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Understanding successful inclusion in value chains

Jos Bijman | 02 April 2013

Improving market access, linking farmers to markets, developing inclusive value chains; these are popular but challenging activities among development practitioners. The challenges results from the limited capabilities of (small) farmers to produce the right products, the limited interest of trading and processing companies to deal with a large number of suppliers, and the limited availability of technical, financial and market services that farmers need when they seek to produce higher value crops.

Improving market access, linking farmers to markets, developing inclusive value chains; these are popular but challenging activities among development practitioners. The challenges results from the limited capabilities of (small) farmers to produce the right products, the limited interest of trading and processing companies to deal with a large number of suppliers, and the limited availability of technical, financial and market services that farmers need when they seek to produce higher value crops.

The first issue is about who should provide the missing services. Is it the state? Is it the private sector, including the buyer firms? Is it NGOs? Nowadays, everybody talks about public-private partnerships. But are these PPPs really the panacea for all problems of linking smallholders to remunerative markets? What are the conditions under which these PPPs work well?

The second issue is about the understanding the trading partners themselves. We often use the terms market access or linking farmers to market, but in reality we are linking farmers to particular customers. Most of the time, farmers are not trading in spot markets, but selling to particular trading or processing companies. These buyers have specific requirements that farmers have to comply with. If the farmer is going to produce non-generic products or special crop varieties, the farmer may become dependent on this particular buyer. In supporting these farmers, it is not enough to understand market, it is also necessary to know the reliability and the capabilities of the buyer. Alternatively, also the reliability and capabilities of the farmers are important. Can farmers be trusted to live up to the agreement, and are they able to produce the right quantity and quality? Thus, we need better insights in the incentives and capabilities of the (potential) trading partners, the type and extend of dependencies that rise in value chains, and in the options for reducing these dependencies.

This brings us automatically to the third issue: do we need producer organisations (POs)? And, if so, what kind do we need. In preventing dependency, POs are one solution. Farmers are always much smaller than their trading partners, and can benefit from collective action in improving their bargaining position. Buyers also benefit from dealing with a PO instead of dealing with all farmers individually. Thus, support in setting up a PO for the bulking of the products and jointly negotiating about favourable prices and delivery conditions, seems needed.

The fourth issue, however, is about the scope and type of PO. Small, informal, associations may be most easy to establish and maintain. Where buyers are sourcing from a large number of farmers, a larger organisation may be needed. This brings challenges in keeping members committed and governing such a large organisation. Should the PO be more than a bargaining association? Should be it be a cooperative, thus a firm with its own assets and employees, but also its own challenges for internal governance, management and financing? A last question about the appropriate type of PO relates to its functions. Should it focus on the economic function, in selling the farmers’ products, or should it include political and social functions? Collective action organisations that have organically grown in a community often have a broad mandate. This usually strengthens the commitment of the members, but it may hinder the development of a strong economic organisation.

Thinking about the functions of the PO implies thinking about coordination, the fifth issue. Farmers are managers of their farm, as they coordinate multiple activities. This coordination relates to the use of inputs, labour, and capital, but also to the choice of crops, fields, and market outlets. Supporting farmers on only one of these issues may not lead to much progress if other issues are not tackled sufficiently. In other words, support for including farmers in value chains has to take the whole farming system as a starting point. In addition to on-farm coordination, there is the need to understand macro-coordination. This relates to the provision of the inputs and services that farmers need to be able to supply demanding customers. Here, again, a system perspective is needed, as switching to higher value crops requires the coordinated provision of inputs, credit, transport, technical assistance, market information and market access. As these services are usually not provide by a single agency, coordination among several agencies is needed. This brings us back to the PPPs. Ultimately, successful inclusion in value chains requires understanding the options and conditions for improving both micro- and macro-coordination.