How and why transacting is a small part of market linkages

Reducing market linkages to transactions is one of the major reasons why efforts to integrate smallholder farmers into value chains have failed to transform agriculture in developing countries. While the notion of market linkages is mostly associated with three to five year projects by development agencies, there is a new realization that linking farmers to the market is more than training farmers to understand buyer expectations like measurements, grades, quality, pricing and payment terms.  Neither is it only about facilitating direct contacts between farmers and buyers, which they can do on their own anyway.

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Markets are more about knowledge and intangible benefits that cannot be reduced transactions. In most cases, farmers who produce surplus are fully aware of the existence of formal buyers who purchase grain, livestock and horticulture, among other commodities. They do not need anyone to introduce them to buyers they already know. Buyers also know farmers who produce different commodities. In cases where buyers need to buy commodities in huge volumes, they should invest in aggregating commodities through their marketing or procurement departments instead of waiting for development agencies to aggregate commodities for them, a practice that  make private companies unintended beneficiaries of donor support at the expense of creative entrepreneurship. Where this happens, linkages between farmers and private sector buyers are not sustainable but end with the phasing out of development projects.

Markets are more than commerce

Due to limitations explained above, informal markets fill gaps that are left by so-called formal marketing systems that, ironically, are receiving most of the resources from financial institutions and development agencies yet they handle less than 30% of the food produced in each developing country. By forcing farmers to be part of formal value chains, development agencies and policy makers ignore the fact that the majority of farmers’ needs are far more immediate, which is why they are compelled to sell even when there are gluts. Pushing farmers into a few selection of value chains overlooks the unique characteristics of different farmers, food producers and traders. Unknown to many development agencies is that markets are not just about commerce but include intricate issues surrounding food security, dignity, power to control one’s destiny, self-determination and poverty alleviation.

When they ignore some of these issues, interventions that claim to link farmers to the market perpetuate dependency.  Every maize farmer knows the national institution that buys maize grain. If that institution has good relationships with farmers, maize would not be traded in the streets or informal markets. If national institutions that buy livestock for slaughter were good for smallholder farmers, there would not be any proliferation of private abattoirs and street markets where fresh meat is sold in many African cities. If processing companies fully satisfied the needs of diverse producers, long queues of trucks supplying potatoes, tomatoes, oranges and other fresh commodities into large African informal markets like Mbare in Harare, Soweto in Lusaka and Mitundu market in Lilongwe would be seen lining up at processing companies.

Access to new knowledge and opportunities

If modern commerce is to be responsive to the needs of smallholder farmers and low-income consumers, it should acknowledge that transactions are a tiny part of agricultural markets. In most cases, technical issues on the production side often spill into markets. That is why market-oriented production becomes critical beyond just identifying potential buyers and niche markets.  Feedback from diverse buyers often inform farmers about other commodities they may not have known but can be produced profitably for the market instead of continuing to be trapped in traditional value chains.

To the extent they recognize the heterogeneity of farmers, open markets expose different classes of farmers to diverse opportunities. It is through open markets that some farmers and value chain actors can realize that a huge part of their annual income may be coming from non-agricultural activities but other adjacent value chains like retailing consumer packaged goods during times like winter when the production of field crops is dormant.

Also visible through participation in markets is the extent to which absence of appropriate technology continues to hamper production of small grains in developing countries trying to cope with climate change by switching to small grains that are considered more resilient.  Through the market, farmers begin to realize that they cannot sell finger millet in its raw state to urban consumers who do not have technology for processing and adding value to it before use or consumption. The open market also reveals the importance of empowering communities so that they can aggregate their commodities at local level instead of shipping all raw commodities to cities and buying back finished products.

Beyond transactions, market linkages are all of the above including providing pathways for youths to move in and out of agriculture into community-based manufacturing as well as combining agriculture with non-farming activities in which they are talented.  Many young farmers have more diverse skills than can be fully absorbed in agriculture. Farmers who earn a large portion of their income outside agriculture may not be in a hurry to sell commodities that they could be holding as a source of resilience.  They may receive market linkage information which they may use to decide not to sell directly to buyers but use their relatives living in cities to test the market first and release commodities as demand firms up. Besides weighing the merits and demerits of different markets, such farmers can interact with local, regional and globalized markets as part of diversifying income sources.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

 

How can developing countries valuate their fluid economies?

A major headache for many developing countries is developing criteria for valuating highly fluid and transitory economic activities that are now more prevalent. Employment creation in agricultural markets and informal business ecosystems is now a major domain for women and youth, most of whom are highly mobile. Economic actors in the trading business specialize on fetching commodities from scattered farming areas while others specialize on transportation, loading & off-loading as well as punneting food into diverse nutrition baskets for different consumers.

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Need for an information tracking system

Valuating a fluid agricultural-driven economy cannot be done without a reliable information tracking system.  Unlike brick and mortar enterprises such as carpentry, construction and metal fabrication, many enterprises are so fluid that different valuation methods are required in order to fully account for their economic contribution and growth patterns. Unfortunately, most developing countries lack a system for tracking statistics covering all agricultural commodities. There is a tendency to capture statistics on a few colonial crops like tobacco, maize, cotton, cocoa, wheat and sugarcane. No statistics are captured for hundreds of diverse food commodities like horticulture on which the majority depend.

Failure to account for hidden costs

At the production level, the collection of statistics on a few commodities focuses on production costs (mainly cost of inputs) and land areas in hectares, then harvests are recorded in tons. The most important hidden costs that are completely ignored at the production level relate to natural resources such as soil and water. Just like machinery, land and water suffer from wear and tear. How do we compensate land for losses in nutrients, soil structure, water holding capacity and other forms of degradation? The same applies with water. Countries and communities are losing through inappropriate use of water.  Yet there is no credible assessment criteria for water versus appropriate equipment. The amount of money people pay to national water authorities for drawing water from dams and other reservoirs does not fully compensate for various ways through which water is misused.

Due to lack of proper valuation mechanisms, most farmers only realize the cost of land degradation when yields of the same crop from the same land start decreasing. These are visible consequences of not taking care of the cost component associated with land degradation. Another serious hidden cost relates to deforestation. Countries that are earning foreign currency through tobacco production and exporting are yet to factor in the cost of deforestation.

Also in need for valuation is household consumption.  There is a tendency to account for what a receipt or pay slip can be produced. Valuing losses at production level does not even adequately focus on physical losses, either through inefficient harvesting methods, pests and diseases which reduce potential yield as well as dry spells, droughts and floods, loss of pastures and many others. In a changing climate, ways of valuing all these losses in monetary terms are critical. Hidden costs could constitute more than 30% and that is too much for struggling economies.

Return on investment pathways

Where some bit of statistics are collected, the most visible statistics are often on field crops. Horticulture is neglected in terms of costs, income, potential income at harvest and other elements. This is where understanding markets at granular level becomes very important.  Farmers and traders can only know of potential income if they know market prices from various markets such as local markets, district markets, provincial markets and institutional markets like restaurants and hotels. Cost benefit analysis can reveal viable return on investment (ROI) pathways.

Exploring determinants of value addition and logistics

Markets in developing countries are becoming too broad although small. There are different values for the same commodities due to changes in tastes and preferences. A banana has low value in high production zones like Honde Valley but its value can be ten-fold in Hwange or Victoria Falls where production is low.  A related crisis is lack pricing mechanisms for value addition. For instance, African countries have not been able to assess the value of on-farming processing in monetary terms versus taking commodities for processing in up-markets like cities. Huge volumes of commodities like fruits, maize and oilseed continue to leave productions zones for processing in distant cities.  Ideally, at each value chain node, value addition should be accounted for in monetary terms. That will reveal all benefits and costs including hidden ones.

It should be possible to determine elements for coming up with the accurate cost of transporting potatoes from Nyanga to Harare. Taking into account fuel and distance is not enough. What about hidden costs like opportunity cost for the farmer in terms of time spent bringing commodities to the market and selling when such time could have been used for something more productive.  The same applies to the time spent by traders fetching commodities is scattered farming areas. All these hidden costs should be converted into monetary terms.

Fluidity versus traditional notions of business

Value chain actors like women and youths who have mastered a fluid economy are finding it incompatible to work with generic and old fashioned business plans based on brick and mortar business models. In the new fluid economy, the new cost elements and risk factors are becoming more complex and sophisticated. For instance, although open markets do not have formal insurance systems they continue to thrive for decades. No one insures the movement of tomatoes from Mutoko to Harare and fruits from Chimanimani to Bulawayo but a self-organized ecosystem ensures smooth flow of commodities and income between producers and consumers daily. Verbal contracts based on relationships quietly built over year move more commodities and transactions than formal contracts.

To the extent most conventional business models are not considering hidden costs, they remain superficial and miss a lot of value. For actors in the fluid economy, it is no longer about saving money in the bank but saving it in a commodity ecosystem. The moment a farmer puts money in the bank, s/he incurs avoidable opportunity costs. The notion of open market is not a war between farmers and traders but battles between commodities as they compete for the same consumer budget. In spite of all the hype, mobile money is lagging behind the pace at which business happens in the new economy. While it takes three to five minutes to complete a mobile transaction, it takes seconds for money and goods to exchange hands in the open food market. Most ICT-based platforms have failed to connect food producers with consumers and negotiate fair prices for farmers in ways that replace face to face negotiations between farmers, traders and the open market. These are some of the defining characteristics of a fluid economy.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

 

 

The importance of closing knowledge gaps in African agriculture

Efforts to modernize African agriculture continue to focus on the supply-side at the expense of the demand side. In addition to infrastructure-driven agribusiness models, there is an unfortunate belief that agricultural extension is the only important form of knowledge in transforming the agriculture industry. Instead of embracing a holistic approach that identifies knowledge needs and gaps along entire value chains, there is an over-supply of agronomists, extension officers, agricultural engineers and other experts on the supply side.

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There has not been sufficient emphasis on increasing experts specializing on transport and logistics, specialists on small livestock like indigenous poultry or rabbits, nutritionists, food scientists, economists specializing on local markets and laboratory technicians located at local markets to conduct food safety checks like pesticide residue levels, among others. As agricultural commodities travel along value chains from production to end-users, experts become less and less. From production food is handed over to transporters, traders and vendors, most of whom are not specialists in different commodities they handle.

Absence of knowledge exchange pathways along agricultural value chains

Developing countries have not cultivated mechanisms for facilitating knowledge exchange to accompany agricultural commodities as they change hands. The majority of farmers are experts in production not in marketing. From the farmer, food goes to the market where there are no market experts or auctioneers who can give different commodities proper grades and economic value in ways that enhance price negotiation. Most traders do not have adequate knowledge on the science behind food commodities or cost components for each commodity.  Knowledge gaps worsen from traders to vendors who pass on commodities to end-users.

Absence of knowledge pathways translates to lack of capacity to give commodities their true value in the market. As a result, most farmers lose out by taking commodities to distant markets when local markets could give them more value. Experts that can attach appropriate value to commodities and facilitate valuing of commodities and negotiation are badly needed. Currently, there is no one to help farmers understand the true value of their commodities beyond using price as a proxy of value. Unavailability of relevant forms of expertise along value chains is the main reason commodities suffer economic losses because no one is available to come up with a correct value of a particular commodity.

Instead of locating themselves on the market, government agricultural economists prefer to be armchair experts generating budgets at head office with no accurate contextual input from the ground.  If they were located at agricultural markets, agricultural economists would be able to do market-oriented budgeting as opposed to focusing on production-oriented budgeting. Their most relevant duties would include identifying gluts and shortages in the market as well as sharing this information with the production side. They would also identify possibilities for exporting specific commodities and advise policy makers on when and how much to export in order to fill gaps without disrupting local production.

Informing the design of market infrastructure

Designing of market infrastructure should be informed by commodity experts who know how much space should be allocated to fruits like oranges, tubers like potatoes and vegetables like pepper as well as proper handling practices in different markets.  If agricultural markets are organized in ways that reflect different forms of expertise and knowledge, several value chains will create more meaningful employment and contribute immensely to wealth creation, poverty reduction and economic growth. Instead of having an over-supply of experts on a few privileged crops like cocoa, maize, tobacco and wheat, each local commodity should have its own expert or experts, for instance, apples, oranges, ginger, garlic, yams, banana, sweet potato, sugar beans, green mealies, carrots, avocadoes, pineapples and many others.

It does not help to have a jack of all agricultural trades and master of none. Expertise should be spread along entire value chains. Although emotional intelligence is twice as important, technical expertise is necessary. The market needs people with a technical intuition, just as value addition requires different expertise from production. Developing countries that do not invest in generating appropriate expertise for different commodities in domestic markets will not become competent players in the highly competitive international market. Italy’s food industry is worth US$160 billion because the country has paid aggressive attention to expertise in different forms of agricultural commodities.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

How climate change is inspiring intelligent experimentation at grassroots

During times of socio-economic stability, farmers and entrepreneurs can afford to rely on one commodity or value chain.  Not when climate change is announcing itself in unpredictable ways. That is why experimentation is no longer a preserve for schools and universities. Farming areas and markets are becoming laboratories for intelligent experimentation among farmers, consumers, traders, artisans and ordinary people in developing countries. These actors have realized that prescriptions from private seed companies and livestock enterprises are inadequate in coping with climate-induced challenges.

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Informed use of available resources

Food producers are witnessing how high yielding crop varieties and livestock breeds are being rendered useless in a rapidly changing climate. Instead of knowing a lot about one commodity, farmers are being forced to experiment with a wide range of commodities ranging from crops to fruits, herbs and different classes of livestock. With rainfall patterns becoming sporadic and the cost of inputs increasing, food producers are being compelled to examine and learn from how different crops use nutrients.  Such knowledge can no longer be left to extension officers or companies selling inputs like fertilizer whose main motivation is making a profit at the expense of uninformed farmers.

Water extraction tendencies

Some of the recurring questions from farmers relate to the extent to which different commodities use water. Those conducting their own experiments are noticing that commodities like cabbage are watery and can extracts a lot of moisture to a point of drying the soil while looking for water. Also in this category are high value crops like broccoli and cauliflower. From the experimentation lessons, smallholder farmers would rather do leafy vegetables than cabbage.  If cabbage does not get enough water, the head becomes small and therefore unprofitable on the market. High quality and a big head size come from nutrients plus a lot of water. On the contrary, farmers are learning that tomatoes do not consume a lot of water. A farmer can irrigate in 10-14 day cycle depending on time of the season, which cannot be done with brassicas like cabbage. Like tomato, peppers also do not consume a lot of water.

Another high water consumer is potato according to experiments from smallholder farmers in east and southern Africa. Without abundant water you cannot produce potatoes. The level of irrigation and amount of water required by potatoes is too high for most farmers. That is why the majority of smallholder farmers in communal areas cannot produce potatoes. Most farmers end up seeking refuge in in tomatoes which you can simply irrigate with a can.  The quality and shelf life of potatoes is determined by soil type, texture and weather.  In Zimbabwe, the eastern highlands have the best weather for potatoes, especially Nyanga which is not too hot and so the soils are not too hot either.  Heat within the soil tends to affect potato shelf life on the market. A majority of consistent producers now know that commodities that need a lot of water have high water extraction capacity from the ground, high soil nutrients depletion and a heavy irrigation budget.

Nutrient uptake by different crops

Seed acquisition decisions by many farmers in developing countries are no longer just influenced by the price of input but other critical considerations that speak to a changing climate. Different classes of farmers are now paying attention to differences in nutrient uptake by diverse crops. They have become aware that some crops are heavy feeders while others are light feeders.  Heavy feeders include potatoes, cabbages and, to some extent, tomatoes depending on varieties.  Light feeders include lettuce, onion, garlic, leafy vegetables, carrots, peas and fine beans.

Heavy feeders take a lot of nutrients from the soil the whole journey from planting to maturity compared to light feeders.  This means farmers have to apply more into the soil for heavy feeders to grow better. Heavy feeders consume what is in the soil and what farmers apply and when not fed adequately, they draw more nutrients from the soil and leave the soil without nutrients. Due to quality issues, some heavy feeders like potatoes and cabbages require additional special nutrients in the form of trace elements which light feeders can do without. This means heavy feeders need more inputs, in the range of $8 – $10 000/ha compared to light feeders whose cost of inputs may be half that amount. Among field crops, heavy feeders include cotton whose deep roots can stretch wider and deeper in search of nutrients and water.

Labor-intensiveness, easy of harvesting and other trends

Farmers are also discovering that while fine beans and peas are more labor-intensive during harvesting because they need meticulous handling to avoid bruising, harvesting cabbage is merely cutting the stem and loading is more like throwing. Potatoes are also easy to harvest but very labor-intensive. You need a lot of manpower, first to arrange potatoes in small heaps, somebody to pack into bags, transporting to the main heap from where grading by size begins as well as identification of rejects.  Then somebody pockets them manually, followed by someone scaling them into 15kg pockets, then someone comes to seal the pockets.  To avoid potatoes suffering some bruises, they have to harden and mature in the field.

Some of the emerging trends

Economic hardships in several developing countries have triggered urban farming and the proliferation of technologies like water pumps, solar pumps and diesel/petrol-powered engines.  Many urban dwellers are now producing high value crops like spinach, lettuce, broccoli and leafy vegetables like covo, rape and others that are delivered to supermarkets daily. This has disrupted the wholesaling model, with farmers in distant areas being muscled from the market. However, rural farmers still have advantages in producing vegetables with a superior taste, free from impurities associated with contaminated urban soils and water.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6