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Trading Up Icco Feb 2009


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Trading Up Icco Feb 2009

  1. 1. Traders as partners in development Lucian Peppelenbos, KIT Royal Tropical Institute ICCO - DREO 3 February 2009 Utrecht
  2. 2. Trading Up: building cooperation between farmers and traders in Africa
  3. 3. The issue at stake <ul><li>Smallholder farmers in Africa face serious difficulties selling their farm products… </li></ul><ul><li>But the people who specialize in marketing these products are treated with great suspicion… </li></ul><ul><li>Popular opinion holds that traders are redundant and manipulative, hence their needs are neglected… </li></ul>This results in distrust, inefficient food chains, adverse policies, and disappointing outcomes for farmers, traders and consumers alike
  4. 4. The challenge <ul><li>We believe that traders can be partners in development </li></ul><ul><li>More support to traders would enable them to find more customers, add value to products, invest in new businesses, increase efficiency in food distribution, improve their services to farmers, etc. </li></ul>This creates demand for more and better farm products, thus helping to improve incomes and livelihoods on the countryside
  5. 5. Agricultural markets in Africa <ul><li>Long, fragmented supply chains: long distances and many steps between producer and consumer </li></ul><ul><li>Volatile prices </li></ul><ul><li>Weak rural infrastructure </li></ul><ul><li>Lack of market information </li></ul><ul><li>Few grades and standards </li></ul><ul><li>Lack of financial services </li></ul><ul><li>Weak court systems </li></ul><ul><li>Little policy support </li></ul><ul><li>Weak business organization </li></ul><ul><li>Little value addition </li></ul><ul><li>Etcetera </li></ul>
  6. 6. The trader <ul><li>Their roles in the food chain </li></ul><ul><li>Services to farmers and customers </li></ul><ul><li>Costs and risks in trading </li></ul><ul><li>How traders are organized </li></ul><ul><li>Relationships with farmers </li></ul><ul><li>Problems and needs </li></ul><ul><li>Strategies and proposals </li></ul>Despite the harsh environment, traders manage to get daily fresh products to consumers in the city. The book provides real-life stories of traders:
  7. 7. Different types of traders <ul><li>Each has a specific role and services in the chain, though some may become redundant when farmers organize. While some (wholesalers) are rich, most traders are poor! </li></ul><ul><li>Traveling traders </li></ul><ul><li>Resident traders </li></ul><ul><li>Wholesalers </li></ul><ul><li>Retailers </li></ul><ul><li>Hawkers </li></ul><ul><li>Brokers </li></ul><ul><li>Exporters/importers </li></ul>
  8. 8. Social networks in trading <ul><li>Interpersonal relationships are a key asset in trading – they reduce costs and risks: </li></ul><ul><li>Secure supply base / market outlet </li></ul><ul><li>Credit flows in both directions </li></ul><ul><li>Information on supply, demand, prices </li></ul><ul><li>Reduced risk of default </li></ul>Hence traders tend to build long-term relations with farmers, and organize with peers in (informal) trader associations
  9. 9. What is a “fair” profit margin for traders? <ul><li>High costs </li></ul><ul><li>Transport (40-60%) </li></ul><ul><li>Handling (20-30%) </li></ul><ul><li>Search (15-20%) </li></ul><ul><li>Taxes and fees (10-15%) </li></ul><ul><li>Product losses (5-25%) </li></ul><ul><li>(No finance / storage costs) </li></ul><ul><li>High risks </li></ul><ul><li>Price fluctuations </li></ul><ul><li>Cheating and default </li></ul><ul><li>Product wastage </li></ul><ul><li>Thefts </li></ul><ul><li>Lack of supply </li></ul><ul><li>(No insurance!) </li></ul>
  10. 10. What is a “fair” profit margin for traders? <ul><li>Excessive profits are unsustainable – they are a market opportunity for others </li></ul><ul><li>Only cases of lasting exploitation where governments interfere (e.g. fertilizer Zimbabwe, coffee Tanzania) </li></ul><ul><li>Profit margins in trading vary per marketplace, per commodity, per season </li></ul><ul><li>Profit margins of traders should be interpreted in the light of costs, risks, and services </li></ul>Value shares in the chain
  11. 11. What are “good” traders? <ul><li>In any business sector there are bona fide and mala fide entrepreneurs (also among farmers…) </li></ul><ul><li>Individual behavior depends on the institutional context </li></ul><ul><li>“ Good” traders are organized and adhere to rules of conduct </li></ul><ul><li>“ Good” traders emerge when farmers get their own act together </li></ul>
  12. 12. Experiences in “Trading up” <ul><li>Fifteen experiences from across Africa, where farmers and traders have found a way to improve trading </li></ul><ul><li>Farmer groups trying to compete and/or cooperate with traders </li></ul><ul><li>Trader groups that coordinate and regulate trading practices </li></ul><ul><li>Chain partnerships among farmers and traders </li></ul><ul><li>Institutional innovations like market information and warehouse receipts </li></ul><ul><li>Donor projects with traders as an entry point for intervention </li></ul>
  13. 13. Four types of trade relations FORMALIZED MARKETS CHAIN PARTNERSHIPS AD HOC SPOT TRADING STABLE TRADE RELATIONS stronger market institutions stronger chain relations 4
  14. 14. Onion trade Ghana – Burkina Faso <ul><li>Onions grown in Burkina Faso, consumed in Accra </li></ul><ul><li>Long-distance cross-border trade full of risks </li></ul>
  15. 15. Onion trade Ghana – Burkina Faso stronger market institutions stronger chain relations 1 3 2 Individual farmer sells on the spot to the trader who bids the best price Farmers and traders get organized and start to coordinate their linkages Market information system, contracting, bank finance, and legal support
  16. 16. Strategies to improve trading (1) <ul><li>Build stronger relations in the chain </li></ul><ul><li>Farmers and traders organize themselves </li></ul><ul><li>Farmers and traders develop mutual respect and understanding </li></ul><ul><li>Farmers and traders specialize in their role in the chain </li></ul><ul><li>Farmers and traders develop partnerships for mutual growth </li></ul><ul><li>Farmers and traders seek higher-level coordination of the chain. </li></ul>
  17. 17. Strategies to improve trading (2) <ul><li>Build stronger institutions to support trade </li></ul><ul><li>Market information </li></ul><ul><li>Standardized grades, weights and measures </li></ul><ul><li>Contract enforcement </li></ul><ul><li>Financial services </li></ul><ul><li>Policy dialogue and –support </li></ul>
  18. 18. Lessons from the cases <ul><li>Strategic: where are we now, where do we want to go, why, and what are the conditions? </li></ul><ul><li>Tactical: how do we get there, what are the steps? </li></ul><ul><li>Operational: what are the challenges and problems likely to be faced? </li></ul>
  19. 19. Many thanks to the more than 40 authors, resource persons, and facilitating staff A special word of gratitude to our donor-partners: And thanks for your attention!