for linking smallholders to market, Steve Wiggins, ODI Powerpoint slides. Annex B gives a more detailed and revised account of the framework.
Development Aims • Reduce poverty & hunger, MDG #1
• Smallholder development: highly effective [in Low Income C]
No secrets for agricultural development! • Rural Investment Climate
• Doesn’t have to be perfect!
• Rural Public Goods
• Roads, power, irrigation, etc.
• Education, Health, Water
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• Research & Extension
• Link SF to markets for Produce, Inputs, Tech Assist, Finance
• [Overcome failures in rural markets]
Linking SF to Market • Then: Parastatals
• Too often: High Cost, Inefficient, Politicised
• Now: Market
• Farmer groups & associations
• Private firms, agri-business
• NGOs
• Private foundations
• Gov’t agencies
So much learn from the diversity of experiences
Leaping & Learning • Review Lit.
• Consult Stakeholders
• Synthesise cases
[Report: Nov 2012]
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Cases & Lit: Working Propositions
5 Key Issues
1. Right Environment Private action struggles when:
(a) state failings
(b) shocks from outside world — example of the collapse of cashew prices on world markets in 2004 that hit Mozambique processors
Opportunities can arise with reforms — see case of Rwanda: coffee when it was possible from the mid-1990s to operate coffee as a business again without undue political appropriation of profits
Policy implications?
• Scan environment
• Advocacy, but how to make case?
2. Right Markets Demand: critical … moving target
Exports: great ... here is the case of Rwanda and the recovery of its exports, with rising unit value as more coffee is sold as a premium, from former position of producing low quality coffee.
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BUT
Domestic markets > Exports
• Larger
• Growing Faster
• Less Demanding & Less Risky
o Certification: is this a high cost trap?! Examples of smallholders being squeezed out of export markets by GlobalGap requirements in Kenya, Senegal
o Ghana pineapples: gorwers hit hard when European market switched to MD2 variety that began to arrive from Costa Rica
But all is not necessarily lost. Coming Home: Kenya’s Green Beans — where an increasing fraction of produce is destined for Nairobi and other domestic markets.
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Rwanda's coffee exports
Export Quantity (1000 tonnes)Export Value (Millions international $)
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How to keep track of demand? When?
• To change focus?
• To diversify markets?
• To move up from basics to higher value?
3. Right Focus Important to focus on critical limits in the system: may be in production or marketing; may be about trying to maximise output, quality or price; or about reducing risks in production and marketing.
Maximise Output, Quality Limit Risk
Produce Produce more
Lower unit costs
Risks from weather, pests, disease
Diversify production
[may limit commercial prod’n]
Versatile varieties
Crop protection
Selling Sell for higher price
Higher quality that can access premium markets
Risks from fluctuating prices, quality required, traceability
Diversify markets, channels
[Hedge]
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Exports (thousands of tonnes)
Production minus exports
Production (thousands of tonnes)
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Right focus: questions How to decide on what to focus?
When to reconsider, re-plan?
Sequences?
4. Right Grouping of smallholders Information costs real & high
Aggregators essential, many models possible
• Zambia: Dunavantcotton distributors: 65 SF each
• Uganda: Mukwanooilseed industry farmer groups = 54k SF
• Uganda: Kabale potato farmer association
What works? Why
But: few self-sustaining co-operatives!
Why not more?
Groups: social dilemma Large firms work 1st with better-off SF
Dilemma: functioning groups, collectives may exclude poorest
A: Jobs on & off farm
• Kenya SF green bean 15 jobs/ha
• Burkina Fasoshea factory: 1,500 workers
• Mozambique cashew factories, jobs in an area of high unemployment, with links to rest of local economy, etc.
5. Right Approach Build capacity, competence, change behaviour
Facilitate, Enable …
... Don’t substitute for private or collective action
But how to
• pass learning thresholds?
• Meet donor demands for visible results, next year, targets ticked?
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Case study: One Acre Fund, Stephanie Hanson
Target farmers: the smallholders at the very base of the pyramid, living on under $2 USD per day.
One Acre serves over 130,000 smallholder farmers in Kenya, Rwanda, and Burundi. The organization focuses primarily on maize and beans; although in Rwanda we are beginning to work with coffee as well.
One Acre has a four-part service model:
1. Distribution of farm inputs within 2 kilometers of where farmers live
2. Financing
3. Extension
4. Market facilitation
Individual farmers obtain seed and fertiliser, financing, and information through a field officer. These are not university trained agronomists, but they are local farmers themselves. There are 700 field officers from rural areas working in Kenya, Rwanda, Burundi, each serving about 225 farmers. They are full-time, salaried staff.
One Acre Fund farmers pay for extension services; they are part of the privatisation of extension. Lessons are delivered to small groups of 30 to 50 farmers. Farmers are asked to practice methods for their field officer during training sessions in the demonstration area to see if they are adopting correctly.
Staple crops are the focus: we want to turn farmers from net food buyers to net food sellers, so the focus is on surplus. Most farmers have never had a surplus. So when they produce more, they need to store the surplus: keeping maize or beans in storage for up to 9 months. Farmers might keep it for 5, 6, 7 months, then sell at higher prices, rather than having to sell directly after harvest when the price is lowest.
Main benefit seen from the operating model is income generation: typically US$120 more in income per year, or a doubling of farm income per planted acre. Compared to something like horticulture it doesn’t seem like much, but for a farmer growing staple food crops this is a significant increase in income. It allows them to diversify and mitigate risk.
What challenges does One Acre face? Staple food crops themselves: these are only one step forward, they do not allow most farmers to make a business out of farming. When farmers start saying they want to grow onions, raise poultry and so on, we have to link them to others in the area who already have the expertise, or One Acre Fund has to develop the expertise themselves.
Questions about operating model for One Acre
Q: In Rwanda are they associated with warehouse receipt systems?
A: No, One Acre not involved, but are interested.
Q: What kind of partnerships do you have across these 3 countries?
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A: In Rwanda One Acre partners with the Ministry of Agriculture on a few different projects, including fertilizer subsidy, a World Bank-funded land & water husbandry programme that rebuilds terraces using a technique called radical terracing.
Also partners with Technoserve on coffee farmers. About 3 years ago they approached One Acre saying they did a lot of work about optimal fertilizer use. One Acre did soil testing that led to success with fertiliser so that about 10% of their clients, about 5,000 farmers are using the fertiliser.
Q: One Acre, understand farm for one acre, so what about larger farms? And what exit strategies do you have?
A: Name is a bit of a misnomer because we work with farmers with more than one acre. Our clients have aspirations to buy land and become a “super farmer,” one with enough land to feed family and produce for markets. Any farmer who plants more than 2 acres with One Acre Fund in Kenya is a “super farmer.” For any farmer to have someone in the community to look up, as a role model, is great.
What is the exit strategy for One Acre? Much depends on environment working in. Currently the Fund is about 83% financially sustainable. We are driving for full financial sustainability; to demonstrate that smallholder farmers present a viable market for the private sector.
Case Study: Agribusiness Value Chain Financing :The Case Of Equity Bank, presentation by Florence Kariuki
Our purpose
n We exist to transform the lives and livelihoods of our people socially and economically by availing to them modern, inclusive financial services.
Our Vision
To be the champion of the social-economic prosperity of the people of Africa
Our mission
We offer inclusive, customer focused financial services that socially and economically empower our clients and other stakeholders
Why agri-business? n Constitutes a Large “underserved” market –the Bottom Of the Pyramid (BOP)
To promote economic empowerment by redistribution of wealth through access to financial resources
n Enabling micro enterprises (farmers, processors, transporters etc) to contribute to the economy and be part of the financial system
n A Social responsibility to avail financial services to the lower segment majority of our rural community
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Financing agri-business through the value chain n Value chain financing concept allows integration of the various players in agriculture production,
processing and marketing.
It defines the various roles of players while at the same time, scope and purpose of partnerships that can be established.
n It enhances synergy through forward and backward linkagesvaluechain actors
Who is involved?
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Financing value chain model
Our interventions n Farmer friendly remittance account
n Research on customers needs and aspirations
n encourage Savings even if inmodest amounts
n develop credit productsrelevant to needs.
n Maintain repayment rates that are sustainable
n Support the clients’ businesses through training etc
n Encourage groups to generate critical volumes for market (exporters)
n Seasonal loans with bullet payments
n Irrigation and micro insurance to mitigate weather based risks
n Market linkages e.g. World Food Programme, EABL etc
Financial Model That Encourages Savings And Supports Borrowing Affordable Account opening balance-Nil
Minimum Operating balance - Nil
No ledger fee/No maintenance fee
q Accessible
No appointment on seeing the managers
135 licensed branches in Kenya.
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q Flexible
Tailored to the individual needs
Appraisal ability to pay based vis-a-vis collateral based
Flexible Securities/collateral
Prompt disbursement
Challenges facing farming as a business n For majority small scale farmers farming is an occupation not business
n Dependency on rain fed agriculture
n Lack of access to Agric-credit
n Lack of market information
n Low quality products
n Huge production costs
n Poor infrastructure
Case of KilimoBiashara n KilimoBiashara-$ 50million (Ksh 3b)Partnership between Equity Bank, AGRA and IFAD through
Ministry of Agriculture
n Objective: To increase food security and household income for farmers
n An initiative to support the commercialization of agricultural activities.
n So far loan disbursed in over Ksh 2.3billion to over 45,000 direct beneficiaries
Target n Small scale producers: support in purchase of farm inputs such as seeds, fertilizers and chemicals.
n Large scale producers: supports for acquisition of farm input, farm machinery and other farm development needs.
n Agri-businesses: This includes suppliers of farm inputs, transporters, food processors and other agribusinesses that promote grain sub-sector. Provision of working capital and other operational needs.
Warehouse receipt financing n It enhances post harvest management
n The certified warehouse receipt is a title document stating a precise quantity of known quality, held in a known store
n Pilot tested through partnership with East Africa Grain Council, Lesiolo Grain Handlers, Kenya Maize Development Programme/USAID
Case of sorghum farming as a business q Sorghum has for a long time been considered as an orphan crop
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q Through partnership with EU, KARI-MOA, Africa Harvest , buying agents like EABL and World Food Program the crop has been transformed to a commercial crop in arid areas
q Has generated and developed business services providers –bulkbuyers and others like threshers, packaging materialsetc
The impact n Farmers’ appreciation of the need to change from subsistence farming to commercial farming
n Arid land/abandoned scheme reclaimed for grain production with the MoA giving infrastructural support to the farmers e.g. Bura irrigation scheme in NEP
n Farmers have been able to adopt modern methods of farming aimed at improved production e.g. in Bura, yields rose by 300%(from average of 11bags to 32 bags per acre)
n Agro-dealers are able to consistently supply inputs without challenges of working capital
n So far close to $20m to about33,000 small scale farmers despite adverse weather condition during the first season
Email: [email protected]
Web site: www.equitybank.co.ke
Questions about Equity Bank
Q: With regard to the product financing the farmers: what is the interest rate?
A: On the pricing, Equity tries as much as possible to have lower interest rates than the market rate, thanks to social responsibility ethic and also because want to increase uptake.
Currently offering credit to farmers at 12% per annum.
Q: What about the World Food Programme’s Purchase for Progress (P4P): contracts signed earlier and farmers can’t benefit from prices that are in the markets
A: Haven’t seen this pricing challenge. At the time of sale, the farmers will give to better buyers whether there’s a contract or not – that has been the major challenge.
Q: Can you share successes with youth / women?
A: With the youth and women, are working with them also in collaboration with the government through the youth fund or the women fund.
Q: And what kind of security /guarantee will people give you to be able to qualify.
A: Also in group funding—for those who have a challenge of collateral they encourage to be in groups, this is often the case for women and youths.
On security, surprisingly enough for the lower end market they use social security. They will visit a client, assess what they have at home — see their cows, chairs, tables. It’s not because the Bank could get much for this security, but at the back of their mind, the people know the bank has attachment to their property.
Q: Example of Bura irrigation scheme. Very impressive. I visited2 years ago, the farmers had a problem though: they had a 300% production increase, but they were not free to sell to the market, and the grain board was waiting for them and trying to make them sell at a lower price.
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A: The initial reason for not selling, on doing the tests, was that the maize had high qualities of aflatoxin. Seed multiplication now is mostly done under the irrigation scheme: already have a good market and seeds fetch a higher price.
When Equity set up the Kilimo Biashara project, Government with IFAD and AGRA came out with a credit guarantee – 10%, not more, but hoped that that is enough to help Equity, and banks like that will liberate ten times more to give to the farmers. Leverage effect has never been realized. Why are farmers not being forthcoming to take up this credit? [Don’t give credit in an election year!]
What works in linking smallholders to markets? Summary of feedback and discussion from the first round of café tables Broad issues that set the frame for making links
Enabling environment
A good enabling environment: important to have an enabling environment with the government policies
Favourable policy framework—this will allow integration, enabling environment, support and enforce rules / regulation.
Transport One problem area is infrastructure/transport
There are things that are beyond our reach here: inputs have to get from point A to point B, if there is no bridge, people are not going to lift inputs with a helicopter. Hence physical infrastructure is necessary. Poor infrastructure is real, we can’t wish it away, especially that last 30km from village to market, costs so much.
We need to talk about …One out of 2 ha to maize, very politically important, market very distorted, need open discussions about how this should move.
Linking policy across sectors
In Kenya have 6 or 8 ministries involved in agriculture … talk of splitting up marketing and co-operative development (one under trade, one under finance
Very important is nutrition: the story of green beans is good, but do have a better nutritional content. If we have difficulty with the agricultural bits of the different ministries being so spread out, how can we marry the health issues to this?
Quantity and quality, linking health— nutrition—water. With climate change need to think about water in a better way than we are today, from human health as well as productivity.
Farmer strategy
In favour of diversification:
Farmers should diversify – from experience people are discussing this – where there are mono-crops the food security aspect is forgotten.
In areas where there is a food sec problem then promoting diversification is good.
Benefits of specialising
In Rwanda, farmers say: first, ‘show us the market’; then ‘show us the technology’, and then they are interested in inputs. They want money in their pocket, not only the food in the house.
We don’t produce food, we buy from the market. Why can’t a farmer produce coffee and buy his
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food from the market?
One investor says that he views his money as soldiers, and he sends out his soldiers to war, and what he expects back is prisoners of war, which is more money.
Promote specialization so that every farmer has a cash crop, makes money. Encourage people to do what they do best.
Paradox of diversity: raise food productivity to allow specialist crops for market
Even in areas known for cash crops, such as Central province Kenya with its tea and coffee, surveys show farmers not putting much more than 25% to cash crops; rest is food crops – maize, beans, etc.
The challenge is to improve food crop productivity so can feed family from smaller area, and then have more room for the higher value crops.
Importance of reducing cost of product per unit area: must keep concentrating on increasing production per unit area because of ever increasing land pressure.
Environment Real problem for the whole region is water – agriculture consumes 70%. Map of 2025/2030, Kenya will be water stressed. Kenya will go orange to bright red earlier than the others.
In agriculture we are not dealing with industrial systems we are talking about cropping systems, and maize, after maize after maize depletes the soil, so we can’t just focus on something that deals with only one crop.
Prices Farmers are always risk averse. They are producing 10,000L of milk per day, but from the 10,000L they will rather sell on the open market b/c that is where they are getting better prices
Making the links to market: approach, groups, arrangements
Approach& principles
Adopt a value chain approach – clear understanding of all the actors – every actor appreciates what the other does, and by so doing there’s a win-win situation.
Market approach – success found with this approach – here you can only produce what you can sell (not sell what you can produce).
Talked about getting the system in place before the smallholders are involved (example: warehouse receipts), but they don’t have 200 years to wait.
Must be private-sector driven
Strategic partnerships – going through value chain there are different players so good to have ones who will build synergy, added value.
Working as a team, private-public partnerships the most important.
More specifically in markets, quality, quantity, timeliness and need to aggregate.
Exit strategies must be addressed from the beginning – time, budgets, sustainability
Seeds, inputs, important, extension services: there’s a feeling they should be paid for, either through embedded services or directly by the people. In our opinion, extension shouldn’t be for free because we’re talking about farming as a business.
If the public extension isn’t there, they should have the option to pay for private extension. Means need privatization of extension services
Groups Organising or aggregating farmers into groups is the key focus area – and also focusing on one commodity
Reduce transaction cost
Form association, federation, cooperatives…
Aggregation – group approach has worked very well – access to training, marketing services,
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inputs, finances – as a group that is possible and it has worked.
One of the things working with the suppliers is having village agglomerates – somewhere the small farmer can have access to these inputs.
With group guarantee, also easier to access finance.
Also saw that strong social structures at that SHF level are very necessary for taking farmers to the market, especially org structures and issues of leadership and governance
Next one ; 2 issues – aggregation – talking about projects, but 10 years later those aggregates are not working. Do we have the real features that we need to look at for certain ones to work – be sustainable… at all levels, because you can see, x coop contributes 13% of milk, but at very small scale level, what other things do you want to consider?
Women very important in the groups, have better financial controls
Capacity& extension
Group development sustainability – capacity building for groups—they could be grouped but don’t have knowledge, once they have received capacity training, could progress
Capacity building easier with structures (strong & solid social structures) – bargaining power, reduction of costs
The farmer field school works very well, an experiential method, farmers learn with each other, and helps build that network. If supported by public interventions, it works very well.
People learn best if they learn themselves: if they are not force fed!
Extension services: wondering about after the project, how do you ensure that those service providers are able to learn the emerging technologies and are able to support farmers on the ground so it becomes a sustainable framework?
Organising links
Organised market – what they mean is a contract already established, there would be room for other stakeholders to come in like microfinance and the like.
Strategic partnerships—these have also worked where you have the buyers coming together with the producers and service providers, and financial service providers at the same time. Because especially for small scale farmers where collateral has been an issue, here they have an arrangement, they can leverage on that arrangement and access inputs and finance.
FIP – East African Farm Input Promotion: their model has advisors at the very grassroots level; it is working, and could be up-scaled over other area. They also say ministries, line ministries, part of the people who should be sharing this knowledge among the small farmers, also came up with banking, table banking, have large and small banks
Example of dairy value chain has managed to achieve through East African Dairy Development Project, funded by the Bill & Melinda Gates Foundation. Dairy hub model, they put in various localities a cooling hub: farmers bring their milk to these when have surplus. Banks provide capital.
Contracting Contract farming: some question marks here. In some places it has worked, in some places a lot of issues arise — especially side-selling because contracts don’t come with good prices, and where farmers are selling in the open market, they are able to make more money.
Example from Ethiopia – contract farming facilitated about a month ago. Local company, small produces about 10k pieces of injeraa day; supplies big hotels in Addis, retails to consumers, and exports to Washington about 3x a week, exports US$70-80k a month. Started a contract with Fermi agriculture, a co-operative producing Teff for making injera. In the contract, the farmers coop will supply at least 750 tonnes to the company, and the company agreed to pre-finance seed and fertilizer and also crop insurance. Other advantage is, it agreed to a phased delivery, and instead of buying all the produce at harvest time at low prices, it buys the teff at 3 intervals at the market price. Initially after harvest it gives 50% up front so the farmer isn’t tempted to sell
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elsewhere.
Since prices are rising, the company agreed to pay prevailing market prices at time of delivery, and if the farmers meet three quality requirements (for instance, farmers wash the grains), it offers a 100 Birr premium over the prevailing price: good incentive for farmers not to sell to anyone else.
So, the company gets a steady supply of raw material, and reduces its transactions costs, instead of procuring from many suppliers. It also doesn’t incur costs from cleaning the cereal, delivering quality product.
EATA was able to act as a neutral party between the two groups, facilitated the contract arrangement, got feedback from both parties, and brought some government agencies to monitor the contract mechanism. Will be publishing and sharing their experience in the future.
Certification Certification: though this creates a few questions, it’s an investment, and if it’s an investment, in some of the places where we have worked, people have not been able to link that with the overall results – they just do it because it’s a requirement, but they don’t take time to analyse how they will benefit later on.
Catalysts, Value-chain enablers
traders
Who? Should be doing the coordination?
One Acre’s example of village based advisors – embedding in the village
ACDI/VOCA have something similar except they – set them up for 6 to 8 months, give them a salary, and later on they can become an advisor in their own right (withdraw salary)
Brokers— developed a very bad name ‘he makes you broke’ — but he has a very important function. Laws are weak and don’t recognize him: we need to engage him or her, and see that working together him, us, and the farmer, we are better off—win-win.
Specific technical and other issues that arise in linking
Information Market, strategy – up to date information to farmers – support to link to information
Access to information. Real time information, market information, trend analysis, awareness, coordination, intermediary, complete package. Here we have quite a lot of models – ex SMS in Kenya. Mobile phone penetration in Kenya 50%.
Info technology
Other things not exploited, mobile technology – not exploited enough.
Heifer said E-cow is already working; the other one is that in information sharing they have seen village-based advisors, working equally well.
ICT in agriculture – very effective, especially in livestock. Maasai in Tanzania: now most of them have mobile phones to monitor sales of livestock, so they are changing, building houses owning property, motorbikes etc. because they don’t sell at a loss.
If Tele-centres could be available for other crops, farmers could monitor prices for other crops and livestock.
Youth often have ICT skills
Financing In the area of finance – need to attach shame to removal of collateral – not the collateral itself, social pressures could help.
Warehouse receipts
Warehouse Receipt system – if well aggregated, and if have good intermediaries, and then can access the market.
Warehouse receipts– someone says smallholders don’t use, but some do (small %)
Lusiolo warehouse: small-scale farmers have used it together with traders, but it’s only a small part of their warehouse stock.
Banks giving credit against inventories, but some banks didn’t understand that the inventory was collateral!
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Insurance Insurance against climate: could be out of the box thinking, with climate change and what they are going through, could have lessons learned from those who have done it. One person shared about Kilimo Salama insurance from Syngenta foundation
Also example of working with the Maasai livestock insurance, when the area was with drought, they stopped a lot of pastoralists from going to zero and dropping out as pastoralists.
ILRI: Insurance scheme in Northern Ethiopia, typically a food insecure area. Oxfam America is partnering, and in this scheme farmers contribute work to fix up some of the local environment as the premium.
One of the interesting observations from this scheme was that it encouraged farmers to use more purchased inputs — seed and fertiliser, has allowed them to invest in their farms
On the downside, premium has been really high, about 70%, so if they had to pay from their pocket wouldn’t do that, but in a way it has contributed to improving environment in the area.
In the case of Kenya, 10 or 12% premium on the commodity/inputs, basically they will supply credit on the inputs and if there is a weather problem, they can get their seeds / fertiliser replaced – in a bad year they lost quite a lot of money (Syngenta) now working with UAP, the Agricultural inputs and veterinary stockists get a replacement if it doesn’t work. So they’re prepared to put the time in for the stockists. Downside: limited to seeds and fertiliser ... if it was non selective it would be even better.
Current size? Scalable? Objective? Not sure. At least farmer has support for inputs- 12% premium. If wanted to add crop support, the premium would go to 30% = too much.
Seasonality How do you address the issues of seasonality in terms of supplies, because that is a challenge across most of the other value chains.
Seasonality – depends on commodity – ex cashew seasonal – used to work in cashew, had to link finance with entrepreneur so could bulk, so could sell to processor throughout the year.
Processing Value addition: for example crop like mangoes – perishable fruit, post-harvest losses very high, had experiences like supporting a co-operative society to be able to install a processing unit through a credit guarantee, and now they are processing pulp which they are selling to Del Monte, they have a contract, and at the same time they are selling fresh mangoes, to address the issues of post-harvest losses.
Gordon Conway comments
Very important to stress the point that although yields very low, potential is enormous. I saw a missionary place in Zimbabwe getting 16 tonnes per ha, of course it was a missionary place so there was another hand involved in the process. Seen bananas 100 tonnes / ha, milk etc.
The trick is not to get plant breeders to produce these varieties, the trick is to have reliability in input and output markets. Once you start getting those, a virtuous circle emerges.
There’s no reason why in Africa we can’t be producing the same sort of yields as they do in the United States—except— starting to get this virtual circle right. How do start to get the virtual circle – can you start at certain places, do you have to do everything at once? On the other hand, as we know, if we can only do one thing, it will collapse.
Three or four things that will start this virtuous circle round: what are the 3 or 4 places you act?
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What needs to be done to promote links from smallholders to markets? Summary of feedback and discussion from the first round of café tables
Broad issues that set the frame for making links
Context Importance of transport. Dependence on Kenyan infrastructure for the region: petroleum comes through Mombasa with supplies for Burundi, Rwanda, South Sudan, Uganda
Policy Several comments to the effect that it is difficult to work when policy is not clear, is absent, or about to change — with examples in Kenya on cereals, urban and per-urban agriculture, pyrethrum, etc.
Government needs to come up with a policy that will spark innovation and it also has to create mechanisms that will absorb the outcome (effective demand)
Regional differences
Important to recognise regional differences:
• Different approaches needed for different areas: approach to dry areas should be different from that in high potential areas.
• Farmers engaging in crops that cannot be sustained in that environment. You need zoning: zones for particular crops so that farmers begin to look at crops as commercial entities.
• Using partners. If a partner is focused on a particular crop, they are region-specific, and they always stick to that region, and that research doesn’t help so much, because there are difficulties in replicating except outside a similar environmental zone.
Making the links to market: approach, groups, arrangements
Approach Development partners should either play a rural provider or a facilitator – when they move out there is a big gap it can lead to food insecurity.
The government should not just sit and draft / implement policies: it should strengthen public-private partnerships
Need public facilitation to help farmers produce for some niche markets. Example: Pepsi Cola has contracted farmers in Ethiopia to grow chick pea that are for sale in Middle East & North Africa.
The NGO role should be facilitative. Let smallholders lead the processes, own them, invest up front, they just should be shown the linkages with financiers, input suppliers and own the processes where agreements, contracts, MOUs are spelt out and the farmers are taking leadership roles. As we enable the farmers to take leadership roles in all these processes,
Let’s strengthen the public-private partnerships, remembering that farmers are part of the private in this.
Begin with end in mind incorporate exit strategies from the beginning
Repeated concerns that whole government and NGOS support initiatives, when the project ends they collapse. Facilitation is like a dating agency: you bring people who have no opportunity to meet together, and then you let them continue. You’re not going to manage all their private business – facilitation is like that, you identify opportunities which the private sector cannot identify by themselves. You create an environment where they can form a business contract.
To be sustainable, it has to be a market-based approach.
If there’s any money to give anyone, give it to the business man.
Value chains Understand value chains: look for synergies or lack of them. Understand configuration of actors. Set objectives for short and longer terms.
Financing along the value chain: important to understand all the different financing mechanisms —
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where are they working, how, for who, mapping them to work effectively.
Look for synergies of the finance mechanisms and the attendant insurance
Contract farming: important that contracts are made in a transparent way and understood.
Co-ordination platforms
Should have coordination platforms for scaling up and replication. Unless we share what we have; unless we have a platform of sharing, we lose what we have.
Catalysts In all there is a champion – a person taking leadership – persons who are spanning boundaries and enabling people to act.
Empower individuals – people that come between producers / consumer.
Not sure if these brokerage persons or firms should be governed: seen situations where projects collapse when that leadership (coordination mechanism) ends.
How to group small-scale farmers?
The quality, quantity, volumes are not there. If you are linking to markets, you cannot expect a business person to run around with his trucks looking for product.
When it comes to accessing of agricultural inputs, if co-ops can be facilitated to source these inputs in bulk, the cost of production goes down and the benefits to farmers increases.
Continue supporting developing capacity of SHF groups
Empowerment of the farmer org to engage: although talking about aggregation, they need to engage; not just become loose coalitions. If their capacity is built, they will be able to engage, with government or other partners.
Personal accountability within the group – so group not accountable.
As long as facilitators support the attitude that coops are not a business entity with a clear business mandate, then they will not succeed.
Failings of co-operatives
One of the efforts which appeared with regularity was aggregation. But if it is so good, why is it not working? This all points to a failure: inadequate enforcement of rules and regulation. What are the consequences of breaking the rule? More importantly, what do you do to someone who breaks the rule? Is law enforcement blind?
For aggregation to work, need to look at the whole issue of governance. Who is going to throw the first stone? That is a big challenge in this country.
Do a bit of research and come up with those things. In so doing, realise that we need to aggregate the farmers, but have problems with the coops — poor governance — people are stealing from the farmers and going Scot-free with impunity. If these people are not charged and farmers are not paid they will stop farming all together.
To say we have bad contracts and that’s why they’re not honoured – not true. As long as we have impunity, we can have the best contracts and they still will not work.
Limit the time for support
Need to know what is the number of years need to spend with the groups until they can govern themselves, have good organisational development skills, leadership, social management… we are talking about incorporating exit strategies from inception.
Need to develop a checklist if we know we are going to spend a certain amount of years with the community; on the checklist. What is it that we need to attain from inception to enable us to leave the smallholders to continue on their own?
Specific technical and other issues that arise in linking
Storage Market structures themselves: warehouse / storage. Small scale farmers don’t have storage at
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their level. See warehousing as a future, but has to begin with simple storage.
Adding value
Brand our produce, as for example with tea, pyrethrum that are well branded for Kenya. Maybe we can do something different and make something out of it. Let’s look at value addition in a new light – sell quality in everything we produce.
Transformation not just industrial processing but all farm processing – capture geographic differences & seasonality.
Technical and market knowledge
Advisors should know what to grow where. They need gross margins calculated so they can advise the farmer on the most profitable crops.
Environment Water harvesting – now it’s dry again, all the water has gone to waste, need dams not water pans. This can even reduce conflict between communities.
Learning Dissemination: need to get information on the various actions that they are taking part in; need effective dissemination of technologies, lessons.
Publicise successes and failures: need to publicise the success stories and what the public should do
People can learn from success stories – learn, upgrade, adopt.
Share and Absorb Adoption & Adaptation of best practices
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Summarising the day
Steve Wiggins
Things that impressed me:
• Big challenge of how do we get effective groups, associations, people we can work with, people whose capacity we can build?
• How do we get finance into the system? – not just investment, also to do with seasonality and taking out certain marketing behaviour.
• Standards. Includes the question of how do you get a system where all the maize circulating is free from aflatoxin, contaminating the whole market.
But these arise within a dynamic context marked by two points.
One, hugely impressed by amount of demand for agricultural output. For example, Pepsico arranging chick pea production in Ethiopia for the Middle Eastern markets. Pigeon peas being loaded onto export in Dar es Salaam. Burgeoning cities and opportunities. No lack of demand: instead a plethora of opportunities.
Two, there has been frequent mention of the politics, that arise with groups, with financial systems. How do we deal with the political pressures. Take all the politics out of policy? No, that is not possible. It is more a question of understanding the political economy, understanding what needs to be there to regulate and guard the public interest; to distinguish this from that which is rent-seeking, populist, or plain misguided.
Another clear challenge is that of knowledge management. We need to document, learn and share experiences. Those of us who are researchers have the challenge of drawing on this to produce frameworks, middle-level theory, so when we hear a story of success or failure, we understand if we’re hearing about general case, something that may be imitated, or something that is exceptional and unlikely to succeed in other cases.
Finally, we’ve heard an awful lot of different things today, with many different ideas and examples. When you look at it reality seems extraordinarily complex. But back in London I’m engaged in repeated struggles with people who despair when agriculture is presented as complicated and complex. But just because reality is so, does not mean that policy and programmes have to be complicated and complex. On the contrary, some simple interventions — blunt instruments, if you will — can do an awful lot of good. Think, for example, of rural roads.
Gordon Conway
I have a framework, as follows:
In the middle we have farmers, men, women or women alone and their farms, organized into farmer associations / co-ops, contract farm groups or whatever;
Out here they have a source of inputs, usually agro-dealers with fertiliser, credit, and seed from seed companies, certified, high quality. Fertilizers hopefully they’re getting high quality. Microcredit they get from Equity Bank and the like.
On the other side, there’s aggregators, buying the product. They in turn are linked to warehouses, processors, they understand the nature of demand.
They’re all private sector components.
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But they all need finance and in many ways it is private-public partnerships that provide the finance. Most important, they’re contained within an enabling environment. Part of that‘s infrastructure – hard, like roads, partly soft infrastructure like mobile phones / ICT, which also connect, an environment consisting of extension, education, better health.
All of that is a kind of engine, you can think of it as an engine, all those wheels, etc. working together.
Three big drivers can be seen. One of course is money. Second thing is people – particularly entrepreneurial / innovate people – farmers, SME runners, novel processors. And thirdly you’ve got policies in the way that Steve has described: policies of good governance – we mean government policies informed by a full political economy.
The engine can be seen as a single or cluster of value chains.
Problem is it seems very complicated; and even then many things have been left out.
But the trick is to find the two, three, or four, points of intervention that will make this engine go round for a particular value chain in a particular place. That’s what being smart is.
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Annex A: List of those attending and contacts Name Organisation E-mail/Telephone Beatrice Okeyo Swedish Cooperative Centre & Vi
Agroforestry [email protected]/ 254 (0)721486953 Beatrice Ouma Future-Agricultures Consortium [email protected] Bernadette Majebelle Consultant EAC export [email protected] Crispin Mwatate Heifer International [email protected] Daniel Rukazambuga National University of Rwanda [email protected] Daphne Gatwiri KENFAP [email protected] David Juma Fwamba ARDAP [email protected] Elijah Mbwavi RegioDev Africa [email protected] Florence Kariuki Equity Bank [email protected] Furgassa Bedhadha Farm Africa Ethiopia [email protected] Gem Argwings Kodhek AECF [email protected] George Mazuri USTADI [email protected] Gordon Conway Agriculture for Impact [email protected] Hannington Odame CABE-Africa [email protected] Iris Krebber DFID [email protected]
Jean Jaques Franc de Ferrière
AbSS [email protected]
Joachim Weber GIZ [email protected] Joseph Ngugi ACT Kenya [email protected] Josephine Thome Welthungerlife [email protected] Karin Francis Tegemeo [email protected]
Kenneth Ayuko Agriculture policy Development Coordination
[email protected]/+254 726 944 702
Liz Wilson Agriculture for Impact [email protected] Lucy Muchoki Pan-African Agribusiness Consortium [email protected]/+254 (20) 204 1136 Lydia Kimani PANAAC [email protected] Mary M Kitheka Ministry of Livestock Development,
Kenya [email protected]
Mary Njoroge FOSCA, AGRA [email protected] Mellyne Ongang’o AGRA Markets program [email protected] Monicah Nyang FARM Africa [email protected] Nega Wubeneh EATA [email protected]/00251-930-000-347 Norman Clark [email protected]; [email protected] Patrick Chege PSDA [email protected] Peterson Marira ACT [email protected] Sharada Keats ODI [email protected] Stephanie Hanson One Acre Fund [email protected] Stephen Kagio Egerton University [email protected]
Steve Collins ACDI/VOCA [email protected] Steve Wiggins ODI [email protected]
Wilson Songa Agriculture Secretary [email protected]
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Annex B Linking smallholders to markets: the issues
No secrets for agricultural development In truth, government does not need to do much most of the time. Farming, and most of the supporting industry upstream and downstream in input supply, marketing, storage, processing and so on, is largely private enterprise. Most of the investment and innovation will be private.
Government, however, has to make that possible, and encourage it. In broad terms governments need to do three things:
1. Establish an encouraging rural investment climate: law and order; macro-economic stability, including inflation under control, a competitive exchange rate, relatively low interest rates; business regulations that do not deter investors; taxes modest in impact but broadly shared; and clear property rights, etc.;
2. Provide public goods in rural areas: physical infrastructure — rural roads, electricity, perhaps large-scale irrigation and drainage where applicable; human development — education, water and sanitation, health; and, public knowledge through agricultural research and extension;
The first two sets of policies are overwhelmingly important: get these broadly right, and government has largely done its job. It is not important that the rural investment climate be ideal, that investments in rural public goods be optimal —nice though these would be. No, the important point is to remove the more egregious obstacles to investment, such as rampant inflation, insecurity, threats of expropriation, red tape, or very high taxation.
Similarly, investments have to be made so that rural roads are not impassable thereby pushing transport costs sky high; so that rural populations can read and carry out simple sums, that they do not suffer from repeated bouts of illness, or that rural women have to bear many children because too many die in infancy; so that improved technologies for local farming systems are developed and disseminated.
Why are these so important? Simply this: that when developing country governments pay attention to these fundamentals, farming prospers. Look at Ghana after 1983, China after 1978, where agricultural growth accelerated: policies were not perfect, but reforms had corrected the really big mistakes of previous regimes.
The good news is that these policies are generally straightforward and well understood.
The third challenge is more difficult:
3. Remedy failures in rural markets. Farmers and rural businesses often face difficulty in obtaining inputs and credit from commercial providers, since transactions costs can be high. Some intermediaries in rural areas also have monopoly power by which they extract undue returns. Each of these can mean that investment and innovation does not take place, even when it would be profitable. Remedying these failures may involve promotion of institutions such as contract farming; co-operation by farmers to reduce transactions costs; or even direct state action to replace the market where it does not function.
Framework for thinking about links from smallholders to market What has to happen so that small-scale farmers can be linked to markets for produce, inputs, finance and know-how? How can such links be made effective, efficient, fair and inclusive?
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Reviews of existing literature and studies of documented cases, suggest that success involves three interacting elements: formulating an appropriate1 business case; taking an appropriate approach to intervention; and getting an appropriate organisation.
FIGURE A: THREE ELEMENTS IN LINKING SMALLHOLDERS TO MARKETS
So what are these elements, and what are the implications for those setting policy and those working with smallholders to make the links?
Formulating an appropriate business case
It should go without saying, but unless there are returns to capital, labour and land that justify investment and innovation, then there is no case to link small-scale farmers to market. Three things influence whether there is a business case that promises returns to both farmers and those they work with in supply chain: working within a conducive economic environment and rural public goods; producing for the most appropriate market; and, focusing on the most critical elements for farmers, be they in production or marketing, in maximising returns or reducing risks.
First, the economic environment or investment climate has to be adequate. There has to be peace and security; respect for property rights — especially those of poor farmers; a stable macro-economy without undue inflation; a competitive exchange rate; reasonable and fair levels of tax; and government policies that are predictable, without sudden shifts that dramatically and unforeseeably change prices, trading rules, property rights, and so on. When these conditions do not apply, private enterprise will struggle: and especially enterprises that are small and therefore highly exposed to changes in the economic environment.
1 In earlier drafts ‘appropriate’ was replaced by ‘right’. While the latter term makes for a compelling message, it over-simplifies and can deceive: the aim is to get a good fit, not some optimal solution.
Business Case • Check economic environment
• Think about market for produce
• Select focus for working with SF; production or marketing; maximising returns or reducing risk
Approach • Enable, Facilitate: don’t replace
• Considering inclusiveness
• Exit strategy
• Learning & overcoming unforeseen obstacles
Organisation • Grouping SF to overcome
diseconomies of small-scale units
• Find champions, catalysts
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This should not be taken to imply that the rural investment climate needs to be perfect. No: experience suggests that avoiding the worst failings, providing an adequate environment is all that is needed to allow private actors, including small farmers, to get on with their livelihoods and businesses. The reforms China made in 1978 were far from ideal, but they remedied some gross failings and liberated private endeavour remarkably. [Bromley & Yang 2006, China-DAC Study Group 2010, Rodrik 2003, 2004] These are not only matters for domestic policy: external shocks can be equally if not more significant. When cashew prices fell by 40% in Mozambique in 2001, processing plants rapidly went into the red and closed down.
When poor business environments improve, of course, there can be new opportunities. Rwanda is a case in point. When in 1996 peace was restored, the coffee sector that previously had been taxed heavily and treated as a cash cow to generate funds for politics, was allowed to develop as a normal business so that returns to exporting became once again an incentive to produce and raise quality.
Similarly, government has to supply rural public goods: those goods and services that will not be provided by private firms since they cannot recoup their investments. These include physical infrastructure — rural roads, electricity, perhaps large-scale irrigation and drainage where applicable; human development — education, water and sanitation, health care; and public knowledge through agricultural research and extension.
What do these considerations imply for policy makers and agricultural development programme managers? Two thing stand out. One, since the environment changes, especially external conditions, the environment needs to be scanned and key changes detected as early as possible. It may not be possible to change external conditions, but recognising what may affect a business is better than being unaware.
Two, some domestic policies may unwittingly undermine the business environment. In such cases, advocacy may be effective in correcting such policies.
Second, since linking smallholders to markets almost always concerns selling produce, then the question of what to produce and for which market becomes central. Smallholders have to understand what output markets demand from them, what possibilities exist, and what standards are necessary to gain access to particular markets.
The questions raised over markets are most striking when considering the advantages and drawbacks of producing for export markets. Exporting allows smallholders to serve markets that are much larger than domestic markets, where prices are often far higher than those possible at home. Moreover, some of the more specialised export markets for high-value produce, or for organic or fairly-traded items, promise premium prices. It would be foolish to overlook these possibilities. Many thousands of farmers in Africa produce for traditional export markets in beverages (cocoa, coffee, and tea), cotton, sugar, groundnuts, rubber and so on: a smaller but growing number supply non-traditional exports of fruit, vegetables, flowers, fish and even wine. Markets in Asia are opening up for exports of oilseeds and pulses.
But the potential of export markets should not be overstated, for three reasons. One, export markets can be highly demanding in quality, consistency, traceability and certification. The last can be highly costly for smallholders: meeting GlobalGap certification that allows export to leading European supermarket chains can cost US$580 [Ashraf et al. 2008, for Kenya] a farm — an enormous overhead for a small farm. This is why in some sectors, such as horticulture, increasingly exports from Africa come from large farms and not smallholdings. [Ashraf et al. 2008, Maertens & Swinnen 2009] Some donors and non-governmental agencies may be guilty of having encouraged small farmers to achieve standards at high cost. [Jaffee et al. 2011]
Two, export markets can be more risky than domestic markets. Competition exists for premium export markets. Innovations by barely perceived competitors can suddenly change prospects for other exporters.
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During the 1990s, for example, Ghana developed exports of fresh pineapple from smallholdings to Europe. At the time, it seemed the main competition came from neighbours such as Côte d'Ivoire. Given the turmoil in that country, Ghanaian exporters felt little competition. In 2005, however, an unexpected change undermined Ghana’s position. Del Monte developed a pineapple variety in Costa Rica called MD2 that was suitable for long-range shipping, presenting an attractive fruit on delivery in distant Europe. Ghana’s Smooth Cayenne variety might have competed, but producers and exporters failed to get the quality and consistency in shipped pineapple to match the MD2.
Markets were thus lost. After few years, Ghana reacted, but in so doing the industry restructured as production shifted heavily to plantations owned by large companies. Some smallholders still grow on contract, but conditions are stringent and few are able to take advantage. [Barrett et al. 2012, Whitfield 2008]
Three, domestic and regional markets are large and growing rapidly with urbanisation and rising incomes. In Africa it is expected that agricultural exports may be worth US$20 billion in 2030, up from US$11 billion in 2000; while domestic and regional agricultural markets will expand from US$50 to 150 billion. [Check ref: CMEAC?] Kenya green beans are a case in point. During the 1990s and early 2000s, export production increased with contracted smallholdings supplying a good share of the exports. But when GlobalGap came into effect in the mid-2000s, many smallholders found themselves unable to export. But this was not the end of the story. Nairobi has a booming demand for fresh vegetables, so today the overwhelming amount of green beans and other vegetables grown on smallholdings in central Kenya are destined for the capital city. Most exports, on the one other hand, now come from larger holdings that can afford the costs of certification and traceability.
FIGURE A: GREEN BEANS EXPORTS FROM KENYA
Source: Constructed using FAOSTAT data
Third, those working with small farmers need focus on the critical issues for those farmers: they need an appropriate focus, between production and marketing, between maximising and reducing risks — see Figure B. This presents choices along these two dimensions to produce the four quadrants shown.
FIGURE B: DIFFERENT EMPHASES WHEN WORKING WITH SMALLHOLDERS
4.325
30.543
0
5
10
15
20
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30
35
40
45
1990
1991
1992
1993
1994
1995
1996
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1998
1999
2000
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Exports (thousands of tonnes)Production minus exportsProduction (thousands of tonnes)
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Maximise Returns Reduce Risk
Production Produce more
Lower unit costs
Reduce risks from weather, pests, disease
Diversify production [may limit commercial production]
Use versatile and resilient varieties and methods
Crop protection
Crop insurance
Marketing Sell for higher price — better information for negotiation with traders, using more direct channels that cut out intermediaries, etc.
Higher quality, more consistency, certification with norms that can access premium markets
Reduce risks from fluctuating prices, changing market demands
Diversify production
Seek alternative markets
Contracting
Hedge on commodity exchanges [future option]
The top-left quadrant is about improving production on farm: raising yields, increasing productivity and reducing unit costs. The top-right sector concerns combating risks in production arising from weather, pests and disease. It comprises diversification of production — that may limit specialisation in crops for sale; adopting varieties and methods that are resilient to physical challenges — again, this may trade off against maximising production; protecting crops using chemicals or biological defences; and insuring crops against loss. This last is rarely an option for smallholders in Africa, but there are pilot schemes offering insurance against indices of weather, so it may become more of an option in the future.
Marketing occupies the lower half of the table. The bottom-left cell includes strategies to sell for higher prices — through better informed negotiation, or by using more direct channels; as well as raising quality, improving consistency, and certifying production that may allow access to premium markets. The lower-right quadrant depicts ways to reduce risks in marketing from variations in prices or rapid changes in product specifications that may exclude current production. Responses to these may lie in diversifying production, or seeking additional and alternative markets so that exposure to any one product and market is reduced. Contracting where prices and specifications are agreed before production is another way to reduce risk. In the future there may be opportunities to hedge against price risks on the commodity exchanges that are gradually emerging across the continent.
The point here is to be aware that the most effective actions may lie in any of the four quadrants, or some combination of them. The points of emphasis, moreover, may shift through time as external conditions move, or as programmes move sequentially from dealing with the most pressing issues to the next most pressing. Value chain analyses can be helpful in identifying critical points for intervention, especially when they have the participation of key stakeholders.
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Finding an appropriate approach
The principles for appropriate and effective intervention are not hard to state. The starting point considers the diversity of circumstances, the private or collective nature of enterprise; and the need to create links that are sustainable without external support.
The range of circumstances that define what may be effective is immense: varying by physical location and connections to market; agro-ecological conditions; the nature of the crops and farm enterprises; and the economic and social conditions of the smallholders. Making links, moreover, involves the actions of multiple private or collective actors who cannot be directed, since they are free and independent actors who can accept or reject whatever advice or support is offered. Lastly, whatever links are created, the mechanisms have at some point to be sustained without external support, if they are to persist and if the model is to be replicated or scaled up.
Progress will thus rarely be made by intervening with a ready-made solution: effective links will more likely be built by careful adaptation to circumstances and the capacities of the key players, reinforced by learning and adjustment. For these reasons, interventions need to facilitate and enable rather than to intervene with ready-made, planned solutions. Commercial relations between private firms and collectives — including, of course, smallholders individually or in groups — should not be replaced by project activities by those agencies trying to make the links.
Furthermore, enabling processes of working with smallholders and other actors in the supply chain will involve some learning on the job; indeed, they will encounter unforeseen and unforeseeable obstacles. Learning and overcoming such hurdles imply additional and unplanned efforts: there has to be flexibility in operating systems in time, staff and budgets to allow for such learning and responding.
Some efforts, moreover, will be frustrated, they will fail. The rate of failure of new businesses, especially small ones, is high. Interveners need to be prepared, then, to abandon some endeavours. In business, this is painful; but less painful than piling up losses as the business fails. In public agencies, both government and non-governmental, it may be possible to persist pointlessly; especially when admission of failure is seen, as it often is in hierarchical organisations, as tantamount to an admission of professional incompetence.
While it is easy to state these conditions for an appropriate approach, three challenges arise in practice: the dilemma of offering support but not creating dependency; the need to work within the norms dictated by most funding agencies; and the extent to which initiatives are inclusive.
Dilemma: supporting but not replacing
Although a principle of facilitation is that interveners should not take the place of commercial actors and should not provide unsustainable support, in the early stages smallholders may need temporary support to allow them to learn or to underwrite new initiatives. Such support may take the form of training, advice and technical information, facilitating meetings between farmers and buyers who have not done business before, provision of capital grants to allow initial investments in production, storage, processing or transport, or underwriting novel schemes with the intervener guaranteeing to buy back unsold inventory, to cover (some) bad debt, to support prices should they prove lower than expected, and so on.
The danger is that any such support creates expectation and dependence; that it becomes tempting for well-funded and well-meaning interveners to argue for another year of support, since they fear that to leave at this point would mean all the efforts to date being lost. Hence it is not surprising that practitioners stress the need for a clear strategy at the outset, and exit strategy, for when the intervener will withdraw.
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Programming facilitation with learning
These principles for effective intervention may not, moreover, fit easily with many organisations need for programming, budgeting and monitoring. Enabling and facilitation are processes that are not readily programmed in advance. It is hard to be sure just what the needs will be in a year’s time. It is also difficult to be confident about how much progress will be made. Those engaged in such processes are unanimous that one or two year’s actions will rarely be enough: that thinking of five to ten years may be more realistic. Fitting these requirements to the typical operating systems of most formal agencies is thus a challenge, since these agencies have to prepare quite precise budgets and plans detailed to within one year — sometimes to half-years or quarters, to specify short-term objectives and to define targets against which progress can be monitored. How can this be done in a way that does not lock the process into a straitjacket?
Intervening agencies may be able to cope with these issues by having a diverse portfolio of initiatives, proceeding at different speeds; with these jointly programmed so that staff time and resources can be switched from one initiative to another as and when needed. A diverse portfolio also allows some endeavours to be dropped, in the reasonable expectation that other initiatives will bear fruit and justify the overall effort made.
How inclusive can interventions be?
A repeated observation from cases is that when large firms link to small-scale farmers, or when smallholders combine to make the links, that links work best with those smallholders who have above average land, capital, equipment and education. There may well then be a trade-off between having effective farmer groups and having inclusive ones: at least for the purposes of production and marketing.
Organisational models for linking smallholders to market in practice may not always be inclusive: they may leave marginal farmers out, without access to contracts, unable to participate in farmer associations.
If that is so, then what is the fate of the more marginal smallholders? For them, better options than direct participation may arise in jobs created within more successful supply chains. Small-scale growers of green beans in Kenya generate the equivalent of fifteen jobs for every hectare they plant. [Ref] A shea butter processing factory in southern Burkina Faso employs 1,500 staff. [Ref] Cashew nut processing plants in coastal Mozambique, in zones where there is very little work to be had, provide employment — and as people gain incomes from this, their spending generates additional jobs in local services. [Paul 2008]
Finding an organisational model
Last but not least, there is the organisation that forms the links between smallholders and other actors in the supply chain.
Much has been written about the various ways in which farmers may deal with those buying their produce, supplying inputs, providing financial services or technical advice. At one end of the spectrum is the free market with multiple actors in competition, where deals are mainly spot transactions. At the other end are integrated relations, with contracts tightly specifying in advance quantity, quality and price of goods and services exchanged. In between are all manner of combinations.
This is not the place to review the possibilities, their advantages and disadvantages. The key point is that are several possibilities; that no model is ideal in all conditions, since each needs tailoring to contexts that include the nature of the crop — perishability, quality variations, needs for processing; the frequency of transactions; the extent to which undertaking an activity means investing in assets that have no other use; the experience
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of farmers; the strength of existing institutions including weights and measures, respect for contracts; and existing social capital that may help underpin new commercial relations.
Two insights repeatedly apply in most situations, however. One is that rarely can large-scale firms in supply chains — manufacturers of inputs, processors, large wholesalers, retail chains, banks, etc. —deal directly with individual small-scale farmers. The costs are usually too high, not just in administering many small deals, but also, and often more important, in ensuring that farmers who are party to deals are competent and trustworthy.2 Hence there has to be some point in the organisation of the chain where the farmers are aggregated, either directly as in a farmer group, association or co-operative; or indirectly through the intermediation of local input dealers or appointed distributors, lead farmers, bank agents, and so on.
The other is that the acid test of functioning links is not the model itself, but whether the model respects and works with the capacity and competence of the different actors, and whether sufficient trust can be developed in the relations between actors. It is this that probably explains why so often farmer co-operatives have functioned badly or failed outright. Co-operatives have too often taken on functions beyond their capacity and competence, involving relations that have strained existing levels of trust.
Of course, if capacity, competence and trust are the defining characteristics of any model, then these will not necessarily be static, since with time and repeated experience, capacity, competence and trust can develop and deepen and hence arrangements can evolve as well.
Finally, there is the matter who takes the initiative to form links. For simple spot transactions there may be no other requirement than traders and farmers meeting. But for more complex arrangements, especially when there are deferred transactions, in almost cases there is a champion or a catalyst who takes the initiative. But who are these actors, and what is their incentive?
Two sets of actors stand out. In deals arranged within the supply chains, it is usually a large firm — a processor, exporter, or retail chain — who takes the initiative to set up the links. Rarely does this come from a smaller operator, still less from farmers themselves. The incentive in these cases is commercial gain; more specifically, the large firm looking to get a source of supply for a profitable outlet. They turn to smallholders when there is no other convenient supply or when it seems smallholders may be able to supply at lower cost than the alternative. In practice, this last criterion translates to comparing supply from local small-scale farmers to that from imports. Occasionally it may be that smallholders can deliver better quality than larger operations, as applies with crops that require hand-picking.
The other set of actors comprises public agencies, government, NGOs, foundations, who have a mandate to promote links. Their incentive is simply that this is what they have entrusted to do. In many cases, the public agency operates by facilitating arrangements between smallholders and larger firms, ultimately handing over the operation of the links created to private operators. Hence in these cases they effectively replace the private firm as the temporary champion of the links.
2 These latter costs are those of information: they can be very high when the formal, large-scale provider has little experience of rural areas, when some or many farmers may be illiterate or innumerate, and when language and culture differ. In technical terms the costs are called ‘transactions costs’: the costs of doing business with confidence. These may not matter much for spot deals, but they do for any deferred transaction, such as credit.
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There are other possibilities for catalysts and champions. In some cases, often after prodding by a public agency, a stakeholder forum for a particular chain may be formed and encouraged to initiate changes. The forum itself may then become the champion.
References Ashraf, Nava, Xavier Giné& Dean Karlan, 2008, ‘Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya’, Center Discussion Paper No. 967, Economic Growth Center, Yale University, P.O. Box 208629, New Haven, CT 06520-8269, http://www.econ.yale.edu/~egcenter/
Barrett, Christopher B., Maren E. Bachke, Marc F. Bellemare, Hope C. Michelson, Sudha Narayanan, Thomas F. Walker, 2012, ‘Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries,’ World Development,40 (4), 715–730 10.1016/j.worlddev.2011.09.006.
Bromley, Daniel W. & Yang Yao, 2006, ‘Understanding China’s economic transformation. Are there lessons here for the developing world?’, World Economics, 7 (2), 73–95
China-DAC Study Group, 2010, Agricultural Transformation, Growth and Poverty Reduction, Beijing: International Poverty Reduction Center in China (IPRCC) & Paris: OECD http://www.oecd.org/dataoecd/25/27/46767135.pdf
Jaffee, S., Henson, S. and Diaz Rios, L. (2011) Making the grade: smallholder farmers, emerging standards and development assistance programs in Africa. Washington DC: The World Bank.
Maertens, Miet& Johan F.M. Swinnen, 2009, Trade, Standards, and Poverty: Evidence from Senegal, World Development, 37 (1), 161–178
Paul, Brad, 2008, ‘Factories in the field. Rural Transformation and the Organization of Work in Mozambique’s Cashew Triangle’, Technoserve,
Rodrik, Dani,2003, In Search of Prosperity, Princeton University Press
Rodrik, Dani, 2004, ‘Getting institutions right’, Mimeo, Harvard University, April 2004
Whitfield, Lindsay, 2010, ‘Developing Technological Capabilities in Agro-Industry: Ghana’s experience with fresh pineapple exports in comparative perspective’, Danish Institute for International Studies (DIIS) Working Paper 2010:28, Copenhagen: DIIS
