Poverty reduction through local    markets and supply chains:a positive step towards sustainable       development in Afri...
Opening thought “We are both strong believers in the need for substantial aid flows to the world’s poorest countries. We b...
Evolution of the sustainability agenda                                                                        Environment ...
Sustainability – an alternativeconceptualisation                                                                  social  ...
Uncertainty – decision makingcontexts and problem solving                                            Rate of change       ...
Pascal’s WagerIn a more general sense the wager addresses situations in which there is a decisionthat involves a large pot...
The precautionary principle   It is an approach to environmental policy that has been   adopted in principle by the Europe...
Smallholder farmers face three main sets ofchallenges as they operate their farmbusinesses.  Productivity  Efficiency  Mar...
CHALLENGE #1: Smallholder farmers aretypically operating their farms at very low levelsof economic productivity.  Producti...
CHALLENGE #2: The current system ofproduce distribution and sale is inefficient.  Productivity               Small farm p...
CHALLENGE #3: Smallholder farmers areunable to access the right markets at the righttime.  Productivity              Farm...
Challenges in export markets                                                           E                                  ...
The EUREPGAP standards areparticularly difficult for thesmallholder to meet.                                              ...
Why local consumer markets? Rapid changes in our approach to work and leisure have significantly altered our eating patter...
Why local consumer markets?  The rapid expansion of fast food outlets and sandwich bars has provided cheap  food to office...
Typical traditional food chainbetween farmers and variousmarkets.                                                         ...
Traditional food supply chains exhibitthe following key characteristics: 1. Business relationships within the supply chain...
Values and value added The terms “value” and “values” are used in different ways when referring to food production and foo...
Value based supply chains When these relationships are expressly based in an articulated set of values, they are becoming ...
Value based food chains differ fromtraditional food supply chains in thefollowing important ways:1. Business relationships...
A summaryThese food value chains are distinguished from traditional food supply chains by• the combination of how they ope...
Local consumer markets“entrepreneur – farmer partnerships”                                   Regional Logistics Centre    ...
Advantages of setting up localconsumer markets and value chainsRe: The sustainability agenda ECONOMIC SOCIAL ENVIRONMENTAL...
Advantages of setting up localconsumer markets and value chains                 The local population can be supplied with ...
Advantages of setting up localconsumer markets and value chains                  The increase of local production will pro...
Advantages of setting up localconsumer markets and value chains                The chain management approach creates diffe...
PILOT STUDY   Way forward                                                                                        PE       ...
RECOMMENDED APPROACHThe consideration of farming as a business requires an action planthat includes the following chapters...
Closing thought:“I am enormously distressed that 200 million Africans remain hungry andmalnourished…we Africans are the on...
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Poverty reduction through local markets and supply chains

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The presentation describes the current challenges faced by farmers in Africa in supplying horticultural produce to the European markets. It suggests a closer look at how local markets and value added supply chains could make a big difference in alleviating poverty.

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Poverty reduction through local markets and supply chains

  1. 1. Poverty reduction through local markets and supply chains:a positive step towards sustainable development in Africa Dr P S Sahota Executive Director Nexus Aid CIC p.sahota@nexusaid.org 1
  2. 2. Opening thought “We are both strong believers in the need for substantial aid flows to the world’s poorest countries. We believe equally strongly in the public sector’s role in providing essential services and infrastructure…but we believe that private investment must be the main source of income growth & job creation in poor countries, as it is in industrialized nations…(we need to) identify specific measures that work to unblock the private sector’s potential…when the business potential of the developing world is unleashed, the benefits will be more than economic.” Paul Martin (PM of Canada) & Ernesto Zedillo (former President of Mexico) Co-chairs of the UN Commission on the Private Sector & Development which produced the recent report Unleashing Entrepreneurship: Making Business Work for the Poor 2
  3. 3. Evolution of the sustainability agenda Environment Social Environment Social Environment 2 Sustain- ability Social 1 3 Economic Economic Economic Millennium Development Goals Puzzles Problems Messes (wicked problems, a system of problems) Formulation Agreed Agreed Arguable Solution Agreed Arguable Arguable Levels of integration Complexity Uncertainty 3 Structured/semi-structured/unstructured
  4. 4. Sustainability – an alternativeconceptualisation social puzzle problem problem Sustain ability mess problem environment economic puzzle puzzle Sustainability is concerned with unpredictable futures and this future perspective to sustainability opens up a 4 Pandoras box of uncertainty.
  5. 5. Uncertainty – decision makingcontexts and problem solving Rate of change Low high A B Low Low uncertainty Moderate uncertainty (needed information is known (constant need for new and available) information) puzzle Complexity (number and diversity of problem mess the elements) C D Moderate uncertainty High uncertainty (information overload) (not known what information is required) High (A system of problems, wicked problems) (Based on Duncan, 1972; Hatch, 1977; Mintzberg, 1990). 5
  6. 6. Pascal’s WagerIn a more general sense the wager addresses situations in which there is a decisionthat involves a large potential risk and that must be made on the basis of incompleteevidence. God exists God does not exist Pascal A B believes in God No problem No problem Pascal does C D not Serious trouble No problem believe at the in God Pearly Gates The environmental equivalent of Pascal’s Wager is the Precautionary Principle 6
  7. 7. The precautionary principle It is an approach to environmental policy that has been adopted in principle by the European Commission and has the support of many environmental organizations. Essentially, it holds that the environment should not be left to show harm before action is taken to protect it, because by then irreparable damage may have been done As a precaution, it’s safer to behave as if the problem is real and serious from the outset. 7
  8. 8. Smallholder farmers face three main sets ofchallenges as they operate their farmbusinesses. Productivity Efficiency Market Access 8
  9. 9. CHALLENGE #1: Smallholder farmers aretypically operating their farms at very low levelsof economic productivity. Productivity  Farmers are often growing the wrong mix of crops in their farms, or only growing subsistence crops.  Farmers are unaware of proper growing techniques. Efficiency  Farmers are unable to purchase the required inputs to grow high quantities of top-quality produce. RESULT:  Disappointing harvests of the wrong Market Access crops. Thanks to K Mutiso 9
  10. 10. CHALLENGE #2: The current system ofproduce distribution and sale is inefficient. Productivity  Small farm produce often changes hands 3 or 4 times on the way to the consumer.  Transportation is slow, costly, and wasteful. Communication is person-to- person.  Logistical processes are a major hurdle. Efficiency RESULT:  Potential profits drained from all participants, particularly the farmer herself. Market Access Thanks to K Mutiso 10
  11. 11. CHALLENGE #3: Smallholder farmers areunable to access the right markets at the righttime. Productivity  Farmers operate in information-poor environments regarding prices and market outlets.  Farmers are unable to aggregate their produce at levels required to access the largest markets. Efficiency  Opportunities to exploit are created for brokers, resellers, and other intermediaries. RESULT:  Limited choice of market outlets and Market Access disappointing net prices. WE HAVE TWO PARTICULAR MARKETS – EXPORT AND LOCAL 11
  12. 12. Challenges in export markets E G N • EurepGap standards A H C L • Dependency syndrome A R LTU • U Lack of marketing knowledge/ market access C A • Middle-men andS brokers E I R U • EQ Poor decision making processes and information accessR • Breakdown of trust between exporters and farmers etc. 12 • Being “survivors” rather than looking at farming as a
  13. 13. The EUREPGAP standards areparticularly difficult for thesmallholder to meet. Is all crop protection Are crop protection product storage Is the EUREPGAP products stored in a Are keys and farmer to Has the access Have soil maps been fire-resistant, well- registered product Is a documented wasteprepared for the shelving made of non- the crop protection completed a risk farm? product store limited plan in management to absorbent materials? traceable backventilated, well-lit, and to and Protective clothing is assessment for food Protective clothing is trackable from secure location? the workers withoperator health, available for all farm safety, formal place? cleaned after every Is surplus application Is the source of water registered farm where it training in the handlng workers? and the environment? mix disposed of use? used forbeen product has final grown? of these products? Has an internal, annual according to national Are first aid boxes washing potable or application self-inspection been Is Are safety and Does the farmer law? documentedthe vicinity of suitable by present in anddeclared equipment calibrated emergency procedures Are empty containers Does disposal of empty substrate participate in recorded? an the competent all workers? and verified on an visible within 10 metres rinsed with crop protection Has a hygiene risk recycling programmes authorities, through a Is organic fertilizer annual basis? of the crop protection integrated pressure- containers occur in a analysis been for substrates where stored in an laboratory? competent product store? rinsing device? manner that avoids available? performed forsystematic Have the entire appropriate manner, exposure to humans? farm? methods of prediction which reduces the risk Has an annual risk Are breakage-safe been used to calculate of environmental have Do farm workers assessment for lamps in place above the water requirement contamination? Have all the crop access to toilets and irrigation water the sorting, weighing, of the crop? protection product Is the farmer able to washing facilities hand pollution been Is a documentedand storage provide current nearby? action areas? applications been completed by a plan in place if recorded with product evidence of annual laboratory? maximum residue name, crop name, residue testing, levels (MRLs) are date, and reason for traceable to the farm? exceeded? application? Source: EUREPGAP Checklist Version 2.0 Jan-04 13
  14. 14. Why local consumer markets? Rapid changes in our approach to work and leisure have significantly altered our eating patterns and attitudes towards food. Increasing availability of cheaper food in real terms, rising standards of living, growing female employment, the rise in single person households, shrinking household sizes and increasing importance of leisure activities have brought about major changes in consumer habits. The emergence of self-service supermarkets has changed the face of grocery retailing. These s/markets were quick to recognise the trends as they emerged and were often instrumental in pioneering change. They purchase in large volumes and deal directly with suppliers. Through ‘pile it high and sell it cheap’ the superstores dominate the retail sale of food and have diversified and expanded their product ranges, incorporating greater quantities of perishable foods, including meat, fish, fruit and vegetables. Dumping of produce that is outside supermarket specifications or is surplus to programmes becomes common practice. As a result market wholesalers are increasingly left trying to earn a living selling secondary quality products to the remaining independent retailers kiosks and street market traders. 14
  15. 15. Why local consumer markets? The rapid expansion of fast food outlets and sandwich bars has provided cheap food to office and factory workers in the last few years. More meals are provided by the institutional sector such as prisons and hospitals in line with their growth in occupancy. However, it is the continuing increase in disposable income, leisure activities and single person households that have driven a significant change in the consumption of food. Coupled with increased tourism, catering has become a significant and growing sector of the supply chain. Although large groups of hotels and fast food restaurants conduct much of the business, there is a major increase in small and medium sized enterprises (SMEs). It is anticipated that in the long term the trend towards eating out of the home will increase. As catering matures and the catering sector becomes more organised, improvements in supply chain efficiency are needed to reduce costs and deal with environmental issues such as waste management. 15
  16. 16. Typical traditional food chainbetween farmers and variousmarkets. Processors Large Plot Farmers Transporter Market & Other Fees Exporters Small Plot Farmers Farm gate Brokers Local Brokers Central Brokers Large Retailers Local Retail Large Institutions Market Retailers Distributors Retail Distribution Local Distant Wholesalers Consumer Wholesalers Consumer Informal Market Retailers Distributors Today, smallholder farmers are retaining a low percentage of the wholesale value of their farm 16 produce.
  17. 17. Traditional food supply chains exhibitthe following key characteristics: 1. Business relationships within the supply chain are often framed in win-lose terms, with resulting levels of inter-organizational mistrust. Relationships are constructed as competitive, even adversarial, whereby each company seeks to buy as cheaply and to sell as expensively as possible. 2. Farmers/ranchers (and fishers) are treated as interchangeable (and exploitable) input suppliers, often operating in restricted markets or under short-term contracts where risks are usually born by producers 3. Benefits/profits from the selling of final food products are unevenly distributed across the supply chain, with food processors and marketers usually receiving a disproportionately higher share. 4. Operations are increasingly located and coordinated on a national a international scale, with food production, processing, and marketing sited according to short- term economic gains for those parties who dominate the chain. 5. . Traditional food supply chains can handle both undifferentiated (commodity) and value added” food products 17
  18. 18. Values and value added The terms “value” and “values” are used in different ways when referring to food production and food business networks. “Value-added” is used to characterize food products that are converted from raw product through processes that give the resulting product an “incremental value” in the market place. An “incremental value” is realized from either higher price or expanded market. “Value-added” is also used to characterize food products that have incremental value in the marketplace by differentiating them from similar products based on product attributes such as: geographical location; environmental stewardship; food safety; or functionality. The words “value” and “values” are also used to characterize the nature of certain business relationships among interacting food business enterprises, rather than any attribute of the product itself. In general, this collection of relationships is known as a “supply chain” 18
  19. 19. Value based supply chains When these relationships are expressly based in an articulated set of values, they are becoming known as “values-based supply chains” or, more succinctly, “value chains”. Some in the agri-food business community use the term “value chain” to focus on supply networks that deal with food products given incremental value through processing and/or attribute differentiation. In other words the term “value chain” embraces both the characteristics of the business relationships within a food supply network, and product differentiation. A food supply chain is a network of food-related business enterprises through which food products move from production through consumption, including pre-production and post consumption activities. Typical links in the supply chain are: (i) Inputs, (ii) producer, (iii) processor, (iv) distributor, (v) wholesaler, (vi) retailer and (vii) consumer. 19
  20. 20. Value based food chains differ fromtraditional food supply chains in thefollowing important ways:1. Business relationships among “strategic partners” within value chains are framed in win-win terms, and constructed on collaborative principles that feature high levels of inter-organizational trust. (“Strategic partners” are those businesses that significantly add value to food products and/or to supply chain performance. It is possible that not every business “link” in the chain is a “strategic partner.”) 2. As producers of differentiated food products, farmers/ranchers (and fishers) are treated as “strategic partners” with rights and responsibilities related to value chain information, risk-taking, governance, and decision-making. 3. Commitments are made to the welfare of all strategic partners in a value chain, including fair profit margins, fair wages, and business agreements of appropriate duration. 4. Operations can be effectively located and coordinated at local, regional, 20 national, and international scales.
  21. 21. A summaryThese food value chains are distinguished from traditional food supply chains by• the combination of how they operate as strategic partnerships (businessrelationships) • how they differentiate their products (focused on food quality & functionality and on environmental & social attributes). •Value chains have the capacity to combine scale with product differentiation, and cooperation with competition, to achieve collaborative advantages in the marketplace •Value Chains emphasize high levels of performance and high levels of interorganizational trust •Value Chains emphasize shared values and vision, shared information (transparency), and shared decision-making among the strategic partners • Value chains make commitments to the welfare of all strategic partners in the chain, including fair profit margins, fair wages, and business agreements of 21 appropriate extended length
  22. 22. Local consumer markets“entrepreneur – farmer partnerships” Regional Logistics Centre Farmer Groups Supermarkets Farmer Groups 9% 3% Farmer Groups Transporter Market & Other Fees 23% High-end catering Farm gate Brokers Local Brokers Central Brokers Fruits Fruits Middle-sector Retail Distribution Retailers Large Retailers Fruits Distributors of catering Fruits Farm Inputs Large Institutions Wholesalers Wholesalers General Public + (formal and informal RetailersProducers of meat, fish, Distributors markets) Producers of meat, fish,and eggs Consolidation of products Producers of meat, fish, and eggs and eggs Processors Waste Management Improvements here will result in higher incomes for smallholder farmers. 22
  23. 23. Advantages of setting up localconsumer markets and value chainsRe: The sustainability agenda ECONOMIC SOCIAL ENVIRONMENTAL 23
  24. 24. Advantages of setting up localconsumer markets and value chains The local population can be supplied with a variety of food products (cereals, vegetables, fruits, fish, meat, eggs) of high quality. ECONOMIC This quality does not only refer to the nutritional value of the products, but also to food safety: chemical residuals control, sanitary quality, storage and handling care. In fact, these aspects refer to the same requirements which the EU attaches to the import of its SOCIAL food. By the developing local markets, economic activities that add value and income to the farmers, wholesalers, traders and other economic agents will be enhanced. ENVIRONMENTAL In fact, the value created in the entire supply chain will stay in the region and therefore be a real engine for economic prosperity and poverty alleviation. 24
  25. 25. Advantages of setting up localconsumer markets and value chains The increase of local production will provide opportunities to people to use their land and work in the countryside. ECONOMIC It will create work in various ways and therefore will reduce unemployment and people hanging around in the city without any useful purpose in their lives. SOCIAL These measures are there to protect the interest of the public. The Kenyan people have the right to enjoy the same qualities as the EU inhabitants. ENVIRONMENTAL An improvement in the quality of food consumed by ordinary Kenyans will also contribute to the health of the population, reducing sickness and 25 health care costs.
  26. 26. Advantages of setting up localconsumer markets and value chains The chain management approach creates different opportunities to reduce the environmental effects of the production, distribution and consumption of products. ECONOMIC Improvements can be made by the way agricultural products are produced through the: (i) use of proper methods of production, (ii) limiting of the use of chemicals, (iii) prevention of soil degradation, and (iv) SOCIAL implementation of proper waste management strategies. In respect to storage and transport, different benefits can be achieved both in terms of emissions and waste. Here, the following order is valid: (i) prevention, (ii) reuse andENVIRONMENTAL recycling, (iii) controlled incineration (possibly with reclaim of energy) and (iv) controlled landfill (protecting people’s health and preventing leakages to groundwater). 26
  27. 27. PILOT STUDY Way forward PE MULTIDISPLINARY RESEARCH O entrepreneur SC WASTELogistics Centre O F Regional MANAGEMENT S Farmer Groups IE FOOD PROCESSING 3% M Supermarkets Farmer Groups 9% Farmer Groups Transporter NO Market & Other Fees O MARKET 23% C ANALYSIS E High-end catering Locals v Farm gate Brokers Brokers Central Brokers Fruits Fruits QUALITY E CONTROLS LLarge Retailers Middle-sector A Retail Distribution Retailers Fruits C Distributors of catering Fruits S ENVIRONMENTAL IMPACT ANALYSIS F Farm Inputs O Large Institutions S Wholesalers Wholesalers IEENTREPRENEURSHIP + General Public M (formal and informalProducers of meat, fish,N O Distributors Retailers markets) Producers of meat, O TRAINING IN BUSINESS MANAGEMENT fish,and eggs E C fish, Producers of meat, and eggs Consolidation of products and eggs SOCIO-ECONOMIC FACTORS Improvements here Processors Waste Management will result in higher incomes for 27 SOCIO-POLITICAL FACTORS smallholder farmers.
  28. 28. RECOMMENDED APPROACHThe consideration of farming as a business requires an action planthat includes the following chapters:• Development of a marketing plan: which products will be grown, potential client identified and a logistic plan designed.• An initial review conducted that takes stock of the existing capacities and agricultural practices; gaps identified as far as environment, social and economic sustainability are concerned and a remedial programdesigned.• An institutional plan of action drawn up.• The development of an investment plan.• A stepwise schedule directed at getting the sales through the company started at an early date.•A training program for sustainability. 28This plan leads both to an implementable business and a pilot for
  29. 29. Closing thought:“I am enormously distressed that 200 million Africans remain hungry andmalnourished…we Africans are the ones who must act to meet our foodand nutrition needs in a sustainable way…The only way to stimulate andsustain measures to ensure food security, is to make access to marketspossible. Agricultural production is only for three purposes: subsistence,commercial or as a hobby. Food production for subsistence only is notsustainable because you cannot feed the stomach only when you have noclothes, no shelter, no income to send your children to school and pay formedical bills…Engaging in Agriculture as a hobby is only sustainable forthe rich and idle. Therefore, you cannot talk of sustainable food securitywithout speaking of commercial agriculture, which means market access.” Uganda President Yoweri Museveni (2003) 29

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