Blog Post

Improving Agricultural Value Chains

Better linking Africa’s rural smallholder population to national, regional, and international agricultural value chains is a key rural development and poverty reduction priority. Which types of interventions will be successful in improving such linkages is highly context-specific, however, depending on the country, the target population, and the specific product being marketed. In a new book , IFPRI researchers examine how to best evaluate and implement context-specific value chain development (VCD) interventions, with several case studies conducted in Africa south of the Sahara.

Chapter 4 discusses the use of contract farming, a system that has commonly been seen as a way to effectively link small rural farmers to the processing and wholesale nodes of agricultural value chains. As the chapter’s authors point out, however, contract farming has also drawn criticism from some researchers and development practitioners if larger firms use the contracts to establish market dominance to the detriment of their smallholder partners. The chapter looks at 20 econometric studies on the impacts of contract farming conducted throughout Africa south of the Sahara, Central America, and Asia

Under a contract farming arrangements, producers enter into pre-planting agreements with a buyer, who pays a certain price upon delivery of the agreed-upon quantity and quality of production. Studying a number of contract farming agreements in a series of developing countries, mostly in Africa south of the Sahara, the chapter finds that these arrangements function best and make the most economic sense for both buyers and producers in value chains in which: 1) the buyer is a large processor, exporter or retail chain; 2) the product is more perishable and has a high value-to-bulk ratio, and 3) quality is particularly important to consumers. Such value chains include fruit and vegetable value chains, commercial dairy and poultry value chains, and cash crop value chains, such as tobacco, tea, sugarcane, and cotton. Contract farming was generally not found to be as suitable – as economically justifiable and well-functioning – for grain production. This poses a challenge for smallholder farmers in developing countries, many of whom produce grains and other staple crops. The authors estimate that in most developing countries, only 1-5 percent of smallholder producers engage in contract farming schemes.

However, across the 20 studies and for both high-value crops and staple grain crops, the authors also found that entering into contract farming agreements raised producers’ incomes by between 25 and 75 percent on average, making contract farming an important pathway through which rural poverty can be reduced. The authors suggest that governments invest in ways to help smallholder producers move from staple crop production to move high-value crop production, for which contract farming is more effective. Their suggestions include developing effective grades and standards for high-value production; promoting public-private partnerships in agricultural extension services; promoting competition among agricultural firms; providing mediation services and third-party testing to help prevent farmers and firms from reneging on contracts; and establishing an effective legal environment to help enforce contracts. Such policies would allow contract farming schemes to be scaled up and help more smallholders take advantage of such schemes.

Chapter 5 focuses on livestock value chains and looks at several projects to help increase livestock producers’ access to fodder. Fodder scarcity is a significant challenge for producers in developing countries, limiting the amount and quality of animals they can produce and increasing competition for and conflict over scarce resources. The Fodder Adoption Project, implemented by the International Livestock Research Institute (ILRI), looked at innovative interventions to increase fodder availability in Ethiopia, Syria, and Vietnam from 2007-2010. Such interventions included using improved fodder seed varieties; combining food and feed crops in areas of food scarcity; using irrigation technologies as opposed to rainfed watering; engaging in intercropping of different fodder crops. The project also focused on increasing trust among livestock value chain actors (farmers, government agencies, NGOs, and private sector actors); this was found to be particularly important in Ethiopia, where the number of actors along the livestock value chain can be high (seven or more).

The project found that farmers who engaged in the interventions saw increased fodder availability throughout the shortage season; this led to increased productivity and production. In Ethiopia, where animals are also used as draught power, increased fodder also had a positive impact on crop production over the study period. This overall increased production was found to improve households’ food and nutritional status, as well as their incomes. However, the chapter’s authors point out that these benefits are highly dependent on the opportunities for networking and joint learning to educate livestock producers about how to improve fodder production, as well as on opportunities for market access.

Chapter 10 discusses the use of innovation platforms (IPs) in Africa which are essentially a series of meetings that bring together different value chain stakeholders to share their knowledge and find solutions to common problems. It is thought that a group of heterogeneous stakeholders may be better able to identify effective solutions than more homogeneous groups, such as agricultural cooperatives. However, as the chapter’s authors point out, the success of an IP depends on how well it is facilitated. Different stakeholders can be helpful in bringing different ideas and knowledge to the table; however, they can also bring conflicts of interest and a lack of cooperation, both of which need to be overcome by the facilitator in order for the IP to be successful.

Using evidence from a workshop held in Kenya in 2013, the chapter examines some of the key challenges that exist for successful IP facilitation in Africa, as well as solutions to overcome those challenges. One of the biggest challenges stems from the complexity of agriculture itself – successful agricultural production encompasses technological, institutional, infrastructural, and social factors. A successful IP facilitator will need to be well-versed in all of these issues in order to ensure that stakeholders can engage effectively with each other throughout the entire agricultural system.

In addition, the IP itself needs to be flexible as the needs of its stakeholders change. For example, in a livestock IP in Zimbabwe, market access was initially identified as a major limiting factor and so initial activities included involving buyers, transporters, auctioneers, and local government agencies responsible for regulating livestock marketing in the IP. However, once the local markets were established, stakeholders further identified production as a challenge; thus, the IP was expanded to include commercial feed suppliers. This example shows how the agenda and needs of an IP can change over time and how facilitation needs to remain flexible to ensure that the IP is focused on relevant issues.

The chapter also highlights the importance of ensuring that IPs do not just reinforce existing power dynamics in the region and of increasing women’s participation to enhance gender equality in agricultural value chains. In addition, IPs need to be regularly monitored and evaluated to ensure that they are functioning effectively, are sustainable, and are truly benefiting poor rural populations.  Finally, many developing countries will need to change their enabling environment in order to successfully scale up the use of IPs in agricultural value chains. This includes increased political will for such innovative public-private partnerships, as well as emphasis on developing human capital (especially management abilities).

There already exist a plethora of interventions designed to improve the inclusivity and functioning of agricultural value chains. In order for these results to be realized, however, VCD interventions need to be better monitored and evaluated and future interventions need to be tailored to specific populations and products.

By: Sara Gustafson, IFPRI