27 October 2014Derek Baker, University of New England

Jo Cadilhon, ILRI

Smallholder agriculture and market engagement

 

GLOBALG.A.P. SUMMIT 2014, Abu Dhabi, UAE, 27-29 October 2014

Outline

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Smallholders1. What is a smallholder?2. Why are we interested in them?

Commercial engagement of smallholders1. What is success?2. What works?3. Why?4. What does this mean for value chain development?

Context for smallholders1. Agribusiness as a sector2. Investment in developing country agriculture3. Retail revolution4. Non-traditional exports

What is a smallholder?

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500 million smallholder farms, involving 2 billion people (FAO-compiled Agricultural Census data.)

But definitions and statistical treatments are difficult… 2 common themes

Land• small areas• land/labour ratio is declining in much of Africa (Jayne et al., 2014)• labour shortages are acute in some African and many Asian countries

(Prabakar et al., 2011) • landlessness is an increasing phenomenon across the developing world

Subsistence and livelihoods• production is diversified; household consumption a patchwork of purchase,

sale and home consumption; large net sellers are rare (Barrett, 2008)• timing and volume of sales are more due to need for cash (Grossman and

Tarazi (2014) or adverse events (Little et al., 2014) than to price incentives• livestock in particular are more than just food or income; they also have strong

social, cultural, religious importance for communities as well as value as assets (Aklilu et al., 2008)

(de Janvry, in da Silva et al., 2009)

Context: Agroindustry in development(Henson and Cranfield in da Silva et al., 2009)

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Context: Agroindustry in development(Henson and Cranfield in da Silva et al., 2009)

(de Janvry, in da Silva et al., 2009)

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Context:Shares of high value exports sourced from smallholder producers: Why do buyers choose

to buy from smallholders?

Is there a choice?

Context: Resource flows to/in developing countries: 1990-2011 + forecast

Source: The World Bank

increasing amount is South-South

South-South and North-South

South-South and North-SouthPhilanthropies are

major players

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Context: Retail revolution

• Ongoing since 1930s in USA and industrialised countries• Started 30 years ago in developing countries:

– Coexistence of large private and state-owned retailers– Supermarket’s increasing share of food retail sales– Supermarkets’ increasing share of fresh produce sales– Retail formats adapted to suit urban/rural settings and to satisfy

rich/middle-class/poor consumers– Procurement systems become more efficient

• Impacts: lower food prices for consumers but challenging for smallholder suppliers

• More recent consumer and retailer choices for sustainability and sourcing local food

(Reardon and Timmer, 2012)

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Smallholders: development-related drivers1. They produce a large bulk of product 2. Production is thought to be efficient (Maertens et al., 2012); and small

scale processing can be employment-creating (Staal et al., 2008)3. Historically, poverty reduction is associated with increases in

productivity on smallholder farms (Lipton, 2005)4. Belief that technological improvements + market access leads to

poverty reduction for smallholders

These assumptions have been questioned (Collier and Dercon, 2014), and with them substantial aspects of prevailing development theory:

“African smallholders have not chosen to be entrepreneurs,they are in this activity by default” (p.99)

Why the development-related interest in smallholders?

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Constraints faced by smallholders

1. Land: • quantity and quality• security of access • legal title• intra-household issues

2. Scale:• Unit costs (e.g. standards)• Capacity utilisation (e.g. value adding processes)• Transaction costs (e.g. negotiation, contracting, loans)• Service costs (e.g. training)

3. Access to markets and inputs4. Access to capital5. Off-farm opportunities 6. Education and skills7. Technical advice, information8. Innovation contexts

The key question is:are there barriers to overcoming these

constraints?

Smallholder commercial engagement: what is success?

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1. “Engagement” or “commercialisation”2. Food security3. Margins 4. Profits5. Volumes through high value channels6. Quality achieved (Public and Private issues; of which

standards are one aspect)7. Skills and experience8. Schooling9. Empowerment10.Safety11.Community and regional economic performance12.Community development

Smallholder commercial engagement: what is success?

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1. “Engagement” or “commercialisation”2. Food security3. Margins 4. Profits5. Volumes through high value channels6. Quality achieved (Public and Private issues; of which

standards are one aspect)7. Skills and experience8. Schooling9. Empowerment10.Safety11.Community and regional economic performance12.Community development

… a

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Success with contracting of Madagascar smallholders to supply European supermarkets: • higher welfare• greater income stability• shorter lean periods• improved technology adoption• better resource management• spillovers to the productivity of the staple crop riceGains attributed to private standards, for which contracts were packaged with inputs and technological advice.Constraints to scaling out: infrastructure; skills and human capital; transactions costs; reluctance of local retailing to impose private standards

Minten et al. (2009)

Reduced chemical inputs due to contracts linked to extension packages was associated with improved farmer health (Asfaw et al., 2010) .

Smallholder commercial engagement: what is success?

Which models seem to work and why?

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“Business models” thinking due to Vorley et al. (in da Silva et al., 2009), regarding: vertical co-ordination, collective action, value proposition development.

Outgrower arrangements (Dorward et al., 1995), collective action (Markelova et al., 2009) and trader credit (Jayne et al., 2010) are all mechanisms that have sought to utilise surplus production in rural areas, with value addition accelerating their effectiveness.Vertical co-ordination and integration have been widely advocated (Swinnen, 2005; Pingali et al., 2005), especially to promote and use private standards.Non-food crops, or crops that are not consumed by the local population, offer the pro-poor advantage of not increasing food prices to the poor. This is not the case for staple foods (Barrett, 2008; Jayne et al., 2010; Murray-Prior et al., 2008).Prior achievement of particular technical or organisational steps (e.g. use of advanced genetics, access to extension (Holloway and Ehui, 2006))

Case study 1: Kati Farms (Uganda) Ltd

Kati Farms (U) Ltd• Created by young woman enterpreneur• Business plan: to add value to farmed fish delivered by

WAFICO coop and to market innovative processed fish products

• Star product: fish sausages• Main distribution network: 500 informal street roasters

retailing grilled sausages to poor urban consumers

Key aspects of engagement:• innovative food products • customize products to different market segments• smallholder farmers organized and trained to deliver

good-quality produce• trust between suppliers and customers in the value chain• emerging agribusiness talent nurtured through technical

and managerial training, business support, access to credit and appreciation

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(Cadilhon and Kobusingye, 2014)

Case study 2: Swift Co. Ltd (Thailand)

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Swift Co. Ltd• Started operating in 1984, by 2001 had 47 farmers on 15.5 hectares• Business plan: to supply premium quality fresh produce to customers, wherever they

are, and to provide a benefit to all actors in the value chain• Star product: GLOBALG.A.P.- and organic-certified pre-cut and packed green

asparagus, ready for sale in supermarkets around the world• Currently one of leading Thai fresh produce exporters still supplying from smallholder

farmers with total area of 250 ha under organic asparagus

Key aspects of engagement:• cooperation with farmers• investments of time, money and human resources into production systems, logistics,

traceability and quality control, and independent certification

(Uathaveekul, 2007)

Case study 3: Tanga Dairy Platform (Tanzania)

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Tanga Dairy Platform• Multistakeholder platform for regional dairy

development: government, NGOs, farmers’ and processors’ representatives, private sector and consumers

• Meets quarterly to discuss issues and find solutions to improve dairy production, group strengthening and marketing

• Action delegated to interested groups and individuals: general assembly, board, executive committee, ad hoc working groups

Key aspects of engagement:• delivers achievements useful to all types of members• lobbying power for the dairy sector• support from the regional government• Attractive platform for dairy development partners

(Cadilhon et al., 2014)

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Case study 4: Queen Fine Foods vanilla production (Tonga)

Queen Fine Foods• Partnered with small plot holders in different

regions of the Pacific.   • A new program is the rehabilitation of vanilla

farming in Tonga.  • Rather than land purchase, Queen pursued to

engage directly with local farmers.   • A wide range of innovative social steps to

• mitigate risk• promote value • engender loyalty  

 Key aspects of engagement: • pricing and payment• input supply• service delivery• long term commitment, non-commercial or

incidental services• continuous social activity• loyalty programs• value added assistance (organic certification, pre-

and post harvest handling and quality training)

Implications for smallholder–inclusive value chain development

• One model does not fit all• Look for success measures shared by buyers and sellers• Build the technical and managerial capacities of smallholders and their

groups• Risks, including culturally-defined risks, are as important as returns• Spillovers to food security are possible: make them positive ones• Facilitate business linkages for smallholder groups• Take special care in choosing the value chain captain• Smallholder groups need to invest their resources in chain management in

order to lead a chain• Multi-stakeholder partnerships are more difficult to organize but can lead

to more sustainable and inclusive outcomes for smallholders19

Provocative statements for GLOBALG.A.P.

GLOBALGAP is already strong in building capacities of smallholder groups, improving product quality and fostering multi-stakeholder dialogue to facilitate international food trade…How about…..• Recognising socio-cultural aspects of agriculture and livestock in

its quality schemes• Building partnerships with public sector and banks to alleviate

smallholder constraints• Helping domestic retailers and their suppliers in developing

countries to adopt National GAP schemes• A step-by-step protocol for smallholder engagement and

continuous improvement20

Acknowledgements

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This work was undertaken as part of the CGIAR Research Program on Policies, Institutions, and Markets (PIM) by a team of scientists from the International Livestock Research Institute (ILRI) and the University of New England (UNE). Funding support for this study was provided by PIM and UNE. This presentation has not gone through IFPRI’s standard peer-review procedure. The opinions expressed here belong to the authors, and do not necessarily reflect those of PIM, IFPRI, or CGIAR.

The authors wish to thank case study personnel for their discussions and the material they provided

Jo Cadilhon wishes to dedicate this presentation to Mr Paichayon Uathaveekul (†22/09/2014), former Chairman of Swift Co. Ltd, and an inspirational figure for all who strive to link smallholder farmers to dynamic markets

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