Sunday, 25 August 2019

Enabling policies to foster inclusive agribusiness and the catalytic role of public-private partnerships

The vast majority of staple food products (cereals, roots and tubers, livestock, horticulture) serve domestic, informal markets in developing countries. Despite the expansion of supermarkets, most small farmers (60-80%) continue to market their goods through traditional informal channels and street markets. There is a strong business case for agri-processors to source directly from small farmers, as the former can benefit from known efficiency and comparative advantage of the smallholder farmers and reliability of secured supplies. The answer depends on the levels of risk and how they are addressed. Among the risks faced by agribusiness are difficulties getting smallholders to comply with standard requirements and to fulfill commitments, as well as problems with communication and coordination. Farmers dealing directly with agribusiness typically require a higher level of negotiating capacity and better internal coordination to meet contractual obligations than they generally have; these depend on better organization and a higher degree of market and business capacity. The transition of small-scale farmers from subsistence to commercial agriculture depends on finding ways for smallholders to move up the commercial and market integration ladder and, inversely, on opportunities for agribusiness to source more of their raw agricultural products from small-scale producers.
A particular form of supply relationship between agro-industry and small-scale producers is the outgrower scheme – a supply contractual arrangement through which private industry provides services to small farmers in the form of extension, training and inputs, in return for a supply of raw agricultural products at set prices. The outgrower scheme, found predominantly within the export-oriented value chains, is favoured by governments and development partners as a means to encourage more small- scale producers to participate in value chains. However, in practice, the outgrower scheme doesn’t always work well and can result in frequent side-selling by farmers or contract-breaking on the part of the producers. This is the case for the oil palm industry in Ghana, where side-selling by farmers is rationalized as a consequence of oil palm mills raising input prices and lowering the prices offered for fresh fruit bunches without consultation or coordination with supplying farmers. The farmers often respond by selling on the open market instead, where prices are higher. This case illustrates the importance of close coordination in price negotiations between agribusiness and supplying farmers, which implies relationships that build trust and seek win-win outcomes on prices, quality and supply for both sides. Other conditions for success include merit-based selection of participating farmers and an emphasis on farmer training. The same requirement for close coordination and transparent negotiations also applies to commercial agreements between outgrower farmers and input suppliers.
Successful cases of good working linkages between agribusiness and small-scale producers also exist.
Senegal offers a good example involving a dairy agriprocessor and milk suppliers from Richard Toll,
east of Dakar. In this case, a privately-led initiative (Laiterie du Berger) was established to produce dairy products using milk sourced from local farms. The dairy processing unit collects, processes and sells milk in the Dakar market and offers its milk suppliers services to improve quality, as well as yield-enhancing techniques. Additionally, an NGO is involved in providing training to participating dairy farmers, focusing on capacity building not provided by the agriprocessor. However, the successful experience in this caseis linked to the localized nature of a captive dairy market with only one operating agriprocessor within the region. These conditions strongly favour a closer business relationship featuring coordination and collaboration.
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