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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
Introduction 3
Presentation from distinguished guest: Dr Wilson Songa, Agriculture Secretary, Ministry of
Agriculture, Government of Kenya 4
A framework for linking smallholders to market, Steve Wiggins, ODI 6
Case Study: Stephanie Hanson, One Acre Fund 10
Case Study: Agribusiness Value Chain Financing -The Case of Equity Bank 12
What works in linking smallholders to markets? 17
Summary of feedback and discussion from the first round of café tables 17
What needs to be done to promote links from smallholders to markets? Summary of feedback
and discussion from the first round of café tables 23
Summarising the day 26
Annex A: List of participants 28
Annex B Linking smallholders to markets: the issues 29
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Introduction
Leaping and Learning: Strategies for Taking Agricultural Successes to Scale
Agriculture for Impact (A4I), the Overseas Development Institute (ODI), Firetail, and
the Glasshouse Partnership are working together on the project ‘Leaping and Learning:
Strategies for Taking Agricultural Successes to Scale’ funded by the Bill & Melinda Gates
Foundation and the UK’s Department for International Development.
The aim of the programme is to provide development partners with access to independent,
evidence-based recommendations that set out practical policy options and approaches for
scaling up smallholder agricultural development in sub-Saharan Africa to ensure food and
nutrition security and poverty reduction.
Our approach
A key challenge for agricultural development is how to link small-scale, family farmers to
providers of financial services, inputs, technical advice and marketing; thereby allowing
smallholders to innovate, invest and enjoy better livelihoods. Many government agencies, non-
governmental organisations, or private firms are working to facilitate such links. But there is
much to learn. This programme is reviewing such experiences, to distil good practice.
Stakeholder Evaluation
At the start of the project A4I commissioned Firetail to interview stakeholders who represented
the intended users of the Leaping and Learning project outputs both in OECD countries and
Sub-Saharan Africa. The purpose of these discussions was to explore how the materials could
be developed to ensure they were of maximum value to stakeholders and the sector as a
whole. 25 interviews were conducted between 2nd February and 9th March 2012. The Firetail
report findings have influenced our approach; you can read them at www.ag4impact.org.
Consultation
A4I and ODI are working with Food, Agriculture and Natural Resources Policy Analysis Network
(FANRPAN) to hold regional workshops in Johannesburg (9th July), Nairobi (11th July) and Accra
(13th July) to gather more evidence and seek feedback from agricultural development
practitioners in sub-Saharan Africa.
For more information please contact:
Liz Wilson, Deputy Director, Agriculture for Impact
www.ag4impact.org
Funded by
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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.
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
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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.
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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
• 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]
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
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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.
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…
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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]
Right focus: questions
How to decide on what to focus?
When to reconsider, re-plan?
Sequences?
4.325
30.543
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451990
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Exports (thousands of tonnes)
Production minus exports
Production (thousands of tonnes)
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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: Stephanie Hanson, One Acre Fund
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
kilometres 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?
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
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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.
Q: What is the exit strategy for One Acre?
A: 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.
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Case Study: Agribusiness Value Chain Financing -The Case of Equity Bank
Florence Kariuki, Equity Bank
Our purpose
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?
Constitutes a Large “underserved” market –the Bottom Of the Pyramid (BOP)
To promote economic empowerment by redistribution of wealth through access to financial
resources
Enabling micro enterprises (farmers, processors, transporters etc) to contribute to the
economy and be part of the financial system
A Social responsibility to avail financial services to the lower segment majority of our
rural community
Financing agri-business through the value chain
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.
It enhances synergy through forward and backward linkagesvaluechain actors
Who is involved?
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Financing value chain model
Our interventions
Farmer friendly remittance account
Research on customers needs and aspirations
encourage Savings even if inmodest amounts
develop credit productsrelevant to needs.
Maintain repayment rates that are sustainable
Support the clients’ businesses through training etc
Encourage groups to generate critical volumes for market (exporters)
Seasonal loans with bullet payments
Irrigation and micro insurance to mitigate weather based risks
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
Accessible
No appointment on seeing the managers
135 licensed branches in Kenya
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Flexible
Tailored to the individual needs
Appraisal ability to pay based vis-à-vis collateral based
Flexible Securities/collateral
Prompt disbursement
Challenges facing farming as a business
For majority small scale farmers farming is an occupation not business
Dependency on rain fed agriculture
Lack of access to Agric-credit
Lack of market information
Low quality products
Huge production costs
Poor infrastructure
Case of KilimoBiashara
KilimoBiashara-$ 50million (Ksh 3b)Partnership between Equity Bank, AGRA and
IFAD through Ministry of Agriculture
Objective: To increase food security and household income for farmers
An initiative to support the commercialization of agricultural activities.
So far loan disbursed in over Ksh 2.3billion to over 45,000 direct beneficiaries
Target
Small scale producers: support in purchase of farm inputs such as seeds,
fertilizers and chemicals.
Large scale producers: supports for acquisition of farm input, farm machinery
and other farm development needs.
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
It enhances post harvest management
The certified warehouse receipt is a title document stating a precise quantity of
known quality, held in a known store
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Pilot tested through partnership with East Africa Grain Council, Lesiolo Grain
Handlers, Kenya Maize Development Programme/USAID
Case of sorghum farming as a business
Sorghum has for a long time been considered as an orphan crop
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
Has generated and developed business services providers –bulkbuyers and others
like threshers, packaging materialsetc
The impact
Farmers’ appreciation of the need to change from subsistence farming to
commercial farming
Arid land/abandoned scheme reclaimed for grain production with the MoA giving
infrastructural support to the farmers e.g. Bura irrigation scheme in NEP
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)
Agro-dealers are able to consistently supply inputs without challenges of working
capital
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.
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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.
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!]
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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 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
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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,
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marketing services, 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
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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
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.
21
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!
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
22
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?
23
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.
24
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 —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
25
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 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
26
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.
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
27
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.
28
Annex A: List of participants
Name Organisation
Beatrice Okeyo Swedish Cooperative Centre & Vi Agroforestry
Beatrice Ouma Future-Agricultures Consortium
Bernadette Majebelle Consultant EAC export
Crispin Mwatate Heifer International
Daniel Rukazambuga National University of Rwanda
Daphne Gatwiri KENFAP
David Juma Fwamba ARDAP
Elijah Mbwavi RegioDev Africa
Florence Kariuki Equity Bank
Furgassa Bedhadha Farm Africa Ethiopia
Gem Argwings Kodhek AECF
George Mazuri USTADI
Gordon Conway Agriculture for Impact
Hannington Odame CABE-Africa
Iris Krebber DFID
Jean Jaques Franc de Ferrière AbSS
Joachim Weber GIZ
Joseph Ngugi ACT Kenya
Josephine Thome Welthungerlife
Karin Francis Tegemeo
Kenneth Ayuko Agriculture policy Development Coordination
Liz Wilson Agriculture for Impact
Lucy Muchoki Pan-African Agribusiness Consortium
Lydia Kimani PANAAC
Mary M Kitheka Ministry of Livestock Development, Kenya
Mary Njoroge FOSCA, AGRA
Mellyne Ongang’o AGRA Markets program
Monicah Nyang FARM Africa
Nega Wubeneh EATA
Norman Clark
Patrick Chege PSDA
Peterson Marira ACT
Sharada Keats ODI
Stephanie Hanson One Acre Fund
Stephen Kagio Egerton University
Steve Collins ACDI/VOCA
Steve Wiggins ODI
Wilson Songa Agriculture Secretary
29
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:
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.;
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:
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?
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.
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.
30
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.
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.
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
31
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 things 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. 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. Kenya green beans are a case in point. During the 1990s
and early 2000s, export production increased with contracted smallholdings supplying a good
32
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
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
4.325
30.543
0
5
10
15
20
25
30
35
40
45
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Exports (thousands of tonnes)
Production minus exports
Production (thousands of tonnes)
33
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.
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
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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.
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. A shea butter processing factory in southern Burkina Faso employs 1,500 staff.
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.
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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 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
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.
36
private operators. Hence in these cases they effectively replace the private firm as the
temporary champion of the links.
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.
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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
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