Invisible trends and emerging good practices in African Agriculture – 1

Attempts to use African agriculture as a catalyst for economic revival and growth have focused mainly on mechanizing production and luring young people into farming. While there is nothing wrong with such efforts, lack of attention to other agricultural value chain nodes has seen new commodity brokers and traders quietly setting themselves for success through picking their spots in agricultural ecosystems, finding the right partners, and leveraging their competencies to rewrite rules of food demand and supply, almost unnoticed.

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The evolving role of open “informal” markets

Through its work in African food markets, eMKambo is witnessing the birth of new value chain actors who are inserting themselves in agricultural ecosystems, filling the gap between formal and informal niche markets. Such niche markets stretch from household, community, restaurants/eating places, food courts, supermarkets and hotels. Some households constitute a certain class with a defined food basket (something akin to pick and go).

Besides transforming the way consumers, financiers and entire national agricultural industries view food, these fast, dynamic and ICT-driven commodity brokers are also changing the role of big, dominant informal open markets like Mbare in Harare, Soweto in Lusaka Zambia, Lideta open air street market in  Addis Ababa , Lilongwe Central market, Makola market in Accra, Mercado Central Market in Maputo and many others. These big markets are now being forced to use their convening power to aggregate commodities from diverse production areas including from other neighboring countries.

Redefinition of commercial commodity broking

Where supermarkets used to obtain commodities from contract farming models and a few registered formal commodity brokers, the increasing diversification of consumer classes and food preferences is spawning diverse small niche food buyers and suppliers.  Consequently, the new competitive environment is making it expensive for registered commodity brokers to accurately make sense of the needs of diverse consumer classes. To a large extent, commercial commodity broking has been broken into individualized smaller commodity brokers who understand niche markets and consumer requirements.

In addition to a smaller and well-defined distribution pattern, these actors use appropriate packaging features as per customer requirements.  This new class of commodity brokers comprise individuals who are networked, passionate about food and knowledgeable about food and nutrition. They also play an advisory role and bring knowledge in food science, nursing, nutrition and others professions which enable people to have their food and health in their hands. These agile commodity brokers are also connected through religious circles, work places and have networks within a certain class of consumers in specific residential areas. Some of the consumer networks are being built through social media platforms like Whatsapp groups that bring together people with the same interests – providing an opportunity for enterprising commodity brokers to introduce business cases.

Resetting agricultural competitive landscapes

Connectivity, through ICTs, and ubiquitous transportation is accelerating activities of these commodity brokers and enabling them to challenge traditional value chains and vertical integration arrangements that have traditionally created barriers for small actors with limited resources. As these actors jockey to deliver distinctive propositions to diverse consumers and end users at scale, they are building strategic relationships rooted in a deep understanding of underlying client needs and delivering commodities in ways that cut across traditional silos. What was once a predominantly vertical model organized around few value chain actor classes and well-defined functions is being transformed horizontally to build greater alignment with the needs of diverse classes of consumers.

By creating new layers of productive action within formal and informal agricultural markets, these new agile commodity brokers are triggering demand patterns from consumers to inform production. For instance, they are now influencing demand for high value commodities like ginger, peppers, garlic, broccoli, strawberries, baby marrow and others. From an aggregation perspective, these actors are minimizing the need for durable physical structures as the commodity brokers to move around identifying needs and mobilizing commodities.

While aggregation centres remain important, more fundamental is a system of tracking consumer trends, tastes and preferences through fluid pathways.  This is where a knowledge broker and catalyst becomes critical in lifting farmers from the weeds so that they negotiate and structure their relationships with consumers and powerful value chain actors. The absence of a catalyst or knowledge broker sees farmers continue to produce cabbages and leafy vegetables when consumers need high value commodities. Very few farmers are aware that tastes and preferences are now influence demand more than volumes supplied to the market.

Space for new winners among farmers and commodity brokers

In order to keep up with the pace of change, farmers have to build strong relationships with dynamic commodity brokers who understand the demand side at a granular level. While different value chain actors are doing what they are good at, they are unknowingly preparing the ground for the rise of innovative insurgents that are either establishing more specialized niches or forging productive alliances with bigger players like processing companies. On the other hand, the market on its own is not able to inform farmers about changes in consumer preferences without agile informal commodity brokers.

In the current scenario, there is no need for several aggregation centres but few large ones like Mbare which act like one-stop shop, big enough to enjoy economies of scale.  The smaller the market, the higher the fixed costs. What is more appropriate now is a big aggregation centre and many fluid distributors who can take commodities from the aggregation centre like Mbare or Malaleni straight to end users. Creating many aggregators within the value chain increases costs and double handling.

Food vendors already have their own market while the new agile commodity brokers are serving the middle class consumer between the poor and the very rich. These middle class consumers do not want to buy from the supermarket but also don’t want to go to Mbare while preferring the freshness of commodities associated with Mbare. The new broker is also satisfying middle class needs and offering food as a service.  They are also creating new partnerships and ecosystems. As food market trends continue to gain momentum and become progressively inter-connected, an accurate reading of the market and its potential has never been so critical for farmers and other value chain actors.

Providing a new gear for financial inclusion

The new agile commodity broker is joining together all modes of payment, within African informal open markets that are largely cash economies. Fast and fluid commodity brokers can get money from the bank, invoice big or institutional buyers, buy in cash from the farmer or use mobile money when dealing with farmers and traders. Through fluid semi-informal activities, they scaffold inclusive financial models.  They are also linking with exports through adjusting local commodities to suit regional and export markets. In Mozambique, the famous traders called Muqueristas are adept at catalyzing regional trade.

 

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

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

Mobile numbers: 0772 137 717/ 0774 430309/ 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Why linking farmers to the market is not enough

In spite of millions of dollars that have gone into market linkage initiatives in developing countries over the past few years, farmers still struggle to sell their commodities profitably. Post-harvest losses have not gone down, gluts continue to alternate with shortages and relationships between farmers and processors have not improved. This suggests market linkages is half the story unless the entire agricultural ecosystem including financial liquidity in different markets is fully understood.

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The ‘myth’ surrounding farm gate price

One of the critical issues that has not been solved through market linkages is the difference between farm gate price and market price. This is not only vexing smallholder farmers but some of the most sophisticated commercial farmers often struggle to determine their farm gate price in ways that ensure profitability. The notion of farm gate price does not seem to exist in most smallholder farming communities because each farmer may have a different price depending on distance to the main road and local markets, among other factors. Many farmers who call eMKambo asking for prices of different commodities use feedback from such enquiries to try and set their own prices.  This implies farm gate prices are not readily available but externally-determined in ways that expose farmers to manipulation.

Profit-oriented budgeting as instrument of negotiation

Disputes surrounding contracts between farmers and contract companies stem from the fact that contractors have most of the information for accurate decisions making. For instance, they know their profit margins while farmers are not privy to most of these details.  Ideally, market linkage interventions should ensure farmers have their own negotiation instruments which they pull out when negotiating contracts with private companies. Since most farmers do not have information on up-markets and the entire agricultural ecosystem, this fuels their suspicion that whoever comes to buy from them is going to make a killing through abnormal profits.

In an unregulated market, middlemen cannot resist the temptation to take advantage of uniformed farmers. There is need for a partnership model in which profit-sharing models are embedded, clarifying information about formal and informal markets. The open market tends to be more transparent than other markets because everyone can see what is going on. If the price is unviable farmers cannot force a trader to take more than 20 crates of tomatoes.

All contracts should have enough flexibility that takes into account market variations. The time lag between signing a contract and marketing should be carefully factored in. This issue can be legislated to accommodate price variations. For instance, it can be set at between 10 – 30% such that if the market goes down, farmers can receive 10% bonus and if it goes up, farmers can receive 30% bonus. This arrangement should also consider other external factors like inflation, costs of inputs during production and other variable costs. For instance, the cost of labor can suddenly increase and affect the original contract.

Benefits of fluid budgets that accommodate the changing economy

At the moment, it is not known how much a farmer should put in to make a profit in potato production from different production zones.  Budgets should not be generic but tied to specific niche markets like processors, food chain stores or informal markets. Some buyers end up offering low prices due to costs incurred along the value chain.  All elements of production should be put together and scenarios provided, taking into account different elements. For instance, farmers should look at options in case they see viability in providing their own transport, packaging and different sources of labor.

In almost all African countries, crop budgets are set per hectare without looking at other elements that are sources of differentiation. Budgets should be fluid to accommodate the changing economy.  For instance, fuel and electricity costs keep changing and this should be factored in. On the other hand, farmers who do not use electricity to irrigate have different costs from those who do and that translates to different profit levels.

A system of managing, tracking and updating production budgets for different contexts is important. The return on investment (ROI) in each production zone should be clear. Currently, there are no elements or mechanisms for price negotiation or control in horticulture, taking into account issues like distance, road networks and other factors. In Zimbabwe, a budget for Mazowe and that for Nyanga cannot be the same if the commodity end up sold in one market like Mbare in Harare.  However, Nyanga may have superior climate like good soil and technology for potatoes compared to Mazowe, such that even if Mazowe can be closer to the market, Nyanga farmers can still compete and be profitable.  Nyanga may require different inputs from Mazowe in ways that make both places profitable in different ways.

Farmers should be empowered to evaluate information and knowledge for correct decision making. The breadth and depth of existing knowledge networks from production areas to diverse markets should provide a stronger social safety net for farmers. Different markets can provide dependable information nodes and networks where it is possible to know demand patterns of various commodities. Consumers, farmers, transporters, small scale processors, caterers and other actors would not be flocking to informal open markets if these markets were not dependable.

The significance of understanding different transaction modes

Beyond market linkages, classifying niche markets can enable farmers to make sense of different  transaction modes. While the open market tends to prefer cash, different transaction modes have their advantages and disadvantages. A buyer who pays farmers after 30 days gives consumers time to buy. It takes 30 days for traders and retailers to pull income from different consumers and put a little mark-up. The time lag between selling and consumption has to be understood by farmers, most of whom want to be paid immediately and pass on all risks associated with the slow movement of commodities to traders.  The trader ends up waiting for consumers to buy before returning to farmers for repeat purchases.

Why should financial institutions understand these market dynamics?

Financial institutions need to understand these dynamics if they are to remain relevant in agile agricultural ecosystems. For instance, they need to know that aggregators or traders who buy agricultural commodities from diverse farmers and supply in bulk also require long-term finance so that they can sustainably satisfy different niche markets. Such long-term financing should have a component of exploration. A trader should be able to use that money for market research like visiting regional and international markets to find out gaps and needs. Unfortunately, at the moment, most financial packages in Africa do not have a component of exploration and capacity building. The assumption is that the borrower has already done research using his or her own resources yet circumstances are rapidly changing such that continuous evidence gathering will benefit every actor.

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

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

Mobile numbers: 0772 137 717/ 0774 430309/ 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Questions that must be answered before poor countries import or export food

In the absence of evidence-based agricultural policy formulation and implementation, most developing countries always rush to import food without sufficiently understanding their national contexts. During gluts, farmers in areas where fruits are produced in abundance do not benefit from selling nationally compared to when there are shortages.  On the other hand, when the price of a commodity goes up due to shortages, we cannot conclude that farmers are getting good prices because such supply shortages may result from the seasonality of the commodity.

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As long as policy makers are not able to spread the supply of a particular commodity around the country, decisions to import that particular commodity will be uniformed. That is why market-oriented budgeting is critical in showing the best price for a farmer to break-even, indicating excess or shortages of different commodities. Unless we know the best price for an orange or tomato, it is difficult to see if farmers are incurring losses or earning profits. Equitable distribution of horticultural commodities across the country can show volumes during gluts and how much could be preserved to cover shortage periods.

Supply side considerations

On the supply side, there is definite need for evidence before deciding to import commodities. Important questions include: What volumes of commodities are being produced and consumed at household and community level and what surpluses are finding their way to the market?  To answer this question, farmers and value chain actors should keep basic records to show supply trends from different production corridors.

Most African countries are famous for producing a diverse range of commodities, mostly during different seasons. The commodities range from different types of livestock, crops such as small grains, legumes (beans, groundnuts, cowpeas, etc.,), fruits (exotic and indigenous), vegetables (exotic and indigenous), maize, wheat and non-consumables like cotton and tobacco. These commodities are produced on different land sizes from communal, resettlement, large scale to large estates.  A critical question is what role does each type of land play in producing food before a country decides to import or export food?  Unfortunately, it seems African countries have not invested in clearly aligning production systems to land sizes.  A large estate can be seen producing cabbages that should be produced in the backyards of peri-urban dwellers or gardens run by rural grandmothers.

In addition, each country has different agro-ecological regions that support the production capacity of various commodities. For instance, some regions are associated with horticulture while other are known for fruits and yet others famous for livestock. This categorization provides a broader picture showing the way supplies of different commodities can be organized. Some regions have high production capacity for specific commodities. Regions with lower production capacity for particular commodities are the demand targets, ensuring better returns locally. Once a commodity is in abundance, it does not have a market where it is produced abundantly. For instance, in Zimbabwe bananas do not have a market in Honde Valley.

Since most African agricultural production patterns are seasonal due to the natural characteristics of different commodities, no matter, the amount of research exerted, commodities like small grains cannot be grown during winter in East and Southern Africa.  Wild fruits, due to their natural characteristics, are always in and out of season. The availability of irrigation can see some commodities like green mealies being grown all-year round. The potential of irrigation to address seasonal availability of food is now well known but not fully exploited as countries feel more comfortable to import food at the slightest sign of food shortages.

Demand side imperatives

The majority of African countries are witnessing a growth in different socio-economic classes and this is driving changes in consumption patterns, tastes and preferences. These tastes and preferences can be further broken down according to age, gender, health consciousness literacy and location.  High mobility within the local population is also creating and expanding markets for different commodities. For instance, people who come from Chipinge district of Zimbabwe where they grew up eating yams called Madhumbe but now stay in Harare have created demand for Madhumbe in Harare. Those from Muzarabani district where they grew up eating Masawu and now live in Bulawayo have promoted the consumption of Masawu in Bulawayo, cultivating a new market for the commodity.

Another telling trend is rural urbanization. With urbanization spreading to rural areas across Africa, most facilities that used to be a preserve of cities are now found in most rural areas. Such facilities include electricity, transport networks, food processing enterprises, retail businesses and other services that are creating wage employment in rural areas.  Financial institutions like banks and micro finance institutions are also picking their spot in rural areas.  All these trends are influencing consumption patterns in rural areas. Given this shifting landscape, there is need for decision makers to answer these questions:

  1. What are the price trends in different markets? This should inform a comparative analysis between prices in different markets, for instance the price of banana in Mutare and Bulawayo versus sources like Honde Valley. Tracking prices and sources will show the highest and normal price of a commodity.
  2. What are the break-even prices for different commodities? If there was an alternative market, which commodities would fetch better prices or economically reasonable prices, assuming there are markets where prices tend to be high?  What is the benchmark that can be used to compare prices in different markets?  After removing all marketing-related costs, it is possible that a box of banana that costs $3 in Mutare, fetches $15 in Bulawayo.  Unless we know bench mark prices that can enable farmers to earn profit, sustain or grow their business, it is difficult to tell which price is good or bad.
  3. What is the effective demand for different commodities? This refers to consumers’ willingness versus ability to buy a commodity.  Demand is not just general but related to consumers’ ability to afford a commodity because they have income that enables them to obtain commodities in line with their tastes and preferences.
  4. Who are the customers for different commodities? We cannot say everyone is willing and able to afford an orange. That is why consumers are defined by class, gender, location, age, ethnicity, religion, income class and other factors.  Not everyone wants to consume small grains, even if they may have income to afford small grains. That is why consumers have to be carefully categorized in order to create a food basket for different classes of consumers.  It is not just about importing food without understanding consumers.  If you are going to import wheat or grapes, which consumer group are you targeting?  Otherwise, you can spend foreign currency importing commodities for a small class of consumers who can even afford to import their own food. In a poor country like Zimbabwe how many consumers are interested in the importation of wheat?

The power of understanding all year round distribution and consumption patterns

In the event of a commodity’s price going beyond the reach of specific consumers like poor people or a commodity being out of season, what are the close substitutes?  If orange prices go up, what fruits do consumers buy in order to get the same satisfaction for the same budget?  The right questions can see consumers mentioning alternative substitutes and reasons for their choices.  Unless we understand all year round distribution and consumption patterns of different commodities, we cannot make informed decisions regarding exporting or importing food. Would consumers consider processed or preserved products of the same commodities and get similar satisfaction?  Since there are times when mangoes are in a glut, if we dry or produce juice during those periods, would consumers get the same satisfaction if the processed products are availed during shortages?  Would biltong give consumers the same satisfaction they get from fresh beef?

Have we exhausted all distribution channels for particular commodities to a point of at least getting break-even prices that enable farmers to continue farming?  Without such evidence, the country can import for one region or city when other cities and regions have gluts of the same commodity.  Are imports coming in as a way of outcompeting relatively high local prices due to shortages or high local cost of production?  Imports from South African may simply be attracted into Zimbabwe by higher prices being offered for the same commodity in Zimbabwe compared to South Africa.  It could be a cost push factor.  Shortages can be an advantage to farmers who produce consistently because there are times when they incur losses due to gluts and should be allowed to recoup their costs during shortages.

The cost-benefit analysis of exporting

If a poor country has surplus and considering to export, it is important to assess the cost benefit analysis of export different food commodities. Without this action, the excitement of earning forex can create local shortages, triggering increases in the price of local commodities.  We can unknowingly export potatoes but compromise the quality of local food (people eating junk low quality food when the best food is being exported). This can also compromise nutrition as necessities become luxuries.  What gaps are we creating as we export?  Is the foreign currency earned being directly channeled back into agriculture in order to improve agricultural competitiveness?  How do farmers benefit from their proceeds if foreign currency goes to the national pool? Why are tobacco farmers earning export returns in local currency when forex should be used as a store of value for their enterprises?  If farmers want to import chemicals, fertilizer and other inputs, they should be able to do it directly through their farmers’ associations than the forex being given to companies to import inputs on farmers’ behalf. When such inputs lend, they are more expensive as the importing companies want to earn more by charging exorbitant prices, way beyond the capacity of farmers to buy.

An important second action is determining steps being taken to ensure commodities move from high production areas to low production areas before we rush to import.  Managing the national distribution of food can translate to best return on investment (ROI) and ensure we tackle issues like nutrition and food security that ultimately affect the national budget if not handled properly.  As we distribute food, we need to rationalize food availability through equitable wealth and nutrition distribution in the form of food.  It is not ideal to leave communities in Binga consuming fish, those in Honde Valley consuming bananas and those in Chivi just surviving on small grains.

Food can really be a smart way of distributing wealth through commodities. There are limits to which development interventions and models from outside can solve local challenges. In as much as development agencies can pour money into district or provincial resilience projects, natural and external factors like climate change may set boundaries and limits of what can be achieved. Setting up agribusiness hubs in high production areas and close to food insecure regions can be a better solution than forcing dry regions to produce small grains, rehabilitate boreholes and keep livestock. What are the processing and preservation measures in place to cater for times of shortage and import substitution? Have we exhausted all processing avenues before rushing to import?  What infrastructure development plans are in place to ensure production and supply is consistent? To what extent have we reached the maximum capacity of our dams and irrigation schemes to the point of importing onions, oranges and apples?

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

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

Mobile numbers: 0772 137 717/ 0774 430309/ 0771 859000-5/ 0716 331140-5 / 0739 866 343-6