Enhancing Value Chains – Start at the Farm

Overview ConsiderationTramplingEthiopia

With the current interest in value chains and having smallholder farmers involved beyond the farm gate with the expectation of increasing their returns as a means of poverty alleviation, the concern has to be how far up the value chain can smallholder farmers profitable be directly involved. In doing a value chain analysis it must be fully appreciated that the further up the value chain you move the greater are the returns, but also the greater the expenses incurred. Thus the need is for the purely economic analysis of when the additional expenses exceed the additional returns. At this point the farmers or their organization representatives are better off turning the value chain over to others. Also, it has to be appreciated that if the farmers are releasing their produce on consignment to a farmer cooperative for advancement up the value chain, the further up the value chain the cooperative retain ownership the more delay before the farmer gets paid for the consigned goods. This most likely would be an important convenience consideration for the smallholder famers in a society that emphasis cash transactions. This would also run counter to a possible Financial Management Strategy that emphasis holding goods in-kind and only marketing what is necessary to meet immediate cash needs, but then requiring immediate cash payments. In addition care should be taken if the value chain is dependent on a cooperative business model, since for most smallholder communities the cooperative model has proven too Administratively Cumbersome and too inconvenient to attract a high degree of reliance by the members, who wisely take the bulk of their business to other service providers. Won’t trying to move further up the value chain increase the administrative requirements and thus make it even more cumbersome and possible attract even less reliance from the intended beneficiaries?

In addition, if it is appreciated that the smallholders work day may be restricted to 4.5 hrs. because of Limited Calories In Their Diet, the question become will they be better off concentrating their limited energy on enhancing the value chain at the farm level and out-sourcing any value added above the farm level, then trying to directly assist in any off-farm value added. Finally, it might be appropriate to look at the limited role value chains traceable from farmer to consumer play in developed countries. True in the USA there is Land o’ Lakes for dairy, Florida Natural for citrus and Ocean Spray for Cranberries all are cooperative value chains linking producers to consumers with national brand name recognition, but only Ocean Spray commands a majority share of its market, and this is a relative minor commodity confined to some very specific environmental conditions of acidic bogs found mostly in Wisconsin, Massachusetts, and New Jersey. In total value chains directly linked from farmer producers to consumers comprise well less than 1% of commodities on supermarket shelves, at least in the USA.

Farm Level Value Chain Enhancements

Despite the farmer having limited workdays, there are several way to enhance the value chain at the farm level where the farmers have the greatest control. However, most of these require an enhancement of the “operational resources” the farmers have to work with and the need for the development community to facilitate the different service providers that can provide the enhanced operational resources. Operational resources being what is needed to extend small plot research results across a field, farm or community and unfortunately often been overlooked by the development community with an underlying assumption they were infinite and thus not a problem. This has led to beautiful demonstrations of the potential of areas but with limited acceptance by the farmers and concentration on “teaching” farmers best management practices to achieve maximum yields, but not understanding the farmers just don’t have the means to utilize the information.

  • If the farmers workday is Calorie Limited To 4.5 Hrs. or perhaps even less for heavy digging needed for manual land preparation and this result in taking over eight weeks just to get crops established against declining potential yield with each day’s delay as well as prospects of running out of rain before maturity, then the first means to enhance the value chain would be to facilitate access to individually owned and operated private tractors for contract tillage. This will expedite the crop establishment and substantially increase the potential yields as well as freeing the farmers to concentrate on mid-season crop husbandry that can further enhance production.
    • This may actually be critical to any hope of poverty alleviation as if limited to 4 hour diligent work days and taking 8 weeks or more for crop establishment with yield dropping by 50% or more, it will be virtually impossible for smallholders limited to manual operations to dig their way out of poverty. It should also be noted that through much of the fully irrigated areas of North Africa and West Asia basic land preparation has been done through private tractor operators. Also, it should be noted considerable success of the “Green Revolution” could be attributed to the farmers shifting from water buffalo to power tillers.
    • Facilitating access to contract tillage might best be done by evaluating the prospects to Obtain & Recondition Used 65 to 80 Horsepower Tractors and sell them to individuals in smallholder communities that would drift out of farming to become full time contract tillage service providers and direct involvement in extensive farming would become a conflict-in-interest.. This would be even better for those with access to used Massey-Ferguson 165 or 265 as these are the preferred tractors throughout most of sub-Sahara Africa.
    • Also, the emphasis has to be on individual owners and operators while avoiding any form of communal ownership such as public sector parastatal mechanization unit or even farmer cooperatives. Communal ownership of anything mechanical has been discredited for over 40 years. Typical under communal ownership a tractor will be surveyed out of service with only 3000 of the design anticipation of 10,000 service hours. This can easily been seen at any state ADP (Agriculture Development Project) in Nigeria where there is a nice line-up of tractors surveyed out of service with only 3000 or 4000 hours on the odometer. That is if the odometer has not been broken, perhaps deliberately so the operators can avoid accountability as they engages in some private work. Also, be careful that communal owned tractor may offer some major opportunities for the operator and managers to engage in some informal income opportunities by giving priority to favored farmers in exchange for some gratuities while not servicing the smallholder farmers they were supposed to assist.
    • Facilitating access to contract tractors could be a major task for micro-finance programs and would require some major modification to current programs, but would allow for some downstream synergy within smallholder communities. The need may also be for two tier financing. The first would be the capital costs to cover the purchase of the tractor, estimated to be up to US$12,000 but for which the tractor could serve as collateral making it a secured loan. The second would be an operational loan that would allow operators to extend credit to their clients to be repaid at the end of the season, most likely in-kind and according to the normal rules for Informal Credit, that while quoted at usury 100% seasonal interest may not really be as exploitative as it appears.
  • Another prospect for enhancing the value chain at the farm level would be facilitating access to mechanical threshing service providers, which should increase the yield recovery by some 10 to 15 percent, compared to either hand whacking or trampling that just cannot provide a complete recovery. This represents production already available and included in any careful crop cuts, but lost in the initial handling of the mature crop. Trampling with animals can be particularly problematic as it will often allow urine and feces to contaminate the grain that could downgrade the market value, as well as pushing some grain into the ground where it will be particularly difficult to recover, except perhaps by allowing chickens to scrounge forage the area after threshing & winnowing and then consume the chickens.
  • Even though threshing is often done during the dry season with little alternative opportunity for labor and no rush to plant a second crop, the extra recovery should be enough incentive for mechanical threshing. This even blends itself to an in-kind payment in which the thresher owner could be compensated with 5 to 10% of the crop as has been done for several decades with rice in the Philippines. This is for the thresher and operator only, excluding the laborers involved with cutting and hauling to the threshing area. To include all the labor for harvesting and threshing the in-kind charge in the Philippines was 20% of the crop paid each day to the crew. If the percentage payment is less than the increased recovery the mechanical threshing will provide a net gain to the farmers independent of the reduced labor and time required. Also, the in-kind percent charges might actually be encouraged as it shifts the vested interest of the thresher operators from getting the job done quickly and moving on to the next client, to taking the extra time for a more careful and complete threshing as the operators share in the increased recovery. Typical threshers involved are the IRRI Axle-flow thresher, which is widely used for rice, but can be modified to accommodate other grains and beans, and the Turkish thresher that is widely used in Egypt for both rice and wheat. Once mechanical threshing is introduced the gleaners, that come in to pick-up the left over grain, will quietly disappear as there will not be enough grain left to justify their effort.
  • It should also be noted that most of the smallholder irrigated rice in Thailand and other parts of Asia is now combine harvested with small combines capable of operating efficiently in one rai (1/6th ha) fields and combining them in about one hour. With access to full all year irrigation there is an urgent need to expedite the whole harvest process which will reduce the conversion time for the next crop. In Thailand this has increased the rice crop intensity from two crops a year to five crops in two years.
    • Providing an opportunity for service providers to purchase mechanical threshers could be another important role for micro-finance with downstream synergy in terms of higher grain recovery as well as reduced drudgery. In this case the thresher could be used as collateral for the loan so it becomes a secured loan similar to the tractors. There would be no need for secondary loan to cover operating costs as this is at the end of the season, where immediate in-kind payments are possible and perhaps preferred.
  • A third means of enhancing the value chain at the farm and community level could be enhancing the quality by facilitating access to mechanical winnowing as the Initial Value Added. It seems unlikely that farmers, working with traditional winnowing baskets or other means of wind winnowing can effectively reduce the foreign material to meet the international standard of >1%. A standard needed for both local processing for consumer goods or export. This would be particularly true if using communal drying and winnowing floors where the winnowing could simply move the chaff and other foreign material from one farmers pile of grain to the next downwind neighbors. When the >1% standard is not meet the traders have little options but to discount the value of the grain to cover both the volume of the foreign material contained in the bags replacing some grain, as well as the time and effort it will take to remove it. The use of mechanical winnowers could be done at the village market where farmers typically sell their goods to traders to move further up the value chain. This is where the vested interest is greatest and the need sufficient to justify the costs.
  • Again there could be a role for micro-finance to assist in the purchase of mechanical winnowers, but this really not a large expense and traders might be able to justify them on their own.

Moving Up the Value Chain

Out Sourcing: Trying to have the farmers involved in enhancing the value chain
with value added activities above the farm level may need some serious review. If the farmers have limited energy so the work day is restricted to approximately 4.5 hrs. of diligent effort, the farmers will most likely be better off enhancing the value chain at the farm level, where they have the greatest control and vested interest, and then out-sourcing any value added, such as converting cassava to gari or parboiling and OutSourcingmilling rice. These are both labor and capital intensive activities that are mostly done by out-sourcing which tends to be the preferred means. The best example comes from Benue, Nigeria. Here there is a virtually abandoned FAO women income generation empowerment project to convert cassava to gari. While it stands abandoned immediately across the street is a private gari producing family enterprise operating at full capacity with the wife as the business manager (see photo). This family produces some cassava but buys most of it as they really no longer have time for extensive cassava production. Instead they buy from their neighbors who appear satisfied to concentrate on production and allow them to convert the cassava to gari. This is all on a cash basis and not consignment.

Similar things happen in rice with the parboiling and milling. Again in Nigeria this is often done in villages specializing in the process so traders will bring truckloads of paddy from the producers to the village, have it parboiled and mill, before being taken to the city market for direct sale to the consumer or consolidation and shipment to major cities like Lagos and Abuja. This can be on consignment particularly the milling, but the traders will closely oversee the entire process. Farmers again do not appear interested in getting directly involved in the process, preferring to remain at home to concentrate on other farm activities. Occasionally you will have farmers hire out to the millers as casual laborers for a day when they need immediate cash or only have limited farm work to do. But this will not involve their rice.

Moving up toward the consumer including establishing group labels etc. really needs to be done with extreme care to make certain the benefit are sustainable and the add income is not fully consumed by the additional costs being incurred.

Feeder Roads: However, there are things that can be done to enhance the returns to smallholder farmers. First among them might be improving the feeder roads that serve rural areas and connect the farmers to the market. Such feeder roads can extent hundreds of kilometer from the main paved highways. Unfortunately, it is the smallholders who have to pay for remoteness in terms of lower prices for goods and higher prices for inputs. This is simply the additional transport costs in serving remote communities relative to those less remote for which the smallholders must compete once they reach or leave the tarmac roads. In Zambia on former transporter claimed that her t/km charges triple once she had to leave the tarmac. This can really be almost transparently accounted for considering:

  • Smaller vehicle with less load capacity for off tarmac use.
  • Tran-shipment of goods to or from the smaller vehicle somewhere near where the tarmac and unpaved feeder roads meet.
  • Warehouse space and storage costs to make the transfer.
  • Additional fuel because the smaller vehicle is actually less fuel efficient on a t/km basis.
  • Also, additional fuel required due to slower travel with more frequent braking, accelerating, etc. off the tarmac.
  • Additional time required to travel each km on unpaved road, increasing the labor costs.
  • Additional number of trips to deliver or pick-up the same amount of commodities, again increasing the labor costs.
  • Additional frequency of repairs, from more bouncing around, adding wear and tear to the suspension, brakes, axles, etc.

Once feeder roads are improved the remote smallholder should be able to receive better prices for their goods as more traders will be willing to make the trip to the remote communities providing some competition for the business as well as reducing the higher transport costs being charged to the farmers. However, developing and maintaining roads is usually a public sector government responsibility, but given the highly Limited Tax Base Most Governments will have tremendous financial difficulty maintaining feeder roads regardless of the economic stimulus they can provide. Equally, unfortunate is the donors with funds for road construction like to emphasis the main arteries as they provide better publicity opportunities to boast of their contributions to the host country’s economy. Ultimately, the feeder roads are orphaned for essential funding.

Out-Grower Schemes: Another possible means enhancing at least the returns smallholders may receive is through out-grower schemes working in conjunction with a large nuclear farm, particularly ones that also process the commodity. However, this needs to be carefully organized with an emphasis strictly on marketing and avoiding excessive commitments to production. The problems come when the nuclear farm is expected to provide extensive services to the out-grower groups. The example would be Caltech Ventures, Ltd and Kobbiman Farms in Ghana who were encouraged to diversify from their main crops of cassava and mango, respectively, and become major soybean producers involving several small farmer organizations as out-growers. The impression was conveyed that the nuclear farm would essentially provide all services almost in “estate mode” in which the farmer mostly sat around and watched the nuclear farm do all the work with emphasis on mechanized land preparation and planting. The “estate mode” of managing smallholders was seriously discredited with the Gizeria scheme in Sudan nearly a century ago. The biggest problem was the nuclear farms did not have the resources to assist the out-growers without jeopardizing their core operations. Most noticeable was the tractors that on paper appeared in adequate supply, but considering that about 25% of the time individual tractors were out of service for repair with each nuclear farm maintaining full time mechanics to keep them operating. Thus the equipment was fully committed to the nuclear farms needs with only limited time to assist with the out-growers needs as promised. Caltech was more successful with cassava producing out-growers primarily because it was strictly a marketing operation with no involvement in the planting or management of the cassava other than specifying the variety conducive for processing.

Summary

Enhancing the value chain for the benefit of smallholder farmers can be a very challenging activity and has to be done carefully and not just assume that because you have the interest of the farmers in mind you will automatically have the essential competitive advantage. This would include a detail economic analysis of how far up the value chain farmers should remain directly involved to make certain the additional returns are not fully consumed by the additional costs, and any time delay in the farmers getting paid do not become too inconvenient that the farmers will rightfully opt for their more traditional markets.

It also has to be recognized that smallholder farmers may not have sufficient calories in their diet to allow them to diligently work more than 4.5 hours a day, thus what has often been considered as a labor surplus environment may in reality be a highly labor deficient environment in which basic crop establishment can consume up to 8 weeks or more.

Under such overall operating condition enhancing the value chain might be best concentrating at the farm level where farmers have the most direct control and vested interest. This could involve facilitating various service providers to more effectively assist the smallholders. First among these would be access to contract tractors for to expedite crop establishment and allow the producers to concentrate more on yield increasing mid-season crop husbandry activities. Also, facilitate the access to mechanical threshing that could enhance the recovery of the crop and avoid leaving 10 to 15% in the field for gleaners to scavenge, and also mechanical winnowing that will assist in getting the marketed crop close to the >1% international standard for foreign material avoid quality discounts from the traders.

Given the need to conserve their limited dietary energy, smallholders are unlikely to want to be directly involved in enhancing the value chain above the farm and community level. They are most likely better served by outsourcing these activities like par-boiling and milling rice or converting cassava to gari. However, it might still be possible to enhance their returns by improving the feeder roads to help reduce transportation cost or being part of marketing out-grower schemes working with large nuclear farms.

Last Revised: 16 June 2013

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