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Is Africa ready to climb the value chain in agriculture?

Five hundred million. That’s the official estimate, the number that practitioners arrive at from a range of 200 to 900 million. That is the number of smallholder farmers in the world, and it makes a lot of eyes pop in development circles.

Take for example the most recent agribusiness value-chain event, Making the Connection: value chains for transforming small holder agriculture, which convened recently in Addis Ababa, Ethiopia. While the 500 attendees represented the private sector, government, civil society, farmers’ organizations and academia, almost all discussions had a way of looping back to one topic: smallholders.Why is it that the attendees were so fixated on the farming segment of the value chain? Is Africa not yet ready to climb past the very first rung of the value chain? Today, it is estimated that a mere 10% of the global agricultural production undergoes processing.

As Hasit Shah of Kenya’s Sunripe Group put it at the conference, "There’s a lot of opportunity in Africa, and it’s amazing that we don't see it ourselves."

Of course, seeing opportunity is one thing; exploiting it, quite another. For professor David Hughes, Emeritus Professor of Food Marketing at Imperial College, London, agribusiness is risky business: lessons learned from 50 years of investment in agribusiness show that only a minority of agribusiness investments were commercially successful.

Professor Hughes also eloquently argued that commercial social responsibility (CSR) is passé, and shared value is the right way to think about value chains. If you are looking to increase the competitiveness of an industry, and thus its volume, you have to look for ways to create shared value—win-win solutions or incentives for each actor at the respective value chain node, whether it be from input provider to farmer, from farmer to processor, or from processor to retailer.

Sunripe in Kenya spends US$ 150,000 annually just to comply with standards because that is the ticket to export markets beyond Africa and the Middle East. This means that smallholders—again, a major priority of European and American development agencies—find themselves locked out of the very same markets.

Setting aside the question of whether standards in wealthy nations have gone overboard, this state of affairs should make us wonder whether African companies ought to target these markets at all. What about their domestic market? What about their regional and continental markets? There they can put their resources into meeting food safety standards and basic environmental standards. For Michael Nkonu, Fairtrade Africa, “the future lies in developing domestic and regional markets.” First build up, then build out.

With the accelerating urbanization of Africa, consumers are increasingly concentrated and are looking for more high-protein and convenient foods. Supermarkets providing processed foods have hence been expanding across the continent over the past 20-30 years. But people like Emmanuel Tambi from FARA are rightly asking, “Is the expansion of supermarkets good for the Africa? Who benefits from it?”

Essentially, how can we ignite competitive domestic agricultural processing businesses and help them find their way into supermarket distribution channels to generate shared value across the continent?

At infoDev, we are grappling with this very challenge as we design our Agribusiness Innovation Centers, due to launch next year, so I invite you to share your thoughts in the comments.
 

Comments

Submitted by Anonymous on
The percentage of the value chain that the farmers control is very small. Only when farmers join an co-op or collective group of producers, will they have more power and support to aproach these distribution channels.

Dear Julia and Ellen, thanks for this update from Addis! There is indeed much more to agribusiness with smallholders than farming. In fact, our recent guide "Growing Business with Smallholders" (see http://www.agribusiness-with-smallholders.net) shows that businesses that integrate several steps of the value chain are often the most successful ones. I would like to learn more about infoDev's work on Agribusiness Innovation Centers. What is the idea behind? Where are they being built? Thanks! Christina

Submitted by Julia on
Dear Christina, Many thanks for your comment and the link provided. To answer your questions, over the past few years, infoDev has been focusing on agribusiness innovative entrepreneurship work and has developed the following: • A global good practice assessment of agribusiness incubation initiatives in eight countries, documenting their impacts, sustainability, and lessons (http://www.infodev.org/en/Article.800.html); • A training module on agribusiness incubation, complementing infoDev’s general business incubation management curriculum (http://www.idisc.net/en/Publication.416.html); • Design of agribusiness innovation centers (AICs) for four African markets, including Tanzania, Senegal, Mozambique towards the implementation of which we are currently in the process of raising funding. Feasibility assessments are currently being undertaken to design an AIC in Kazakhstan and in Nepal. The idea behind the AICs is to enable the start-up and growth of innovative, value adding agribusinesses in low income countries that have a comparative advantage in agriculture. By doing so, they aim to contribute towards accelerating the development of a competitive agro-processing sector, thus moving up the global agricultural value chain, capturing a larger share of income for local businesses and small-holder farmers, and creating more jobs.

Submitted by Terry Leach on
The key to engaging the smallholder farmer in the value chain is shared values with medium sized farmers and agribusinesses that produce for the market. Smallholder are often subsistence farmers which often consume and sell to a trader or local market, whereas medium size farmers produce for the market. We believe that medium sized enterprises working with collectives composed of smallholder is the key to creating a sustainable value chain. There are several advantages to this approach. 1) Midsized farmers and agribusinesses are more tuned into markets beyond the local and they can provide greater volume than just what they produce. 2) Smallholder cooperatives and unions can gain a buyer by producing quality and grades of products that the midsized enterprise customers want. There are more advantages, but I'll stop with just two. We are working in Ethiopia to establish this model of Shared Values combined with a information and communication infrastructure to power the value chain. Terry J. Leach Agrepedia

Submitted by Alice Makochieng on
Looking at our work with dairy smallholder farmers in East Africa in the EADD Project; five years ago they were fragmented and disfranchised. But with setting up of farmer cooperatives which act as bulking and chilling Hubs, these farmers value to market has increased. In the end, by connecting them to processors, these fermers coops are earning them a 'seat at the table' so to speak in negotiating with processors and creative a shared value business and one that benefits the farmers as well as reduce procurement costs for the processors and thus creating a symbiotic relationship so to speak, and a much better value chain. These farmers who produce for markets are typically the mid-size farmers, but we also intergrate them with the smaller farmers. I therefore totally agree with Terry's point above as well as Christina's point of innovation centers in agribusiness value chains. Alice Makochieng EADD Project, Nairobi, Kenya and East Africa

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