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Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa

Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa



For Sub-Saharan Africa, transforming small-scale farming into viable ...

For Sub-Saharan Africa, transforming small-scale farming into viable
commercial farming is central to reducing poverty and increasing
growth. The challenges to achieving this transformation are too great
for smallholder farmers to overcome alone. Yet policies to increase
access to lucrative markets often overlook this fact. This briefing,
based on an extensive review of current approaches, summarizes
the barriers to access for smallholder farmers and suggests strategies
for future success.




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    Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa Document Transcript

    • Briefing Paper Number 1 | 2012 GDN Agriculture Policy Series Managing agricultural Johann Kirsten Mariam Mapila commercialization Julius Okello for inclusive growth Sourovi De in Sub-Saharan Africa For Sub-Saharan Africa, transforming small-scale farming into viable Employees work at a farm commercial farming is central to reducing poverty and increasing south of the Ethiopian capital, Addis Ababa, packing beans growth. The challenges to achieving this transformation are too great before they are exported for smallholder farmers to overcome alone. Yet policies to increase to the Netherlands. Supporting access to lucrative markets often overlook this fact. This briefing, smallholder farmers to contribute to export markets can reduce based on an extensive review of current approaches, summarizes poverty and increase food security. the barriers to access for smallholder farmers and suggests strategies svenn torfinn | panos pictures for future success. This briefing paper is one of the Key messages 10-part Global Development Network (GDN) Agriculture Policy The four main factors hindering Enhancing market access for Series for its project, ‘Supporting successful agricultural commercialization smallholder farmers is critical to reducing Policy Research to Inform Agricultural Policy in Sub-Saharan in Sub-Saharan Africa are: poverty and increasing food production. Africa and South Asia’. It is based The socio-economic characteristics of the p Government action to assist net on a longer synthesis paper, food-buying smallholders to become Managing agricultural smallholder producers. commercialization for inclusive net sellers should be a priority. growth in Sub-Saharan Africa, Insufficient agricultural and development p which draws on extensive infrastructure. Farmers are more likely to experience published and unpublished Lack of access to sufficient agricultural p sustained success in commercial research. The full paper agriculture when they are organized can be downloaded at: support services. www.agripolicyoutreach.org into collectives and networks that High transaction costs and institutional p will be of value to policymakers, It allow them to share information, experts and civil society working factors. collateral and risks. to improve agriculture in Public investment in rural infrastructure Sub-Saharan Africa. Implementation of policies that This project is supported by the and other rural public goods is essential drive the agricultural sector requires Bill & Melinda Gates Foundation. for the private sector (both farmers a multi-sector approach where the and traders) to operate effectively. If African public and private sectors and the governments fail to make such investments, international development community rural development and poverty alleviation support each other. goals will not be achieved. Lack of such investment is the most binding constraint to agricultural commercialization in most locations. Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 1
    • Overview A key feature of The majority of farmers in Sub-Saharan the factors leading Africa live in poverty and are engaged in subsistence farming. The commercialization to successful of smallholder agriculture is considered inclusive smallholder a key strategy in reducing poverty and commercialization increasing the even spread of economic is that they all bring growth in developing countries. To achieve this, smallholder farmers who are the market closer to disadvantaged by socio-economic, political the farmer and reduce and environmental conditions, need to be transaction costs. included in high-value commercial markets. The challenges and barriers to achieving this are too great for smallholder farmers to overcome alone. Yet most policies and strategies to increase access to markets still leave smallholder farmers out. Smallholder farmers possess few physical and natural resources such as access to land and water or irrigation systems; they often have poor technical skills and low managerial capacity. They are often isolated, have very little access to commercial markets and infrastructure, and also find it hard to access finance and credit services. It is therefore a huge challenge for them to participate in commercial Farm worker Jantjie Carlous bags sterilized Rooibos (redbush) tea, grown on Groenkol Farm, agriculture. When they do participate, near Clanwilliam in South Africa for export. high transaction costs are often involved. graeme williams | panos pictures Including smallholders in Methods high-value markets A systematic review of the large volume of documentation and research Given these difficulties, what are the best on smallholder commercialization was conducted. Since agricultural ways to encourage and sustain smallholder commercialization has been promoted with varying degrees of success, farmer participation in commercial markets? it was necessary to consolidate lessons from across the region – What can we learn from different examples Eastern, Central and Southern Africa. of success and failure of attempts to do so across Sub-Saharan Africa? A systematic The range of countries studied included those such as Malawi and review of the literature, drawing on Mozambique, dominated by smallholder farming, while in other published and unpublished research and countries – such as South Africa, Kenya, Zambia and Botswana – documentation from Sub-Saharan Africa, the agricultural sector is more of a mixture of highly commercialized shows some clear ways forward. Evidence value chains and agricultural production by smallholder farmers. about what leads to successful smallholder The review included studies on the commercialization of agricultural agricultural commercialization appears produce from different farming systems: maize-based, rice-based, conflicting as models that work in one cassava-based, horticulture-based and banana-based. This Sub-Saharan African context fail in another. range and diversity provided great insight into the differing challenges, However, from the range of experiences, opportunities and policy environments facing the vast majority it is possible to identify some overarching of smallholder producers in Sub-Saharan Africa. factors that help and hinder the success of commercialization. The systematic review revealed two main aspects of success. When smallholder farmers are able to participate in commercial markets in a sustainable way, they have firstly received comprehensive support from both public and private sectors. Secondly, attempts have been made to bring markets and farmers closer. 2 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa
    • The road from subsistence farming Mitigating risks and to the commercial market overcoming bottlenecks If smallholder farmers are to produce In addition, smallholder farmers need greater surpluses to be sold in the market, to be protected against high transaction they need better seeds, animal breeds, costs and, importantly, any risks that practices, fertilizers and knowledge. might jeopardize their food security They need comprehensive public and and livelihoods. In turn, private sector private policies and programs to support investment needs incentives and rules them and bring them closer to the to support smallholder commercialization. market, including better agricultural All of these needs will vary according infrastructure and access to agricultural to context and require a depth of support services such as information, understanding from those who are making finance and credit. policies and designing interventions. The bulk of current strategies to improve The success or failure of smallholder the market participation of smallholders agricultural commercialization therefore are at the micro level. Macro-level strategies depends on two interlinked factors. for creating a favorable environment for First the ability of governments and private commercialization mostly favor large-scale promoters to adapt commercialization commercial farmers and agribusiness models to suit specific social, economic, firms. Smallholders need access to the geographical and political contexts. financial, social and economic services Secondly, the extent to which these that are currently only available to large, promoters are able to provide the commercialized farmers. comprehensive support that farmers need to overcome challenges and bottlenecks in the agricultural value chain. Bringing the market closer to farmers In south-western Uganda, the Nyabyumba potato farmers were able to enter the commercial market, sustain linkages and relationships and meet all the rigorous quality requirements of the potato market. Through a program run by the International Center for Tropical Agriculture (CIAT), the farmers increased their capacity to participate effectively in the market. CIAT supported the farmers to produce and get direct access to markets and taught them to carry out market research. The program also helped the farmers to develop their ability to innovate and understand their farming enterprises better. They were In order for smallholder farms to participate in commercial markets in a sustainable way, encouraged to be more innovative by they need better seeds, improved infrastructure carrying out production experiments on and better knowledge. In this picture farmers their farms, and thus becoming able to in Mali are machine-winnowing newly harvested rice on farmland between Markala and Niono. manage their enterprise in the absence sven torfinn | panos pictures of external assistance. Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 3
    • The challenges in more detail Farmers need information Socio-economic characteristics The main resource constraints that about markets and prevent rural smallholder producers from The socio-economic characteristics commercializing their agricultural prices if they are to be of smallholder producers affect their enterprises are a lack of: successful in commercial ability to become commercial producers. For example, poor education and low p Access to land and water enterprise. The use literacy levels result in poor networking, p Agricultural labor of mobile phones has negotiation and management skills. p Finance to purchase necessary production been a major innovation Male heads of household are more likely equipment in this area. to grow crops for market than female heads of household, who tend to farm p Access to financial and credit services crops for immediate family consumption. p Capital to cope with low prices or delays In some cases, strict requirements for in payment certified crops restrict the poorest farmers p Transport to markets (donkey, bike, from participating as they do not have ox and cart) the finances to purchase land or hire However, other factors may play a more agricultural labor. significant role. Some studies showed that a far greater precursor to success in market participation were entrepreneurial skills and the ability to respond to dynamic market conditions. Lack of access to sufficient agricultural support services Public agricultural support services are important as they encourage smallholder farmers to enter lucrative commercial agricultural markets. In many instances, individual smallholder farmers are able and willing to commercialize their enterprises, but they lack access to market information or information about production or agricultural credit, and adequate and timely agricultural advisory services. They also lack access to input markets for high-yielding seeds and inorganic fertilizer. When farmers join together in groups or cooperatives they are more likely to be able to access inputs and purchase advisory services and market information. High transaction costs and institutional factors Even when farmers know of lucrative A smallholder farmer in Zambia: female heads markets, they may be deterred from of household tend to farm crops mainly for their participating because of high transaction families to eat. Lack of access to financial and costs. Transaction costs include searching credit services, among other factors, deter them from expanding into the commercial market. for information, negotiating contracts, global development network monitoring goods and transporting them to market. Poor transport systems and inadequate processing and storage infrastructure can act as a hindrance for smallholders. In addition, smallholders are rarely able to rapidly change their production volumes in order to meet market trends. They are unable to keep up with cost-reducing technological advances, making them less competitive. 4 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa
    • Insufficient agricultural and Poor access to finance and credit development infrastructure Finance and credit in the form of increased Insufficient or absent infrastructure – non-farm income, savings and credit including irrigation and water for investment in commercial enterprise is sources, electricity and power sources, very important to smallholder farmers who animal dip tanks and road networks – wish to commercialize their agriculture. often hinders farmers’ attempts This is a key factor determining the level to increase production. Geographical of success of market-oriented production isolation and remoteness and a lack and participation. Farmers need a secure of telecommunications infrastructure asset base (such as livestock and machinery) prevent them from responding to to make them more resilient to market higher market prices. shocks. Access to credit by smallholders can promote the uptake of new technologies Lack of information and direct and also lead to thriving local economies access to markets in which surplus produce is absorbed. Rural market information systems such as market prices on boards in rural centers and trading towns have also been successful in increasing direct trade between smallholders and buyers. Direct access to markets alleviates potential exploitation by middlemen and other players in the agricultural chain. Smallholder farmers have Smallholder farmers and supermarkets in Malawi struggled to join the ‘supermarket movement’ Efforts have been made in the past to help smallholder farmers to become part through lack of capital and of the ‘supermarket movement’. But they have failed because of a shortage inability to meet exacting product standards of capital on the part of smallholder farmers and the inability of farmers to meet global development network the product specifications set by supermarkets. In 2006 the Farmers Union of Malawi, with the assistance of the World Bank country office, attempted to establish linkages between smallholder horticultural farmer groups and Shoprite supermarkets. They were successful but a longer-term relationship failed to emerge as the farmers were unable to supply the required volumes in a timely manner. Providing some initial support in assisting farmers to reach the production levels and quality that meet the requirements will be necessary. But there could also be much stronger engagement by supermarkets and other private sector players. However, the cost and effort involved in such initiatives are usually a deterrent for supermarkets to get involved at the farm level. Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 5
    • Struggling together: farmers’ organizations can help them overcome challenges they cannot face alone. Pictured here is a woman farmer on Nordale Farm in Bonnievale, Western Cape, South Africa. eric miller | panos pictures Spotlight on successes: farmer groups, information and credit Farmer organization, collective action and innovation When farmers organize themselves in formal systems, they are more likely to be successful at commercial enterprise. Together they can This new model for smallholder work to overcome many of the challenges they cannot face alone. Successful commercialization is based on the structures manage to separate the shareholders from the management concept that farmer organizations of the organization. They provide increased market information, access to require two features: inputs, increased access to extension services and technical advice, transport A non-profit entity that works p to markets and access to credit facilities. to strengthen farmer organization. They might also provide access to land and water and establish a reliable A semi-autonomous profit-making p market through contract arrangements. Farmer groups have worked company that works to provide in ways that minimized transaction costs, led to higher production and an organized way of linking farmers marketed outputs and reduced price instabilities for members. Trust, directly to lucrative markets. cooperation and social capital are key features of well-run farmer groups. If the company is profitable, it will Innovation and entrepreneurial skills and diversity of commercial enterprise ensure sustainability and attract are other key factors of success. Innovative marketing strategies such high-caliber personnel. Since the as centralized collection points, transportation and market points also farmer organizations are shareholders lead to successful and sustainable commercial market activities. in the company, they are guaranteed the funds needed for running their non-profit farmer organization, for building the capacity of its members and for hiring administrative, managerial and financial personnel to work hand-in-hand with elected members. Although the divisions of the apex farmer organization are linked, it is essential that directors and managers responsible for each separate entity should have the power to make strategic decisions which are informed by the needs of the farmer groups and individual members. 6 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa
    • Recommendations Governments must go beyond providing p Invest in infrastructure market incentives such as higher prices Evidence shows that investment through pricing policies. Additional support in infrastructure has large net returns services need to be comprehensive and and also reduces transaction costs bring the farmer and the market closer for farmers. In order to promote together. A range of macro-level policies commercial agriculture, governments and programs could help to do this: should invest in rural infrastructure Address resource constraints p such as feeder roads, markets, irrigation and water infrastructure. Governments should address the resource constraints that smallholder Revisit land reform failures p farmers face by providing a range Land tenure security is a necessary of support services. This includes financial condition for agricultural intensification and credit services, welfare services and therefore successful agricultural and agricultural support services. commercialization. Governments need Establish networks p to create partnerships in the private sector and try to address land reform failures. Farmers will better understand and engage They should reorganize land reform with commercial farming systems when initiatives to ensure efficient re-allocation they work as cooperatives, organizations of land. Policies should focus both on and networks. Farmers need support individual farm plots and collective rights. to establish and maintain such groups and learn from other working models Protect farmers from market shocks p of successful arrangements. Increasing farmers’ dependency on the Provide innovative financing p market makes them more vulnerable to market forces, and policies need to be Governments should reform public coordinated to help farmers absorb any agricultural support services to help shocks. Macroeconomic policy needs to smallholder farmers become fully be aligned with microeconomic initiatives commercialized. Agricultural support that aim to achieve this. services should be more inclusive and responsive so that farmers can have Invest in ICTs p a say in their function. Innovative Information and communication financing should also take into account technologies (ICTs) have helped to resolve the needs of very poor farmers who the problem of poor access to agricultural have no titled land or other forms information. Investment in new generation of collateral. High-yielding seeds for ICTs, such as mobile phones, internet both traditional and non-traditional and email and personal computers, cash and food crops should be available will benefit farmers. However, farmers and accessible. also need support to be able to use these Create social welfare programs p new technologies. Governments should target poor rural Increase agricultural R&D p smallholders and combine agricultural More research should be carried out to services with public social welfare develop new market models that support programs with the aim of improving smallholder farmers to participate in agronomic management practices, markets and minimize their vulnerability generating more productive, to market forces. fertilizer-responsive seed technologies and investments in rural infrastructure.Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 7
    • Key references The full paper Managing agricultural CP Auger (1989) commercialization for inclusive growth in Information sources in grey literature, Sub-Saharan Africa is available for download at 2nd edition, London: Bowker-Saur www.agripolicyoutreach.org C Barrett (2008) It was written by: ‘ mallholder market participation: S Prof. Johann Kirsten concepts and evidence from eastern University of Pretoria, South Africa and southern Africa’, Food Policy, Mariam Mapila vol 33, pp299–317 Putting People First, Malawi CRD (Centre for Reviews and Dr. Julius Okello Dissemination) (2009) University of Nairobi, Kenya Systematic reviews, York: York Sourovi De Publishing Services University of Oxford, UK K Emongor and J Kirsten (2009) and reviewed by ‘ he impact of southern African T Prof. Per Pinstrup-Andersen supermarkets on agricultural development Cornell University, USA in the SADC: A case study in Zambia, Namibia and Botswana’, Agrekon vol 48, P roject Steering Committee no 1, pp60–84 Senior Advisors T Jayne, D Mather and E Mghenyi (2010) Prof. Per Pinstrup-Andersen ‘ rincipal challenges confronting P Cornell University, USA smallholder agriculture in Africa’, Prof. T. S. Jayne World Development vol 38, Michigan State University, USA no 10, pp1384–98 Prof. William A. Masters T Jayne, S Haggblade, N Minot and Tufts University, USA S Rashid (2011) Prof. Alexandros Sarris ‘ gricultural commercialization, rural A University of Athens, Greece transformation and poverty reduction: Prof. David Zilberman What have we learned about how to University of California, Berkeley, USA achieve this?’ Synthesis paper prepared for the AAMP symposium, 20–22 April, Project Management Team Kigali, Rwanda, available from Principal Advisor www.aec. msu.edu/fs2/aamp/ Prof. Douglas Gollin Kigali%20Conference/Smallholder_ Williams College, USA commercialization_Synthesis2.pdf Project Director M Kherallah, C Delgado, E Gabre-Madhin, Dr. George Mavrotas N Minot and M Johnson (2002) Chief Economist, GDN Reforming agricultural markets in Africa, Deputy Project Director IFPRI, Food Policy Statement No 38, Tuhin Sen October 2002 Lead Strategist, GDN MATJ Mapila, JF Kirsten and tsen@gdn.int FH Meyer (2011) Project Consultant ‘ he impact of policy shocks on T Nupur Suri ruralhousehold incomes in Malawi’. Policy Outreach Analyst Paperpresented at the 49th Agricultural Vinaina Suri Economics Association of South Africa conference, Pretoria, South Africa, you wish to reproduce or build upon this work, If 28–30 September please contact Global Development Network (GDN). JJ Okello and SM Swinton (2007) © Global Development Network ‘ ompliance with international food C Designed and produced for GDN by Panos London, safety standards in Kenya’s green panos.org.uk bean industry: A paired case study of small and large family farms’, All photographs © Panos Pictures, panos.co.uk Review of Agricultural Economics, except pages 4 and 5 © Global Development Network. vol. 29, pp269–85 All rights reserved. World Bank (2008) Further information ‘ Introduction’; Study on competitive commercial agriculture in Africa, available more information on the ‘Supporting For at http://go.worldbank.org/XSRUM2ZXM0 Policy Research to Inform Agricultural Policy in Sub-Saharan Africa and South Asia’ project visit: www.agripolicyoutreach.org Supported by the Bill & Melinda Gates Foundation ew Delhi | Cairo | Washington DC N www.gdn.int 8 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa