Price as an outcome of negotiations between diverse market actors

African agriculture is one of the most misunderstood ecosystems, especially by investors and development organizations. There is a persistent tendency to force smallholder farmers into contract agreements when most of them have made up their mind about the pros and cons of such agreements. While informal markets continue to carry the day, investors, development actors and policy makers continue to cling onto out-dated contract farming models which condemn smallholder farmers into labourers.

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More than just supply and demand

While formal institutions still believe in the laws of supply and demand, such laws no longer call the shots in African food systems where borders no longer exist. Although commodity supply is important, profitability and sustainability result from many elusive factors. Part of the solution is careful characterization of the market and its actors. With the majority of smallholder farmers in developing countries shunning contract arrangements, unless when blackmailed through free inputs, informal markets are setting the rules of the game at different levels.

Farmers and vendors who exchange goods and knowledge in informal markets understand each other very well to the extent of getting into win-win pre-financing arrangements. This is contrary to views from some development actors which pretend to protect farmers from ‘middlemen’ when they will be  destroying hard-earned relationships that must continue to exist when donor life-support has disappeared.

The biggest group of buyers for farmers who sell in the farmers’ market are vendors who buy in small quantities for selling further in high density areas. A second cluster of buyers are traders with permanent stalls who have invested into trading particular commodities. Traders purchase in bulk and often deal directly with farming communities.  Measurements used in farmers’ markets signify the character of the market. When commodities come into the farmers market, they are in large measurements such as cardboard boxes, large plastic boxes (sandaks), 50kg bags and 20 litre tins for commodities ranging from butternuts and groundnuts to tomatoes. These measurements define the role of the market.

The fluid nature of informal food markets

While agricultural commodities come in bulk from farming areas, most buyers do not buy in bulk but in smaller measurements. This means the market uses different measurements to break bulk. All these nuances have a bearing on financing agricultural production. Where buyers bring commodities straight from production areas into the market, such volumes are stocked in the wholesale market for other informal or formal markets like processors.

The market pulls together a food basket from diverse farming areas. As it breaks bulk it mixes and matches commodities according to diverse nutritional needs. Individual buyers come to the market looking for specific food baskets which the market brings together. However, buyers rarely spend their whole budgets on single commodities. When commodities travel in bulk from one large urban market to another, the market where they travel to is responsible for consolidating food baskets for local consumers.

This fluid role needs to be understood as it influences consumption patterns. For instance, when the consumer budget gets strained, some commodities are rejected. That is how commodities are given weights in terms of whether they are necessities or luxuries. Commodities like lettuce, carrots, peas and fine beans are normally not produced in large quantities because they are sometimes considered luxuries not necessities.  A necessity is hardly substituted fully and that is why a tomato is always in the market because it is a necessity.  It has a marked price range. For commodities that are considered necessities, when demand is high, prices also tend to be high due to a built-in tendency by consumers to acquire appetites and tastes for particular commodities.

Significance of characterizing markets

Instead of focusing entirely on price, farmers and other value chain actors can benefit from characterizing and scoring markets in terms of availability, volumes absorbed by a particular market, commodity uses and price elasticity. Farmers markets can be high on price but score low because prices can fall below contract prices.  On the other hand, while in contract arrangements the buyer and price can be known before producing, the informal market can be always available and sometimes offering better prices due to competitive pressures.

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Knowledge already exists at different value chain nodes such as producer levels and market level.  How can this knowledge be pulled together to inform agribusiness models?  Processors and SMEs have raw knowledge still to be understood. If that knowledge is supported by that from the production side, it can become a bridge for resuscitating formal processing companies. Tracking volumes into markets also provides a framework for building consumption patterns in ways that speak fluently to prices. Commodities cannot be compared in isolation but in competition with each other. For the past six months, which 11 commodities were moving together and competing in the market and which one, upon entering the market, disturbed a necessity like tomatoes?

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

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When data and evidence become currency

Most of the information disseminated to African smallholder farmers and rural marginalized entrepreneurs is barely enough for progressive decision making. In most cases where price information for a particular commodity is provided, critical details are missing and these include diverse sources of the commodity, levels of competition, demand cycles and the type of people who consume or use that commodity.  For instance, in Zimbabwe and other developing countries, the production and consumption of butternut squash (cucurbita moschata) is on the increase. However, due to the absence of data and evidence, reasons for this trend are often hidden from producers and policy makers.

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Butternut squash belongs to the same family with the pumpkin, cucumber, gourd, watermelon and cantaloupe. These plants grow on a vine and are relatively easy to produce, especially in the right environment.  Production information is simple to find and standardize. What is often missing is the  picture for each commodity in terms of who is consuming the commodity, whether supply to the market is increasing or decreasing and reasons behind those dynamics. Data becomes currency when such details are generated and consolidated. eMKambo has made it its calling to align data with decisions.

Butternut Squash supply to Mbare market, Harare: January – October 2017

In Mbare agricultural market, the butternut squash is usually packed in bags known as Sassekas. Don’t ask what that name means, the agricultural market has its own lingua franca. A standard size of a Sasseka of butternut squash is 60kg. Traders who buy from farmers prefer to use the Sasseka as a standard unit of measurement for their transactions. It is becomes convenient to repack the butternut into smaller pockets. A total of 98 083.7 pockets of butternut squash were supplied to the market between January and October 2017. A standard pocket of butternut squash weighs 7.22kgs. Converted to sassekas, a total of 11 802.74 Sassekas were supplied to Mbare Market from January to October 2017.

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Major sources of the commodity

As shown in the chart below, Mutoko district was the biggest supplier of the butternut squash. The Harare figure is a combination of peri-urban production and volumes held by traders in Harare over a given period in which case Harare is presented as a supplier to the market. There are many cases where Harare traders buy squash butternut seed and other inputs which they extend to farmers. Such decisions are largely informed by data showing areas with potential for producing more and those that have reached their ceiling in terms of production capacity.  In the absence of such granular evidence, funding the production of butternut and other commodities is based on guess-work and wastes scarce resources.

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Price trends

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Butternut squash can be stored for a period of six months or longer and the taste is often superior when it is stored for a long period as compared to being consumed just after harvesting. Research and evidence gathered by eMKambo over the past five years has shown that the demand for butternut squash is high during the festive period. If you are producer or financier, it is important to know all these economic nuances associated with squash butternut before making an investment decision. This information can easily be compared with 2015 and 2016 in order to demonstrate trends.

The law of demand and supply states that all things being equal, when supply is low there is an increase in price and that when supply is high, there is a decrease in price. Evidence provided in the above graphics show that this law applied in 2017 except in April where both supply and price went down. In 2016 the same law applied in April, May, July and October only. Price was constant from January through to March where supply was fairly high. This demonstrates the extent to which, like all other markets, agricultural markets can be unpredictable. However, mastering other factors like consumer behavior, income levels and how food commodities compete and substitute each other can generate better insights.  Given the scarcity of resources, decisions have to be based on strong evidence.

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

How the market can convert agricultural commodities into career pipelines

Besides climate change and environmental degradation, a major challenge facing many African rural communities is migration of skills and talent to urban centres. There is no price for guessing who wins in the competition for talent between rural and urban communities. Building rural agricultural markets is one way of converting agricultural commodities and value chains into sustainable career pipelines for the young generation. Such a vision can be fuelled by rapid urbanization and the expansion of ICTs into formerly marginalized areas.

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Raising the banner of working together

The new era of big data and machine learning is inspiring a new culture of gathering evidence that can help in redistributing agricultural talent from urban to rural communities.  Through informal agricultural markets, value chain actors are being compelled to collaborate on a new scale and to work more closely with consumers.  It no longer pays for private companies to jealously guard their secrets, for fear of being beaten in the market.  Gone are the days it made sense for academic researchers to act like sole proprietors obsessed with individual achievements. Some of the best ideas and innovations can come from rural areas if the right conditions and incentives are availed. Policy makers and development agencies cannot expect to achieve rural development when technological knowledge and progressive ideas are locked in urban areas.

The role of data in nurturing trust and shifting incentives

Creating career pipelines and economic growth opportunities in rural farming areas may not happen without a culture of collecting data and turning it into reliable insights. While data can provide the much needed reality check on a continuous basis, such data cannot be found in a single organization or institution.  There is need for new methods, talent, capabilities and infrastructure for translating data into useful evidence. Without investment in talent and important capabilities, only a few people, mostly based in urban centres, will be able to manipulate data in ways that satisfy their own career persuasions.

People as the main knowledge assets

In addition to data, the fluid expertise of traders, consumers, retired farmers and other professionals is critical in ensuring rural communities become part of knowledge societies. However, experiences from working with diverse farming communities over the past few years have confirmed to eMKambo that people have different motivations for sharing or withholding knowledge. While there is a long-held assumption that field days are the best way through which farmers can share knowledge, many farmers are interested in what knowledge means to their own contexts and competitiveness as opposed to what it means to everyone. Many value chain actors share knowledge when sharing is the best thing to do.

A small proportion of farmers and traders share knowledge because sharing is part of their nature and so they can share proactively. There is another second group of farmers, traders and consumers who share knowledge when asked to share. This group can keep knowledge to itself until there is a clear demand for it. The last group comprises those who share when benefits of sharing are clear. As the entrepreneurship spirit catches up in many rural communities, is category is increasing. Paying attention to all these issues and categories is important, especially when trying to use agriculture and natural resources in helping communities to life themselves out of poverty and become consistent economic actors who see knowledge as a commodity for the future.

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6