An under-appreciated advantage of African informal food markets is how they allow farmers, traders, consumers and other actors to emotionally participate in business and change processes through sharing their aspirations and frustrations. The same cannot happen in formal markets like supermarkets and formal manufacturing industries where farmers just deliver commodities and wait to be paid after weeks if not months.
Some of the enduring frustrations among African smallholder farmers participating in formal marketing systems is absence of profit-oriented budgeting. For instance, it remains largely unknown how much a farmer should put in to earn a profit in potato production from different production zones. Such insights cannot be generic but have to be tied to specific markets like processors, food chain stores or informal markets. Due to this loophole, some buyers end up offering low prices, citing invisible costs incurred along the value chain. Ideally, all production elements should be put together and reveal different scenarios. That is why a system of managing, tracking and updating production budgets for different contexts should be put in place.
Expanding price negotiation mechanisms
In additions to issues mentioned above, the majority of African smallholder farmers do not have mechanisms for price negotiation, taking into account issues like distance, road networks and other factors. A budget for farmers in Mazowe should be different from that for farmers in Nyanga, especially when they sell to the same market. Nyanga may require different inputs from Mazowe in ways that make both places profitable in different ways. The cost benefit analysis in different production zones can provide a meaningful Return on Investment (ROI) for farmers in the different areas.
Spending time in the market enables farmers to identify and define details surrounding market dynamics and see opportunities that drive positive agricultural change. Through regular presence in the market, farmers and other value chain actors are able to anticipate challenges and opportunities coming down the pike and respond proactively. For instance, an impending drought van be picked from frequent discovery research exercises in the market. That is also how under-appreciated facts about ways in which agricultural food systems function can be surfaced. These hidden facts include how potatoes and onion are becoming staples, thanks to increasing urbanization as well as new tastes and preferences of the young generation who now patronize fast food outlets. Exposure to the market also enables all value chain actors to realize how markets can be vital sources of wealth, prosperity and social values on a larger scale.
Opening more avenues for growth and progress
While rapid changes in consumer tastes and preferences are triggering demand for diverse foods including natural commodities, most African countries do not have proper systems for aggregating, packaging, preserving and distributing different foods. With informal markets playing a major aggregation role, developing countries are being forced to characterize and categorize food traders into:
- Micro to small traders and food suppliers – catering for subsistence and household consumption.
- Medium traders – catering for supermarkets, fast food outlets, small scale processors and other smaller markets.
- Large scale traders – catering for large scale processing industries, triggering exports while also satisfying national food security aspirations. Large scale traders (big pushers) go as far as supporting production, aggregating at source and supplying other markets.
Insights from diverse agricultural markets show that this arrangement will create a graduation pathway for different classes of farmers and traders, who can be registered according to credible socio-economic criteria. Farmers who want to work with informal markets and vendors will be able to know the required volumes as well as absorptive capacity. This will inform planning for consistency in supply and introduction of a Warehouse Receipt System (WRS). Although the transaction process for large volumes can take up to 60 days, farmers can still access inputs if their commodities are already in the market pipeline through an efficient WRS.
Towards a fluid WRS
The WRS should not be understood as merely a physical structure where commodities are piled up. It should be understood as a fluid system in which commodities are always in transit from production zones to different classes of consumers and end-users. In almost all developing countries, the cost of aggregating commodities for upstream value chain actors is very high due to pockets of disintegrated production. Being on the market, traders are strategically positioned to connect with other value chain nodes. Different categories of traders can be matched with appropriate classes of farmers. All these critical actors need to be profiled with such information informing farmer characterization as well as appropriate production zones and their capacity to meet the demand side. That way, informal markets are empowered to promote market-oriented production as opposed to supply-driven production.
A solid system for collecting orders can be set up around traders already in the business. The whole process can be anchored on rebuilding value chains from informal markets. Currently, the playing field in informal markets is not bringing out the real potential of African agriculture. For ease of aggregation, there should be markets for large scale farmers. Lack of a system presents risks to processing companies who are always not sure if they are going to get adequate stock for processing. Ideally, processors and contractors should just provide their specifications to farmers and traders who can go ahead to produce and mobilize commodities accordingly. Aggregators and packagers should do what they are good at while processors also focus on their core business. Once standards for each process company are codified and shared, processing companies will not struggle to get their requirements from the agricultural ecosystem.
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