Alternative strategies to deliver on market access

1. Alternative strategies to deliver on market access Aad van Tilburg Wageningen University & Herman van Schalkwyk University of the Free State

2. Table of contents • Problem definition • Introduction • Problem areas about smallholders’ market access • Aim of the paper • Stakeholders (interest groups) defined • Literature • Suggestions on market access from the general literature • Conclusions on market access from studies in (South) Africa • Examples of success stories of smallholder market access in South Africa • Stakeholders contributing to smallholder inclusion in the supply chain • Selected strategies to deliver on market access and roles of stakeholders • Conclusions and recommendations

3. Market access for …….? • Emerging farmers • They are defined as: • Smallholders who need input markets, markets for services, and output markets for their farming operations, • But, they tend to be limited in market access because of various constraints. • This implies that they produce surplus(-es) for the market. The part of the harvest that is not consumed by the household, or the extended family, will be sold when a market is available.

4. Problem definition • Smallholders • Tend to encounter difficulties in getting access to whatever market: • Cash, future, or futures markets • Integrated supply chains • Tend to produce and to sell commodities (hardly value added). Group action is not well developed. • Are, consequently, not (yet) attractive suppliers to deliver sufficient Quantity and Quality (Q&Q), e.g. Ruben c.s., 2007. • Are denied access to local markets because of competition by supermarkets.

5. Major problems of smallholders • Market failures in markets for farm inputs, outputs and services: e.g. • Smallholders do not have purchasing power to buy inputs • Mismatch between quantity demanded and offered (e.g. veterinary medicine) • Asymmetric power distribution: e.g. monopsony of buyers in rural areas • Distance to markets • No supply chain (e.g. contract) available for current market offer • Adverse infrastructural conditions (public goods): • Physical: roads, collection points, markets • Communication network (cell phone) is good in SA: e.g. SAFEX’s sms price-information-service). Access?

6. Major problems of smallholders(continued) • Lack of group action to: • Obtain economies of scale • Meet supply chain requirements in terms of (Q, Q) • Asymmetric market and price information: • Is market and price information accessible for smallholders? • Problems with compliance to grades & standards, costs of certification • Lack of human capital, e.g.: • Education, knowledge and experience to cope with farm management, marketing and market access.

7. Aim of the article/presentation • Discuss, based on suggestions from the literature and recent field work: • What needs to be done to obtain or improve market access for smallholder produce? • Which stakeholders can facilitate smallholder access to markets or supply chains? • What is, or can be, the role of each stakeholder (group)?

8. Stakeholders defined • Group members, e.g. farmers in a co-operative, or mentor farmers • Supply chain members: e.g. transporters, agribusiness companies, retail chains • Sector organizations, • e.g. Maize Association, Poultry Association • Governmental bodies • Special interest or pressure groups, e.g.: • Consumer associations, NAFU, Green Peace • Research institutes, universities, colleges • Non-governmental organizations (NGO’s)

9. Literature review • Suggestions on market access from the general literature • Conclusions on market access from studies in (South) Africa • Examples of success stories of market access by smallholders in South Africa.

10. Suggestions on market access 1Demand for a particular product • Consumption practices and potential demand of customers need to be leading for supply chain decisions (e.g. Bichard c.s., 2005) • The new energy market (ethanol) creates opportunities for farmers. Position of South Africa? • Current WTO arrangements and agreements result in new market opportunities for South Africa and more competition. • These opportunities and arrangements need to be studied to exploit new ways to rearrange supply chains, e.g. Van Schalkwyk, 2007.

11. Suggestions on market access 2 supply chain organization • Smallholder inclusion in supply chains depends on (Ruben c.s., 2007): • Channel choice: • In which market segment or niche market to sell? • Governance regime: • How is the chain organized and coordinated? • Quality performance: • Can smallholders deliver high-quality products? • Distribution of value-added among chain members • Balance people, profit and planet dimensions (Kambewa, 2007)?

12. Suggestions on market access 3Incentives for smallholder inclusion • Smallholders, including emerging farmers can become part of international supply chain through (e.g. Van Schalkwyk, 2007) • Private initiatives (e.g. by the agribusiness sector) and • Public initiatives (e.g. AgriBEE).

13. Conclusions on market access from studies in South Africa 1 • SANPAD study on • “Assessing institutional and technical constraints to smallholder agriculture in South Africa and implications for market access, poverty alleviation and socio-economic sustainability” • Contributions of this morning’s workshop

14. Conclusions on market access from studies in (South) Africa 2 • Subjects: • Countervailing power of smallholders • Market access in relation to human resources • Market access in competition with supermarket chains • Smallholder access to export markets.

15. 2a Countervailing power of smallholders • Group action is required to reduce transport and transaction costs • A democratic co-operative of farmers is an opportunity • But, it is not easy to start a co-operative in case that human and social capital are lacking and market failures are prevalent, e.g. Ortmann & King (2005)

16. 2b Market access in relation to human resources • Smallholders need training, support services and facilitating services to be able to connect with markets (e.g. Bussard & Uhrinova, 2006, p.55) • This regards: • Basic skills as taught at school, • Farm enterprise start-up services, • Agricultural extension services and • Farm enterprise development services

17. 2c Market access in competition with supermarkets • Market access study of medium-sized, well-educated farmers in Kenya (Neven c.s., 2005) • A threshold capital vector is needed to access the supermarket channel: • “Succesfull farmers had access to irrigation, means of transport, a packing shed and a cell phone”. • Expansion of the supermarket channel in Africa has both positive and negative effects (e.g. Botha & Van Schalkwyk, 2007): • Positive: Supply of low cost - good quality products and convenience shopping • Negative: Supermarkets compete with traditional local markets

18. 2d Smallholder access to export markets • Private food safety and quality standards in the North imply constraints to access markets in the South (e.g.Vermeulen c.s., 2006; Ruben c.s., 2007): • Producers need to comply with food quality and safety standards by making investments on farms and in pack houses (+ certification costs) . • Parallel standards tend to be used in terms of food safety and quality between upstream and downstream sections of the supply chain.

19. Examples of success stories • There are also success stories in getting access to markets. • Special mechanisms were put in place to assist the farmers. • Emerging farmers are linked to the agribusiness sector: • The Golden Fleece project in the wool industry, an initiative taken by the NWGA (e.g. Swart c.s. 2000; D’Haese c.s. 2003). • Linking emerging farmers to the agribusiness sector: The case of barley marketing in the Taung irrigation scheme (e.g. Tregurtha & Vink 1999; Obi & Van Tilburg 2005). • In Kwazulu Natal, the sugar industry presents the best example of how big business and small scale farmers can foster a win-win situation (e.g. Nieuwoudt & Groenewald (2003). • Generally, such schemes work better when the private sector takes charge.

20. Discussion on the contribution of each class of stakeholders • Group members, e.g. farmers in a co-operative, or mentor farmers • Supply chain members: e.g. transporters, agribusiness companies, retail chains • Sector organizations, • e.g. Maize Association, Poultry Association • Governmental bodies • Special interest or pressure groups, e.g.: • Consumer associations, NAFU, Green Peace • Research institutes, universities, colleges • Non-governmental organizations (NGO’s)

21. Option 1: Potential role of co-ops for smallholders • Smallholder-controlled business activities: • e.g. a co-operative grading and packing station. To • Obtain (extension, credit) services, farm inputs, • Sell farm outputs, or • Add value to farm products (e.g. processing). • Smallholder co-ops (e.g. Ortmann & King, 2007) • Have a negative image in South Africa, but they have been successful in Europe • Can generate benefits: EOS, joint market planning, joint product development, meeting Q&Q conditions of supply chains, … • Experience limitations because of lack of human capital: • Education level, management capacity, experience, lack of ownership attitude, culture of getting things for free, corruption, etc.

22. Option 2: Contract with a member of the supply chain • A supply chain member wants to secure its purchase of Q&Q products: • Domestic wholesalers, exporters, national or international retailers want regular supply of produce from preferred commercial suppliers. • Group of smallholders in SA may be eligible to become preferred supplier if they are: • Well organized to deliver Q&Q • Receive both private (e.g. mentorship of commercial farmers) and public (e.g. AgriBEE) support.

23. Option 3: Potential role of a sector organization • Notes: • Sector organizations in South Africa are not supply chain oriented. They tend to lobby predominantly for their own group. • The NWGA with its Golden Fleece project is a positive example. • A sector organization (e.g. Agri-Coops) may take initiatives to start projects to: • Improve smallholders’ market access • Stimulate mentorship for emerging farmers (e.g. Femi and Van Schalkwyk, 2006) • A sector wide commission, supported by researchers, needs to generate viable proposals.

24. Option 4: Government incentivesand local authorities • The government wants to link smallholders with the commercial sector. • Possible incentives are: • Linking smallholder (co-op)’s or emerging farmers to successful commercial • Co-ops, e.g. through the AgriBEE scorecard • Farmer-mentors. • Soft loans from development banks to • implement smallholder group development plans including training, extension, linkages to markets. Its viability needs to be tested. • Facilitating out-grower schemes for smallholders

25. Option 5: Grow low volume – high value products for niche markets • Niche markets continue to develop as consumers become more sophisticated. • Some of the new required approaches, e.g. free range chickens, can be best exploited by small farmers. • Other examples: • Mushrooms, snails, mussels • Herbs and medicinal plants • e.g. Ghaap or Hoodia gordonii in Northern Cape reducing appetite • Flowers, flower bulbs • Special seeds, raisins, oils, honey, handicrafts (e.g. Dawson, 2003) • Management skills and aptitude need to be developed because producing for niche markets is capital & knowledge intensive.

26. Option 6: Role of special interest groups • Special interest or pressure groups, e.g. consumer associations, World Wildlife Fund, or Green Peace may ask their members: • To buy particular products from supply chains that adopted CSR by balancing the People, Profit and Planet dimensions. This may be guaranteed by certification and labeling (e.g. FSC, MSC, fair trade products, organic products). • Not to buy from supply chains or retail outlets that do not conform to the objectives of a particular special interest group.

27. Option 7: Research institutes, universities, colleges • Research institutes, etc. need to focus on smallholder empowerment and inclusion in markets by: • Research programs funded by the government • Regular PhD and MSc thesis research • Workshops linking commercial and small-scale farmers.

28. NGO’s • NGO’s can take initiatives that make a big difference for smallholders. • By getting grants from the EU, UNDP, GTZ, etc. and • By working together with existing institutions in the different areas

29. Selection of strategies to deliver on market access • Option A • Link smallholders to commodity markets for high volume – low value crops through commercial co-ops • Crops: e.g., maize, wheat and fruits. • Option B • Link smallholders to niche markets for low volume – high value crops throughintegrated supply chains.

30. Roles for stakeholdersin Option A • Link smallholders to commodity markets by linking smallholder (co-op)’s to commercial co-ops. • Land Bank needs to provide finance to existing cooperatives to implement certain activities on its behalf: • e.g. provision of loans, evaluation of applications, monitoring and collection of payments.

31. Role for stakeholders in option A: Continued • Incentives: • Knowledge transfer: • Extension and business services are included in contract relationships • Mentorship by experienced commercial farmers • Supporting organizations, e.g. development banks and sector organizations, receive public incentives when providing services to smallholders • AgriBEE scorecard

32. Roles for stakeholders in Option B • Link smallholders to niche markets for special products. • Necessary for successful market entry is: • Knowledge collection on: • National and/or international markets • Production opportunities in South Africa, e.g. biodiversity, medicinal applications of plants (world market of 18 milliard Euro, SIPPO) • Research institutes, universities and colleges need to allocate research activities to smallholder development

33. Role for stakeholders in option B: Continued • Necessary for successful market entry is: • Knowledge dissemination through sector organizations and contract partners • Important role to play for development banks, e.g: • Land Bank, Dev Bank SA, Independent Dev Cooperation • Evidence of successful niche markets: • A small farmer is successful in producing mushrooms in the North West province. Apparently, this farmer is very well linked to marketing outlets. • The Rooibos tea small-scale farmers are apparently doing very well.

34. Conclusions and recommendations • There is an urgent need that smallholders are linked to markets. • Two options, the commodity approach and the niche market approach, need to be further developed in each agribusiness sector. • To be successful, massive support is required to smallholder groups through both private and public initiatives. • Sector organizations, the private agribusiness sector and development banks should take the lead • A multi-institutional task-force for each sector in agriculture needs to monitor this process.

35. References • Bichard, A. et al. (2005), Access to urban markets for small-scale producers …. in Polokwane. Development Southern Africa 22,1, 125-141. • Botha, L & H.D. van Schalkwyk (2007), Retail sector in Qwaqwa, …… • Kambewa, E.V. (2007), Contracting for Sustainability, Wageningen Academic Publishers. • Magingxa, L.L. (2006). Smallholder Irrigators and the Role of Markets: A New Institutional Approach. PhD Dissertation, University of the Free State. • Magingxa, L.L., Alemu, Z.G. and van Schalkwyk, H.D. (2006). Factors Influencing the Success Potential in Smallholder Irrigation Projects of South Africa: A Principal Component Regression. International Association of Agricultural Economists Conference, Gold Coast, Australia, August, 2006.

36. References (continued) • Ortmann, G.F and R.P. King (2007), Agricultural cooperatives I&II, Agrekon 46, 1 (40-68) & 2 (219-244). • Pote, P. et al. (2007), Technical constraints to smallholder development in South Africa …., IFAMA, Parma , Italy. • Ruerd Ruben, M.van Boekel, A. van Tilburg and J. Trienekens (2007), Tropical food chains: Governance regimes for quality management , Wageningen Academic Publishers. • Sartorius, K and J. Kirsten (2002), Can small-scale farmers be linked to agribusiness? … Agrekon 41,4, 295-325. • Tregurtha, N.L and N. Vink (1999), Trust and suply chain relationships: A South African case study. Agrekon 38,4, 755-765. • Van Schalkwyk, H.D. (2007), Landbank paper. • Willemse, J. (2007), Saamstaan weer ‘n opsie. Landbouweekblad 24 augustus, p.8.