Informal food markets as platforms for sharing aspirations and frustrations

An under-appreciated advantage of African informal food markets is how they allow farmers, traders, consumers and other actors to emotionally participate in business and change processes through sharing their aspirations and frustrations. The same cannot happen in formal markets like supermarkets and formal manufacturing industries where farmers just deliver commodities and wait to be paid after weeks if not months.

emkambo.JPG

Some of the enduring frustrations among African smallholder farmers participating in formal marketing systems is absence of profit-oriented budgeting. For instance, it remains largely unknown how much a farmer should put in to earn a profit in potato production from different production zones. Such insights cannot be generic but have to be tied to specific markets like processors, food chain stores or informal markets. Due to this loophole, some buyers end up offering low prices, citing invisible costs incurred along the value chain. Ideally, all production elements should be put together and reveal different scenarios. That is why a system of managing, tracking and updating production budgets for different contexts should be put in place.

Expanding price negotiation mechanisms

In additions to issues mentioned above, the majority of African smallholder farmers do not have mechanisms for price negotiation, taking into account issues like distance, road networks and other factors. A budget for farmers in Mazowe should be different from that for farmers in Nyanga, especially when they sell to the same market. Nyanga may require different inputs from Mazowe in ways that make both places profitable in different ways. The cost benefit analysis in different production zones can provide a meaningful Return on Investment (ROI) for farmers in the different areas.

Spending time in the market enables farmers to identify and define details surrounding market dynamics and see opportunities that drive positive agricultural change. Through regular presence in the market, farmers and other value chain actors are able to anticipate challenges and opportunities coming down the pike and respond proactively. For instance, an impending drought van be picked from frequent discovery research exercises in the market. That is also how under-appreciated facts about ways in which agricultural food systems function can be surfaced. These hidden facts include how potatoes and onion are becoming staples, thanks to increasing urbanization as well as new tastes and preferences of the young generation who now patronize fast food outlets.  Exposure to the market also enables all value chain actors to realize how markets can be vital sources of wealth, prosperity and social values on a larger scale.

Opening more avenues for growth and progress

While rapid changes in consumer tastes and preferences are triggering demand for diverse foods including natural commodities, most African countries do not have proper systems for aggregating, packaging, preserving and distributing different foods. With informal markets playing a major aggregation role, developing countries are being forced to characterize and categorize food traders into:

  • Micro to small traders and food suppliers – catering for subsistence and household consumption.
  • Medium traders – catering for supermarkets, fast food outlets, small scale processors and other smaller markets.
  • Large scale traders – catering for large scale processing industries, triggering exports while also satisfying national food security aspirations. Large scale traders (big pushers) go as far as supporting production, aggregating at source and supplying other markets.

Insights from diverse agricultural markets show that this arrangement will create a graduation pathway for different classes of farmers and traders, who can be registered according to credible socio-economic criteria.  Farmers who want to work with informal markets and vendors will be able to know the required volumes as well as absorptive capacity. This will inform planning for consistency in supply and introduction of a Warehouse Receipt System (WRS). Although the transaction process for large volumes can take up to 60 days, farmers can still access inputs if their commodities are already in the market pipeline through an efficient WRS.

Towards a fluid WRS

The WRS should not be understood as merely a physical structure where commodities are piled up. It should be understood as a fluid system in which commodities are always in transit from production zones to different classes of consumers and end-users. In almost all developing countries, the cost of aggregating commodities for upstream value chain actors is very high due to pockets of disintegrated production. Being on the market, traders are strategically positioned to connect with other value chain nodes. Different categories of traders can be matched with appropriate classes of farmers. All these critical actors need to be profiled with such information informing farmer characterization as well as appropriate production zones and their capacity to meet the demand side.  That way, informal markets are empowered to promote market-oriented production as opposed to supply-driven production.

A solid system for collecting orders can be set up around traders already in the business. The whole process can be anchored on rebuilding value chains from informal markets. Currently, the playing field in informal markets is not bringing out the real potential of African agriculture.  For ease of aggregation, there should be markets for large scale farmers. Lack of a system presents risks to processing companies who are always not sure if they are going to get adequate stock for processing.  Ideally, processors and contractors should just provide their specifications to farmers and traders who can go ahead to produce and mobilize commodities accordingly. Aggregators and packagers should do what they are good at while processors also focus on their core business. Once standards for each process company are codified and shared, processing companies will not struggle to get their requirements from the agricultural ecosystem.

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

Advertisements

Searching for balance in African food ecosystems

While it may not be the mandate of development organizations to build manufacturing industries in developing countries, pouring billions of dollars in agricultural production is not lifting people out of poverty. For every $1 billion invested in agricultural production, another $1 billion should be invested in agro-processing and other value added services to reduce losses and generate sustainable employment.


emkambo.JPG

Synergies between agriculture and other socio-economic systems

The structure of food systems in many African countries continues to be influenced by an enduring colonial legacy. For instance, a key feature of most sub-Saharan African countries has been a dual economy characterized by rural and urban economies, with the rural economy dominated by subsistence production. Instead of just concentrating on few staple commodities like maize, meat, milk and wheat, each country should be able to regularly map its agriculture landscape as part of a broader socio-economic context. That is how important overarching principles can be teased out from looking at the entire food ecosystem in terms of where it is coming from, current status and future direction.

 

For a long time, African rural areas have had their own food basket confined to basics like small grains and tubers like yams whose nutritional knowledge is rooted in local tradition. Exotic commodities like cabbages, onion and tomatoes were recent additions to traditional food systems. Tastes would only change if somebody went to a city where consumption patterns were driven by what was available in urban areas. Increasingly, cities were ( and have remained) the demand side of processed agricultural products like packaged maize meal, cooking oil, slaughtered cattle or chickens, with most products found in shops. To a large extent, the urban economy was an industrial economy focusing on processing and manufacturing of different commodities.

 

From a consumption perspective, rural consumers would eat processed products like bread or baked beans during the festive season like Christmas holidays. That is how rural consumers acquired new tastes for processed foods like Jam, Margarine, tinned beef and exotic fruits such as apples and oranges, brought by relatives who worked and lived in cities.

 

On the other hand, in countries like Kenya, Zambia, Zimbabwe and South Africa, colonialism created a  separate economy in the form of large scale farms, neither rural nor completely urban.  This economy produced huge volumes of agricultural commodities for the manufacturing industry and exports. Most commodities produced by large-scale farmers went to processing and manufacturing industries in cities from where finished products would be sold in retail shops and supermarkets.  Large farms also produced non-food commodities like flowers which were exported for foreign currency, enabling the country to trade with other countries.

 

Responses to a disruptive economy

Economic Structural Adjustment Programmes (ESAP), a few decades ago, triggered the birth of the Small and Medium Enterprises (SMEs) sector as those retrenched from large manufacturing industries used their exit packages and pensions to set up new business. As employees left formal employment to start their own businesses, experience, knowledge and skills were transferred from large industries to the SME economy. Different classes of people took their passion, capabilities and skills into the SME sector – constituting a new business class.

 

On the other hand, the expansion of formal education in the form of schools, colleges and universities increased literacy levels. It is known that literacy plays a central role in in creating social classes and that meant formal education produced lecturers, engineers, managers, business owners and others, with different food tastes and needs. Although ESAP was blamed for destroying some African economies, it gave birth to new opportunities for people to innovate and create new enterprises. During the same period, investments in infrastructure like rural electrification supported the expansion of SMEs into previously marginalized rural areas.

 

Decentralization of knowledge, tastes and consumption patterns

The emergence and growth of SMEs has significantly defined consumption patterns. Some SMEs have taken the role of manufacturing, processing and value addition. There has been was marked decentralization of knowledge, skills and business activities to smaller towns, growth points and business centres. This transition has happened together with consumption patterns as food systems have followed the SME sector wherever it blossoms – integrating consumption patterns in the SME ecosystem.

 

Prior to the evolution of the SME sector, companies and industries used to define consumption patterns of the working class through canteens where menus were set to meet demand during working hours.  At least 90% of working class people spent much time at work where they did not have much choice in terms of food compared to SMEs where food choices are broader and flexible. In countries like Zimbabwe where land reforms have happened, there has been an unbundling of knowledge and skills previously confined to farms. Food production patterns have changed based on knowledge, skills and resource capabilities. As smallholder farmers respond to unpredictable climate change, they grow short cycle crops, most of which are part of horticulture.

 

Changes in food markets

Previously, food markets were dominated by supermarkets and food outlets, catering for the upper class and hotels. The working class was catered for by small shops and established markets stalls like vegetable markets set up by municipalities in high density areas.  On the other hand, the greater population of people stayed in rural areas and rarely came to cities. Following ESAP and the growth of the SME sector, there has been a marked expansion of informal markets, located close to the SME sector.  These food markets have evolved to save all classes of consumers ranging from low income to upper class.  Informal markets have become part of the new economy with a broader food basket.  Each African country has more than 50 food commodities comprising fruits, tubers, vegetables, legumes and field crops for different classes within the sector and their households.

 

In addition, while in the past, demand for food was defined by month-end, in the SME sector money circulates every day and that influences consumption habits.  This means production and supply have to be consistent in order to meet these new needs. The informal market has to meet the demands of 70% of the SME working class from which demand is consistent for 80% of the time.  The substitutability of commodities is no longer defined by levels of income but by consumer tastes and preferences as well as nutrition and health consciousness. Consumers are becoming aware that lacking specific nutrients can become costly in the form of family members seeking medical attention due to deficiencies in specific nutrients and vitamins.  That is why most households are now paying attention to what is in the food basket.  The market has responded consumers get something within their income. This is visible through different measurements and grades. Supply has also responded to this consistent demand for different food commodities.

 

Enduring gaps

Big issues in African food systems include the fact that consumption patterns remain uncodified by different emerging consumer classes, age, income, location, income, wages, work types and other determinants. Knowing the number and unique characteristics of existing consumer classes should inform each country’s nutrition basket and entire agriculture sector.  Policy makers and development agencies will also become aware of the extent to which, by continuously promoting maize in the face of changing consumption patterns, they are earning the correct Return on Investment (ROI). Addressing such issues will inform agricultural policies and practices in ways that sustain farming as a business.

 

In addition, requirements of the expanding SME economy should inform agricultural support in the form of hand-outs, training and infrastructure rehabilitation like irrigation schemes. Critical questions to be answered include:

  • What is the relationship between informal markets, supermarkets, hotels and regional markets?
  • Where are hotels sourcing food? Are the markets competing, complementing or duplicating each other?
  • What are the value chain nodes within markets? For instance within the processing industry, who are the micro-processors, medium processors and large processors? Are they competing or adding value to each other?
  • On the production side, what is the relationship between different classes of farmers like communal, resettled and large scale commercial farmers? Are they competing or adding value?  Who is growing what and for which market?  Production and supply patterns cannot continue to function in an ad hoc manner.

Articulating value chains within value chain nodes will enable traceability and ensure food safety, which are pre-requisites in an integrated global economy.

 

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

Unless know-how is evenly distributed, development will remain a dream

In addition to enabling the exchange of valuable commodities, African informal markets provide a remarkable environment for examining the relationship between knowledge and societal benefits. It is from that vantage point that eMKambo is beginning to see the limitations of conventional formal education systems and scientific research. An increase in the number of schools, colleges and universities in developing countries is not leading to an even distribution of know-how, which is more than knowledge. It is through know-how that knowledge is put to work in the real world. Know-how is how scientific discoveries become routine medical or veterinary treatments and how inventions like grinding mills become services that change lives in rural communities.

emkambo.JPG

Uneven distribution of know-how

While digital technology is increasing the capacity of individuals to share their knowledge, it is far from reducing the uneven distribution of know-how in most developing countries. If it was easy to distribute know-how evenly, developing countries that have a world class aviation industry like Ethiopia and South Africa would easily transfer aviation innovations to other national areas like poverty and malnutrition. Why are developing countries that can manufacture vehicles and harness the enormous power of digital technology not able to address the devastating effects of basic agricultural diseases like Anthrax, Theileriosis, Fruit Fly, Army Worm and Tuta Absoluta? In spite of good intentions and exposure, why are development actors, financial institutions and governments not able to solve basic challenges?

It is difficult to understand how extraordinary geniuses who can make a plane that carries 500 people in the sky for 10 hours are not able to produce innovations that can deal with basic diseases like typhoid or decisively address drought. If know-how was evenly distributed, countries with talented geniuses who can successfully conduct complicated surgery would easily solve social problems like squatter camps, dirty water and nutrition insecurity. Know-how enables people who have not gone through formal education to come up with innovations that can defy logic.

From knowledge to know-how and how informal markets are ahead

Assessing and comparing the state of know-how between communities and countries will assist in getting to the bottom of development outcomes. When you look at knowledge without going deeper to examine know-how, you can come up with wrong assumptions and reward the wrong things. While knowledge can be measured by the number of people who attain degrees and PhDs, know-how looks at beneficial things, products, processes and services that are produced from that knowledge. Most developing countries are still stuck at knowledge and wonder why their investments in formal education is not yielding results.

On the other hand, African informal markets show the merits of working with know-how not knowledge. Brilliant artisans who can make amazing products and fix complicated problems can be found in the African informal sector, sometimes called the Small and Medium Enterprise sector. Unless developing countries focus on know-how, they will spend billions of dollars on knowledge that will never be turned into know-how. Many academic researchers are not creating new knowledge but repackaging the same old knowledge. In other words, recycling ideas from peer reviewed papers will not create relevant new knowledge.  Informal markets reveal how it makes sense to find a person who knows what you need to know rather than search volumes of uncontrolled content on corporate intranets or in academic publications. In spite of the hype surrounding digital technology, technology alone will not suffice because people prefer to connect with other people rather than with data bundles.

The magic of know-how is a core of reliable action that can be standardized and improved over time. Informal traders who have been in the market for generations have standardized their measurements, processes and vocabulary into a core of reliable actions that enable the informal market to survive any catastrophe. Know-how is about the tools and processes communities develop in order to act and think better. Once traders find a common cause in a reliable practical solution, they rally around it in ways that advance their collective interests. That is how they distribute know-how much faster than formal branded events like science symposiums, agricultural shows, training in farming as a business and other famous approaches. For a new tomato variety to be accepted in a new market, many people including farmers, traders and consumers have to cooperate and converge around the new variety.

 Science and Technology is not enough without know-how

While developing countries have embraced the notion that science and technology is a magic bullet in solving most of their problems, informal markets have good examples of know-how in action. If policy makers use the informal sector to understand human know-how, they will be able to identify new ways of generative progressive solutions where technological fixes do not exist. A better understanding of know-how can help communities, development agencies and policy makers to think more strategically about problems like reducing poverty, addressing unemployment, improving public health and reversing climate change.

Rural communities and informal traders have learnt to find ways of deploying their human know-how and effectiveness without technological solutions. Know-how is at the core of how communities approach and address most pressing issues like outbreak of crop and livestock diseases. Harnessing know-how enables the African rural population to depend on indigenous healing knowledge for their healthcare. Unfortunately, that knowledge is in danger of extinction to due lack of documentation, low life expectancy where people die before transferring it to the next generation, as well as failure or reluctance by governments to incorporate it into the mainstream health system.

Towards a know-how based economy

Actors in the African informal sector have become experts in leveraging know-how and collective knowledge as primary sources of innovation. They have become aware that innovation is about connecting ideas to other ideas. Without know-how you cannot extract value from the land, water and other natural resources. All actors in the informal sector are knowledge workers supporting a knowledge economy where know-how is a competitive advantage. Through the informal sector, know-how or implicit knowledge moves from farmer to farmer, trader to trader and consumer to consumer within one ecosystem.

Critical lessons from the informal sector include the fact that effective communities are those which grow spontaneously as people come together to grow their knowledge about specific commodities. There is also increasing awareness that transparency is necessary if the markets are to leverage collective knowledge fully from a confluence of diverse perspectives in the entire market. Sense-making is done jointly by traders, farmers and consumers who hold many perspectives. Traders have enormous respect for knowledge from consumers because customer knowledge allows them to learn what is working, what is not working, and problems to be addressed. The relationship between value chain actors in informal markets resembles a single interconnected mind through which meaning is discovered.

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

African informal food markets as better expressions of democracy

African countries are full of human rights interventions that focus mostly on partisan political rights ignoring the rights of local people to produce their own diverse foods in ways they want.  Human rights should not just be enabling local people to access donated food. Evidence from African informal food markets show the extent to which diverse local food production systems constitute democracy, lived reality and resilience. If local communities are persuaded to shun their diverse food systems for a narrow range of hybrids, their democratic rights to produce and consume foods of their choice is undermined.  This is worsened by formal education’s obsession with hybrids at the expense of studying existing foods.  A majority of developing countries have an over-supply of agronomists and animal scientists who have studied a few exotic hybrids at the expense of a wide range of local foods on which the majority of populations have survived for generations. Democratization of local food systems is under threat.

emkambo.JPG

Achieving democracy through interdependence

By increasing access to a wide range of food types, informal markets increase choices and diversify sources of knowledge on different foods. Unlike formal monocultural food production systems, informal markets demonstrate how local food initiatives are interdependent nodes in evolving socio-economic patterns.  Farmers, traders, transporters, consumers and other actors who frequent informal food markets always explore ways of building bonds of connection within the entire informal food ecosystem.  They go on to build networks of solidarity where farmers and traders intuitively and instinctively collaborate rather than engage in cut-throat competition. By collaborating more than they compete, farmers, traders, transporters and other value chain actors co-create shared abundance and a rich food ecosystem.

The informal market as a source of collective wisdom and democracy

An additional role of informal markets is empowering the wisdom of all value chain actors in ways that leverage rather than eliminate diversity. By focusing on a few hybrids monocultural systems oversimplify the complexity of food systems. In pursuit of such a win-lose logic, commercial agricultural practices end up presenting local food systems as vying for supremacy with hybrids. That approach reduces a community’s overall collective wisdom by excluding minority foods, insights and energies, as well as evoking resistance from those who are ignored.

Although hybrids receive most of the attention from policy makers and development agencies, informal markets give space to minority commodities and related knowledge. To the extent informal markets mobilize value chain actors to engage their full diversity in creative ways that call forth greater shared understanding, they generate more democracy and collective wisdom. As part of furthering wiser forms of democracy, informal markets creatively use diversity and common ground to discover deeper and broader life-serving possibilities.

Where formal markets marginalize or dismiss minority food systems, informal markets gravitate towards holistic approaches that respect minority production systems and knowledge as critical aspects of a community’s entire food ecosystem. Malnutrition and food insecurity are not just a consequence of monoculture but also an indicator of failure by developing countries to embrace their fullest possible diverse wisdom around food. Paying attention to informal markets can enable policy makers to incorporate perspectives from minority food systems including what are often called orphaned foods yet they are a critical component of local food systems.  It is through informal markets that development agencies and governments can explore opportunities to transform minority food systems and related knowledge into deeper insight. Taping into the value of minority food systems can uncover hidden needs, leading to shared understanding and wisdom. Through the informal market, choices by actors such as farmers, consumers, traders and others are processes of inclusion as opposed to exclusion.

Respecting the limitations and strengths of local people

In addition to demonstrating socio-economic resilience, minority agricultural commodities respect the limitations and strengths of local communities. In order to build a modern agriculture-driven economy, a commitment to tracking consumer tastes and preferences cannot be over-emphasized. Such efforts will lead to the evolution of different niche markets that can sustain local economies, translating to real value for money and better Return on Investment (ROI). In the absence of market evidence like volumes of diverse commodities consumed locally per given period and the kind of consumers, it is difficult to know the return on investing in different kinds of agricultural commodities.

Besides decentralizing advantages by allowing farmers and all value chain actors to verify information and exchange value, informal markets have enormous capacity to nurture commercial confidence in local food systems. These markets also lower the cost of experimentation for farmers and other value chain actors. As informal markets expand agricultural ecosystems, they aggregate millions of customers across different cultures. The value of each informal markets as an ecosystem is closely tied to interdependent nodes that satisfy needs of diverse consumers. That is why farmers who frequent informal markets are better empowered  to navigate new cultures and anticipate obstacles.

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

The sum of community knowledge is greater than the sum of individual expert knowledge

While it is true that community knowledge is broader and deeper, most African farming communities hesitate to make decisions without consulting an extension officer.  The need to cross-check and verify facts through an extension officer can be counter-productive if it causes farmers to stop experimenting and learning from their innovations. Surveys by eMKambo over the past three years have shown how smallholder farmers with less exposure to formal extension officers innovate more and are more confident of their own knowledge than those running to extension officers for every bit of advice. However, some farmers who figure out answers on their own tend to look down upon extension advice even in cases where it would be important to confirm existing knowledge.

emkambo

Expert opinion versus evidence synthesis

The brain drain has not only affected developing countries who have lost the best talent to the developed world. Rural communities in developing countries have also lost their best talent to urban centres, the same way government institutions have lost the best talent to development agencies. Some of the most critical skills that have left rural areas for cities is the capacity to gather and synthesize local evidence into reliable knowledge. Short-term capacity building efforts like training in farming as a business or marketing initiatives introduced into communities by private companies selling seed or livestock breeds cannot build sustainable knowledge pillars without foundational pillars of knowledge like formal education systems. It is like planting seed when the soil is not ready. This is visible through communities’ excessive reliance on expert opinion from extension officers, veterinary doctors and nurses even on practices that should be very basic.

Although the sum total of community knowledge is way greater than that possessed by individual experts, several agricultural and rural development initiatives continue to be based more on expert opinion than on syntheses of existing knowledge. Local communities of practice that can consolidate existing evidence into practical procedures are lacking in most African rural areas. As a result, there is enormous depletion of knowledge and best practices that have kept the social fabric intact for generations. There is definite need for evidence-based agriculture and rural development. In the agriculture sector, this can take into account how farmers use pesticides so that corrective measures can be taken to ensure food safety for everyone. Simple tools for capturing, assessing and standardizing evidence on food safety should be developed and introduced to communities so such knowledge does not remain laboratory science.

 Linking evidence to reality on the ground

The way farmers use evidence should translate to improved outcomes like better yields, more money in the pocket and a nutritious livelihood. The definition of research should not be limited to activities by researchers in formal research institutes alone. Instead, the way farmers conduct their own research and generate useful evidence for improving their practices should be considered an extension of many shades of practical research. As long as what communities are doing improves production practices, enhances practical science, provides accountability and maintains the ethical responsibility of farmers as researchers, it should qualify to be called research. That means, when governments set aside research budgets they should not just consider formal research stations but ordinary communities’ appetite for research and evidence generation. This can be the best way of decentralizing advantages for positive impact on development.

Empirically supported agriculture and rural development are an integral part of a knowledge economy. Assessing a community’s readiness to accept new ideas requires practical research in the right context. Farmers who receive an empirically supported seed variety or livestock breed get significantly better yields than those with no access to such advantages.  However, the main challenge is fragmentation of manuals among government extension services, development agencies and the private sector with no point at which the manuals can be distilled into a single user-friendly practical tool.

On the other hand, strategies for teaching evidence-based interventions are falling short, with little evidence of transfer between the classroom and the workplace or the research station to farming community. While extension officers can learn the rudiments of an intervention at college or university, it is in the practice context that they will develop their knowledge and begin to shift their approach. Methods of teaching evidence-based practice need to change, to become more routed in the practice environment within a community of learners. The sum of the community’s knowledge is greater than the sum of individual agricultural practitioner’s knowledge. As the collective of the group advances, so too does the individual’s knowledge. Knowledge acquisition within the context of a community of practice fosters continuous learning and shape the way communities adapt to new approaches.

 

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

Revisiting the role of informal markets in distributing income

Informal markets have existed for centuries, as contexts where communities make sense of their resources and exchange value. However, urbanization has given these markets a more pronounced role particularly in meeting the needs of different classes of consumers and farmers. In many African countries, informal markets are the fastest ways for transferring income from buyers or consumers to farmers.

emkambo

Where formal institutions like processing companies and supermarkets take two weeks to a month to pay farmers, informal markets pay farmers promptly. That is very important because farmers do not have control over external factors like rainfall, input prices, dry spells and droughts which cannot be managed through longer payment periods. Unfortunately, financial inclusion efforts are trying to foist an employer-employee mindset on smallholder farmers and informal markets when that is not how actors want to relate. While Point of Sale (POS) machines are ideal for formal actors like supermarkets, policy makers and financial institutions have not developed systems for farmers, traders and transporters whose transactions are based mostly on relationships. Trying to force farmers and traders into a formal financial system without taking into account several unique elements is proving counter-productive.

The informal agriculture market as a bank

To the extent each informal market has a certain amount of money in circulation all the time, farmers use their commodities to withdraw money from the market. Likewise, when traders buy commodities from farmers in the market, they deposit their money into commodities until they get money from the next buyer. This deposit and withdrawal process goes on up to the end user. The entire process accelerates   development along agricultural value chains by avoiding barriers in transaction systems like those in formal systems. Where a farmer or trader would spend hours in a bank queue to get cash or make a transfer, in the market it takes less than a minute to do a transaction.

More importantly, where cash transactions happen between farmers, traders and transporters in the informal market, no charges are incurred. Conversely, where farmers and traders transact through formal banks, transferring money from a trader’s bank account into a farmer’s bank account would cost $5 through bank transfer, irrespective of amount transferred. There are also charges when using mobile transfer from one account to another. Given that a trader can do at least 100 transactions a day, using mobile or bank transfer will result in a lot of money going to the bank or Mobile Network Operator (MNO).  This money taken out through charges is no longer part of the commodity being traded or part of a farmer’s income. These charges are also passed on to several farmers, traders and consumers.

On the other hand, in the informal market, farmers get more cash from money in circulation. Markets have a much higher velocity of money (rate at which money changes hands) and this has implications on development. Where some formal actors keep money for 24 hours or more before hoarding stock, it means the money is lying dormant when it could be used to fuel development. If the farmer had plans to use $1000 from produce sales to buy inputs but it takes 30 days to get that money from a supermarket or processors, it means inputs worth $1000 that could have been instantly bought by the farmer lie dormant (ideal dormant locked by the transaction system).  The land on which the inputs were supposed to be used lies dormant for a month, same applies with labor and water which gets wasted, evaporates or the water tables become depleted with some water flowing along the river.

Delays in payments have opportunity cost implications along the value chains as well as resources. Not to mention business opportunities like missing orders. Some inconsistencies in supply are caused by delayed payment system.  These hidden costs derail development.  There is need for an assessment of how much money is locked in formal transaction systems per day or per week and implications in terms of business opportunity costs.  The recipient is not using the money and the depositor is also not using the money- so this doubles the costs.  Farmers are mindful of the opportunity costs and that is why they would rather go to the informal market. To stay relevant, banks should creatively tap into the informal market system

Informal markets absorb and reduce opportunity costs incurred along transaction systems. In most developing countries, financial systems are still colonial and have not invested in carefully segmenting clients or users. For examples, car sales and agricultural traders are subjected to the same transaction system. Car sales do not mind bank transfers because there are checks and balances undertaken before a vehicle fully changes ownership. But when it comes to trading of already ripened commodities in trading businesses like agricultural markets where the rate at which money changes hands is linked to the rate at which transaction takes place, different charges are needed. If charges are part of the transaction, they contribute a significant cost to the transactions.

Financial institutions should invest in segmenting markets for transacting purposes

One segment like agriculture markets, with many transactions processes per given period, should attract lower charges. Banks can still earn the same if not more revenue due to the number of transactions, riding on the volume of transaction rather than the value. At the moment, when selling a vehicle one can be charged $5 per transaction by the bank, same as someone buying a bucket of groundnuts worth $20 which is 25% charge.  If someone is charge $5 for a vehicle worth $5000 that is 0.1% and insignificant.

In the market, money plays its real role as a medium of exchange where, otherwise, there is a lot of commodities exchanging their value. A farmer can sell agricultural commodities for $100 and move on to the next stall to buy fertilizer worth $50. The movement of $50 from a commodity trader to an input trader remains the same as the medium of exchange.  But if the money goes through the financial system, $5 will be taken away and this means the role of money as a medium of exchange is undermined.  That is why in some parts of rural Africa, farmers and grocery stores have resorted to using commodities like maize to exchange with cooking oil with no need for money in order to preserve value.

Through charges, banks have become dangerous middlemen. Even if people invest in acquiring bank cards, they continue to be charged for unexplained services.  Mobile money is also associated with a lot of double charging, for instance, for a trader or farmer to do a mobile transfer, airtime is needed, which is another charge through USSD and other costs. Instead of adding value, financial institutions and mobile money service providers are subtracting value from farmers, traders and other actors who are walking way with less money compared to if they use cash transactions. In order to circumvent some of these issues, traders and SMEs have devised ways of locking money within their commodities ecosystem.

The market as a knowledge aggregator and distributor

Informal markets have invisible ways of aggregating knowledge from various sources, areas, ages and different gender.  That is why farmers who frequent informal agriculture markets thrive more than those who do not.  It is due to knowledge from the market, for instance, knowledge about tastes and preferences. The informal market also has an open feedback mechanism. If farmers go to supermarkets or formal companies, they will not get synthesized knowledge from diverse sources but a list of specifications provided in an arrogant, big brother mentality.

The pre-colonial economic model on which formal financing systems are based cannot be used to jump-start the new economy. What value added services can a farmer or trader get from the bank?  Informal markets are an example of selling a value. If you do not have a Unique Selling Proposition (USP) for your products you will not be able to sell. If it was not for formal employers who insist on salaries passing through the formal banking system, most African banks would have collapsed a long time ago. Very few workers would volunteer to have their money pass through banks where value is subtracted instead of being added. While formal systems are too rigid for the new fast moving network economy, informal markets have in-built flexibility to suit the fast-moving economy and ecosystems.  Unfortunately, there are still fewer systems for building knowledge from informal market ecosystems.

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

Building a case for decolonizing Agricultural Value chains

Identifying and explaining each agricultural value chain’s nodes is a better way of revealing the extent to which a value chain can lift people out of poverty and contribute to broader development aspirations. The longer the value chain, the more contribution to socio-economic development. Most agricultural commodities produced by smallholder farmers are characterized by very short value chains, although there is potential to lengthen such value chains. Some of these value chains have remained short due to structural reasons such as lack of local value addition technologies and related resources. As a result, farmers end up producing small quantities for the local community and spot markets.

emkambo.JPG

Another reason that prevents value chains from lengthening is lack of information about potential markets including the size of particular markets, requirements and levels of competition. This is often the case for indigenous commodities like goats, sheep, indigenous chickens, rabbits and many others. Since formal and concrete markets for these commodities have not been cultivated in many countries, the value chains only extend to the local community.  Opportunities for extending these value chains include setting up abattoirs for goats and appropriate technology for processing small grains in rural production areas.

 Lengthening value chains through value addition

Unfortunately, national policies in most African countries seem to support milling industries for maize, wheat and abattoirs for large animals like cattle at the expense of supporting the production and purchasing of small stock and small grains. Lip service also continues to be paid to the development of value added products from small stock, small grains and commodities like sugar bean, cow peas and sweet potatoes whose value chains continue to be from the field to the pot. Instead of letting these commodities consumed in a raw state, ways of extending the value chains through developing processed products and other multiple uses to move away from raw consumption are long overdue.  There is also scope for combining these commodities with other products to produce diverse food blends.

The story of non-consumables

Some commodities produced in African countries like Malawi and Zimbabwe have shorter value chains because they are non-consumables, for instance, tobacco.  Although praised for bringing foreign currency, tobacco travels from the farmer, straight to the auction floor with no other value added service at the farm.  Grading and baling cannot be called value addition in the true sense. Tobacco has only one market in the form of an auction floor with no other market at community, district or provincial levels for products to be extracted from the crop. In addition, tobacco does not even have a meaningful urban consumer base given that, in the case of Zimbabwe, only 2% is smoked locally. The product only comes back mostly as imported cigarettes and chemical derivatives, produced by the end buyer or tobacco processor.  Farmers do not participate in the most lucrative tobacco value addition processes.  Exporting companies and big buyers like China are the ones who value add and reap more benefits from finished products.  Farmers do not have a mechanism for semi-processing at source (in farming areas) – which is an important stage.

As if that is not enough, many African countries such as Burkina Faso, Malawi and Zimbabwe have been producing cotton for close to hundred years but there are still no simple technologies for separating cotton seed from lint at local level. Weaving cotton into yarn and cloths should be happening in production areas like Gokwe and Muzarabani districts of Zimbabwe. Absence of appropriate intermediate processing technology means cotton remains a colonial crop that African countries have failed to turn into a more powerful economic driver for local communities.  Situations where, after the delivering lint to companies, farmers stop participating in the value chain are not sustainable.  When companies buy cotton lint and disappear, it is difficult to talk of a cotton value chain. Keeping some cotton value chain nodes secretive from farmers implies cotton is not a real value chain.

How lack of technology shortens value chains

Due to absence of appropriate value addition technologies, some commodities with potential for developing long value chains are consigned to short and sporadic value chains. For instance, there is potential to process tomatoes into tomato paste, puree, sauce and powder.  But absence of technology along the value chain from community level, district or provincial level means tomato has a short value chain for most farmers. The tomato moves from the farmer to the consumer, with the trader in the middle.

When the tomato moves from the farmer to the consumer through the trader, what happens cannot be called value-addition. It is the same tomato changing hands with mark ups just catering for handling, repackaging and reaching out to the next level of customers. Ultimately, the tomato does not get the best returns on its investment as it is consumed before reaching the peak of its expected potential or value at each value chain node.  If the tomato farmer is able to semi-process, s/he can earn 30% more value. At the end of the day, a box of tomatoes will cost three times the price shared along the value chain. Currently, the end processor is the one who earns most of the value which is not shared.  The processor does semi-processing, preservation, packaging, wholesaling, distribution and retailing. Ideally, most of these activities should be distributed along the value chain, generating more value for actors and Value Added Tax for the fiscus.

The same applies to fruits

African smallholder farmers who grow fruits like oranges, bananas, guavas and mango are often surprised to see their fruits emerging on the other end as fruit juice or yoghurt when the farmers will have exited early on at the beginning of the value chain. The farmers become by-standers who stop participating in the benefits that accrue to their commodities. It appears the existing food processing and value addition system is based on a pre-colonial business model that was designed to prevent knowledge transfer along value chains so that farmers do not know what happens to their product after they have supplied it and been paid peanuts.  The same products come back to rural retail grocery shops. Where a farmer would have been paid $3/box of mango, $30 worth of mango juice comes back on the shelves of local retail stores. The farmer as a consumer is now forced to look for money in order to be able to by a product whose raw commodities s/he produced.

 How the problem extends to livestock

Crop and livestock farmers are struggling to buy stock feed when they could semi-process soya bean and sell crude oil for finished oil production while they remain with stock feed unlike following it in urban centres where the price will be much higher. There should be technology for farmers to semi-process soya bean into crude oil and remain with stock feed at community level.  Such semi-processing can easily happen at source. Of the $780/ton being offered for raw soya bean, how much refined oil and by-products will come from a ton of soya bean?

There is also no sensible reason why abattoirs are in urban centres when they should be in livestock production areas. It should just be a question of setting standards and cold chain so that slaughtering happens at source, for instance at cattle sales pens. This will create employment at local level and spawn other industries like leather tanning. If cattle are transported from Insiza to Bulawayo, employment is created in Bulawayo, with farmers going back to continue herding cattle.

Absence of processing technology and capacity is one of the main reasons why African countries are beset by rural to urban migration. People are following raw commodities from their rural areas and congregating at processing companies looking for employment. These people should be semi-processing their commodities at community, district and provincial levels, earning more income from their commodities. In addition to decentralizing entrepreneurship, value addition at source will de-congest cities. When value addition happens in farming areas, most of the income from value addition activities will be retained at source. On the other hand, when everyone goes to urban centres where value addition takes place, 90% of the cash end up circulating in urban centres as people who earn income and spend it in cities.  Most of these activities should be happening at community, district and provincial levels.

Need for passing on value chains

The colonial industrial institution has to be transformed. African economies have not developed a sustainable culture of passing on value chains to the next stage. All value chain activities are locked in one colonial system. Yet in the Western world, a car manufacturer does not manufacture all vehicle parts. He can only be a car assembly with parts coming from different parts of the country and the world. Poor attention to rural industrialization is one of the reasons African countries are failing to tap into the resource base and expertise in rural areas. Pressure is exerted on urban processing factories as employees pass on costs to the employer in the form of rentals, transport to work, transport for children to school and other costs.  If processing industries are set up in farming communities, rural areas and growth points, enterprises will be within walking distance for most employees and that reduces pressure on processing companies and utilities like water, electricity as well as road networks.

 

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