Strategies to improve smallholders’ market access

Abstract

Smallholders, especially in less developed countries, have encountered several challenges in gaining access to markets. Market access includes the ability to obtain necessary farm inputs and farm services, and the ability to deliver farm products to buyers. Market access was less of a problem in the era of the marketing boards, roughly from 1940 to 1990, when a parastatal organisation – the marketing board – tended to provide essential farm inputs such as seed, fertilisers and ploughing services, farm services such as extension and credit, and output market services such as collection of the harvest, quality assessment and buying. Marketing boards tended to issue pan-seasonal and/or pan-territorial product prices and purchased from farmers and traders at several central locations. The consequence of this approach was that the decisions made by producers, processors, transporters, traders and consumers were not fully guided by free market principles and prices as indirect subsidies were involved. Marketing boards were dissolved in the ‘eighties’ and ‘nineties’ in the majority of developing countries because their activities, as a rule, appeared not to be economically sustainable and consequently a heavy burden on the national government’s budget. Consequently, smallholders were suddenly deprived of a supportive institutional marketing structure. This was also the case in South Africa with the repeal of the Marketing Act of 1968 and the implementation of the Marketing of Agricultural Products Act of 1996 (e.g. Van Schalkwyk et al., 2003).

2.1 Case study 1: a marketing design study

Summary

Marketing design studies are conducted with the aim of broadening the access of small-scale farmers to agricultural markets. An example of such a study is the CIAMD and ARC (2001) study on unlocking opportunities in the Eastern Cape province.

The aim of this study was to investigate the competitiveness of the agricultural sector of the Eastern Cape and to identify options and opportunities to broaden the agricultural base of the province. Specific objectives were to obtain a thorough understanding of the agricultural sector; to identify opportunities to alleviate poverty within the context of the resource base; to assess options in terms of their ability to be economically feasible, to generate new employment opportunities, to promote small enterprise development,to create links with other sectors in the provincial economy; to rank these options on criteria to generate employment, return on capital investment, access to input, service and output markets, and to develop good leadership and democratic membership for group action of small-scale farmers.

The CIAMD and ARC (2001) study examined potential outgrower schemes in which commodities are grown under prescribed production guidelines and predetermined marketing arrangements between producers and a buyer. It also considered the profitability of integrated livestock and crop production systems. It was considered that small-scale farmers need to be organised into legal entities to take full advantage of economies of scale. Commodities considered in this study included livestock, bulbs, flowers, herbs and medicinal plants. The following example illustrates the CIAMD-ARC approach.

The Roxeni village community (near Alice in the central region of the Eastern Cape) has been engaged in various agricultural activities aimed at alleviating poverty (CIAMD and ARC 2001, Chapter 4). The Roxeni community project initiative included five projects for sustainable rural community development regarding vegetables, sheep, beef, pigs and poultry. The community was well organised, members were dedicated under good leadership, human capacity was strengthened through training sessions, support services offered were utilised, and members appeared to be creative in exploring value-adding options.

The project started with community meetings to spell out the project objectives and to develop clauses on membership fees. The constitution drafted included the phases of project implementation to enhance efficiency and competitiveness, sourcing of capital and training, facilitation and development of infrastructure, the establishment of community based demonstration units, effective classing and marketing of wool, and consolidation and expansion of successes.

Bottlenecks and lessons learnt

The main bottlenecks for these smallholders were a lack of insight into market opportunities in relation to their own strengths and weaknesses, a lack of proper group action and shortcomings in the enabling environment. The main lessons learnt included: rural development projects that involve beneficiaries in identifying their own choice of alternatives tend to succeed, unlike projects where the project is developed outside the community and the community members are asked to participate. Another lesson learnt from this study was that unlocking Eastern Cape provinces’ potential for smallholders or emerging farmers in particular was highly dependent on creating an enabling environment.

2.1 Case study 2: sugarcane production by smallholders in KwaZulu-Natal

Summary

The sugar industry in KwaZulu-Natal, presents an example of how the agribusiness sector and small-scale farmers can benefit from promoting the development of these small-scale sugarcane growers by the sugar industry. The case illustrates the importance of a well-developed institutional environment for smallholder development (Bates and Sokhela, 2003; Nothard et al., 2005).

The South African government initiated in 1956 an assistance programme for small-scale sugarcane growers (SSGs) by providing finance for ploughing and the purchase of inputs. Sugarcane quotas were issued In the period 1963-1967 to SSGs allowing them to plant about 7,000 ha. The sugar industry introduced an expansion programme for the development of the small-scale grower sector from the 1970s onwards, and the number of SSGs increased from about 4,000 in 1972-1973 to about 50,000 in 1994-1995. A credit programme was introduced in 2001 providing additional production incentives. During the 2001-2002 season, SSGs producing sugarcane in communal areas comprised 96% of the growers in the sugar industry, they produced about 14% of the sugarcane crop on 20% of registered sugarcane land. Up to 2002, several sugar mills provided contractual ploughing and other management services. However, the withdrawal of sugar mill contracting services contributed to a decline in SSG production.

Small-scale sugarcane contractors, usually being SSGs themselves, diversified their activities by providing land preparation, crop maintenance and cane haulage services as well as labour contracting services to SSGs Several inhibiting factors of contractor performance were found in a survey among 124 small-scale sugarcane contractors (2002-2003) such as high transaction costs in sourcing and operating contract work; limited access to finance without collateral; cash flow problems due to delays in payments; asymmetric bargaining power by contractors (men) with SSGs (often women); limited investments in new machinery and tractors; lack of labour for cane cutting and a poor rural infrastructure. Recommendations for a more competitive contractor sector included allowing contractors to source their own work and making SSGs aware that they can demand high quality services as customers of the contractors.

The periodical Sugarcane growers (2007) reported several initiatives aimed at supporting small sugarcane growers: preferential product prices through the small-scale grower Supplementary Payment Fund; fair market access to available milling capacity through legislation (Sugar Act and Sugar Industry Agreement); training, extension and support through the Shukela Training Centre; contractor support programmes to improve the capacity of contractors in servicing the small-scale growers; Umthombo Agricultural Finance to make savings and loans services accessible; improved rural infrastructure (loading zones, roads, bridges, communications) to facilitate contractor access and harvesting; improved access to farm inputs through decentralisation of agricultural cooperatives and industry grant funding to establish seed cane nurseries.

Another development for individual small-scale growers (Sugarcane growers, 2007) has been the consolidation of their arable land under a cooperative to generate economies of scale. In this programme, each individual grower leases his land to the Cooperative, which runs the consolidated area according to commercial agricultural principles and, in return, the grower receives an annual rental for his land and/or dividend payment based on profitability. These cooperatives appeared to be effective vehicles to attract funding. About 16% of freehold land under sugarcane has been transferred to black growers (The South African Sugar Industry Directory 2007/08)Footnote

Available at: www.sugar.org.za/subscribe/downloads/Sugarindustry2007.pdf.

. The industry established a land reform entity to support the transfer of ownership by identifying both sellers and buyers. The industry supported SSGs operating on tribal land with mentorship and training programmes on technical skills to counteractproblems with planting, growing, cutting and cane delivery to the mills.

Bottlenecks and lessons learnt

The main bottlenecks were a lack of supporting services to sugarcane smallholders, limited investments by small-scale sugarcane contractors, lack of contractor market transparency and asymmetric bargaining power between contractors and smallholders. Lessons learnt identified the need to strengthen farm management abilities of SSGs through training and mentorship, the need for investments in machinery by contractors and the need to improve contractor market performance by improved market transparency and more symmetric bargaining power between SSGs and contractors.

2.1 Case study 3: TEMO Agri Services

Summary

The goal of this initiative taken by the agribusiness company MGK in Britt has been to assist emerging farmers on their way to become commercial farmers.

MGK, an agribusiness company founded in 1930, established Temo Agri Investments that obtained 22% of the MGK shares in a Black Economic Empowerment transaction. One of Temo Agri Investments shareholders is a Farmers Trust, established for the benefit of emerging farmers. Temo Agri Services (TAS)Footnote

Company website: http://www.temoagri.co.za.

is a joint venture of both MGK and the Temo Farmers Trust. TAS aims to ‘bring the farmer back to the land’ by helping land owners to use their land for farming purposes and it gives the MGK company a new client base. The role of Temo Agri Services is to select potential successful emerging farmers, to provide these farmers with mentor services (training) and to try to also secure other support (including financial support) for these participating farmers. The main criteria for farmer selection are: motivation, land availability, farmer’s focus on the farming business, and the land available must be suitable for growing grain and oilseeds. All decisions on land preparation, crop selection and cultivars, planting and harvesting, hiring of contractors, are taken jointly by farmer and mentor farmer. All participating emerging farmers are organised into study groups that have meetings to solve problems, training and planning sessions on both farming processes and communication, with services to be provided by MGK divisions. A supporting TEMO-MGK division can provide the required services to member emerging farmers, e.g. finance (credit), crop insurance, necessary inputs and marketing services. All participating farmers have a compulsory crop insurance against risks related to hail and fire. All necessary farm inputs, the hiring of both accredited contractors and extension specialists can be obtained on credit. The MGK marketing division supports emerging farmers by providing price information and hedging of prices through Safex, transport of crops from farm to silo, and silo storage of crops until final marketing.

Bottlenecks and lessons learnt

The main bottlenecks for smallholders were access to and the utilisation of land, farm management abilities, lack of group action, the provision of a complete package of inputs and market access.

The main lesson learnt was, that potential emerging farmers need to be trained in farm management practices and be embedded in a proper institutional context, in order to qualify for a complete package of supporting services.

2.1 Case study 4: linking emerging farmers to the agribusiness sector – the case of the Golden Fleece project in the wool industry

Summary

Commercial producers, brokers, exporters and spinners dominated the wool supply chain in South Africa. Smallholder farmers in the Transkei region had limited access to a profitable market outlet for their wool. In response, the South African wool industry took the initiative to support local farmers by building shearing sheds under which the local association can bulk the wool and trade directly with brokers. More direct access to the wool brokers appeared to be a prerequisite for these farmers to develop a viable business (D’Haese et al., 2003, 2007; Swart et al., 2000; Van Rooyen, 1984).

The wool marketing initiative was taken by the National Wool Growers Association (NWGA)Footnote

NWGA website: http://www.nwga.co.za.

, a national commodity structure of commercial and communal wool sheep farmers in South Africa representing more than 80% of national wool production. Close to 50% of the members are black communal or emerging farmers. The aim of the project was to improve both quantity and quality of wool production together with increased market efficiency for both the Transkei and Ciskei farmers and the National Wool Industry. Thirty-two shearing sheds were built, which also served as training and development centres. They provided animal handling facilities, dipping tanks and other critical agricultural services. During 1998 and 1999 more than six thousand sheep farmers received practical training in farming technology, wool production practices, product value adding and marketing. Successful aspects of the programme were increased weaning percentages and a ram-breeding project. Household income from wool production tripled and an approximate increase of 30% in available jobs in wool production and handling were noticed as direct results of the project. The new infrastructure and services markedly increased the production and income generation potential of the Transkei and Ciskei communities.

Bottlenecks and lessons learnt

The main bottlenecks were lack of skills to add value, lack of market access, lack of group action and lack of economies of scale. The main lessons learnt were that improved market access could be obtained through industry initiatives to promote group action and the building of shearing sheds, which also serve as training centres.

2.1 Case study 5: emerging rooibos farmers in the Heiveld community on the South Bokkeveld plateau

Summary

Two marginalised communities in the Northern Cape province, the Heiveld community on the South Bokkeveld plateau, east of the Cedarberg, and the Wuppertal community in the Cedarberg mountains have successfully penetrated international markets by supplying organically produced Rooibos tea which is certified by the international Fair Trade System (Adey, 2007; Nel et al., 2007).

Until the early 1990s, South Africa’s agricultural production was managed by agricultural boards, which generally favoured white producers and marginalised other farmers. In 1991, the industry was deregulated, allowing new commercial producers to enter the market. Following democratic elections in 1994, the marketing of tea remained largely monopolised by the Rooibos Tea Cooperative. The farmers in the above two communities could only deliver to commercial farmers when the cooperatives could not meet their own quota. The market breakthrough for small-scale community producers came when they were targeted for support by two NGOs, which played critical roles in facilitating the two communities in producing a commodity that is environmentally sustainable, meets ethical criteria and is produced for the international market. One of these two cooperatives is the Heiveld Cooperative. Following the establishment of the Heiveld cooperative, the Suid Bokkeveld smallholders adopted the same ideas and, following meetings with the NGOs and appropriate training, the Suid Bokkeveld smallholders formed their own cooperative.

The steps leading to the ultimate registration of the Heiveld Cooperative Ltd. were the initial community meeting (March 1998), knowledge-exchange visits, the decision to form a collective organisation (August 2000), a planning workshop and the election of a management committee (September 2000), interest of Fair Trade in rooibos tea (November 2000), a three year contract with a local tea trader and the first export of fair trade organic rooibos tea (December 2000), the formation of the Heiveld Small Farmers Association (January 2001), the registration of the Heiveld Cooperative Ltd, and the direct export of rooibos tea to European alternative trade organisations. The required knowledge and skills obtained by the Suid Bokkeveld farmers to become commercial farmers were partly based on local knowledge of organic rooibos cultivation by people working on their own land and those working as labourers on commercial farms. Knowledge of the organic cultivation of rooibos, post-harvest treatment and marketing were integrated in a social learning process fostered by NGOs and researchers. This was facilitated by the fact that the project, initiated in post-apartheid South Africa, provided a suitable environment for participatory approaches and for mobilising resources to address the needs of emerging farmers.

Bottlenecks and lessons learnt

The main bottlenecks were market access, knowledge about how to produce and deliver tea according to the requirements of an international buyer, and lack of group action to strengthen both local knowledge and social organisation leading to smallholders’ economic development. The lessons learnt were that NGOs played critical roles in facilitating the two projects: social capital has been strengthened; the communities have gained in confidence and enhanced their production, marketing and management skills. NGOs also played a crucial role in linking poor communities to sources of external funding and potential markets.

2.1 Case study 6: mentorship alliance between South African farmers

Summary

Mentorship of black emerging farmers by white commercial famers can be a way to the success of land reform by reducing the knowledge gap between the more and less experienced farmer groups. Questions raised have been whether the objectives of a mentorship programme have been clear enough. What have been the required characteristics of mentorship programmes to be successful? And, what can or should be the compensation or reward for farmers delivering mentorship support to emerging farmers? (e.g. Darroch and Mashatola, 2003; Femi and Van Schalkwyk, 2006). The papers discuss several mentorship programmes in the Free State province and KwaZulu-Natal. The conclusion is that forming interactive mentorship alliances that are complementary, loosely structured, based on previous experience of smallholders, and not being hindered by complicated rules and regulations can be successful, provided that they operate in an enabling environment with opportunities for group action by emerging farmers and a level playing field in markets relevant for these farmers.

Bottleneck and lessons learnt

A main bottleneck is the lack of training and skills among emerging farmers in coping with challenging production and marketing environments. The lesson learnt is that mentorship alliances can reduce the knowledge gap between commercial and small-scale farmers.