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Can value chains help smallholders?
A survey by the relief and development organisation Oxfam demonstrates that smallholders receive just 7 per cent of the final price in global agricultural value chains, whereas 51 per cent is retained by marketing and distribution. How can an export market be created that ensures fair and secure sale of produce from smallholder farms? Or should smallholders generally stay well clear of this kind of marketing? These were two of the questions discussed at the “Entwicklungspolitische Diskussionstage” of the Centre for Rural Development (SLE) in Berlin/Germany in late May.
Differentiated view required
First of all, there is no such thing as THE value chain. Are staple foods or cash crops distributed via the value chains? Are local, regional or international markets being supplied with goods? It can be accordingly easy or difficult for smallholders to participate in value chains or to benefit from them. And the risks this entails can differ correspondingly.
Nevertheless, tendencies can definitely be recognised, as Sabine Brüntrup-Seidemann demonstrated in Berlin. Together with her colleagues at the German Institute for Development Evaluation (Deval), the scientist examined approaches of agricultural value chains supported in the context of German development cooperation, seeking to explore their poverty-alleviating impact. One of the results arrived at is that the value chain approach is not suitable for chronically poor people – old and sick people or people who lack mobility. “But they can benefit indirectly, for example through economic development in the region being primed by the value chain,” Brüntrup-Seidemann maintained.
It had also been revealed that promoting value chains for staple foods tended to entail greater challenges than promoting those for cash crops. For example, in the case of the rice value chain in Burkina Faso, competition through cheap imports was so strong that the establishing of functioning markets for domestic produce failed. However, supporting staple food also has a stronger (positive) impact on the population’s food situation. In connection with a lack of organisation among the smallholders, market failure proved to be a problem in value chains planned without the participation of buyers, i.e. those reaching from input supply for farmers to the market.
And what about export chains? “Agricultural exports are a big opportunity for the countries of the South to create jobs, for example in the processing industry,” said SLE Director Susanne Neubert. However, care had to be taken not to inhibit the development of domestic industries – such as the African fashion branch if the entire cotton harvest was exported. In order to retain more value creation in the global South, investments should above all flow into supporting regional value chains. With view to German development cooperation – according to Neubert, most of the 130 projects with a value chain component are oriented on global markets, predominantly on supermarkets – she also misses support being provided for traditional markets.
Ending zebra thinking
Smallholders can gain access to markets, technology, consulting and financial services through becoming integrated in value chains. At the same time, this approach entails higher standards, growing specialisation and complex technological demands, which is why civil society organisations usually view it with scepticism – especially when corporations operating at international level are involved. “Vertical integration reinforces the concentration of corporate power and dependence among smallholders,” maintained Lena Michelsen, global agriculture and world food supply official at the Inkota network. Michelson advocated the concept of agroecology, one of the key elements of which is integrating the local knowledge and knowhow of smallholders.
But that is not always so easy, either. For example, Sabine Brüntrup-Seidemann noted that farmers in Burkina Faso knew “surprisingly little” about rice, one reason possibly being that the government provides farmers with seed. “Knowledge of commodities such as maize and rice often went lost under the influence of the colonial era,” Neubert put forward as an explanation of the phenomenon.
The two scientists also rejected the debate on “subsistence versus cash crops”, a topic that was surfacing again and again. Smallholders needed a crop in crop rotation with which they could earn an income. Such a crop can serve the food requirements of a smallholder at the same time, but it doesn’t have to – as is the case with cotton. However, a cash crop and a subsistence crop can finance or subsidise each other mutually – for example if fertiliser is applied in the cash crop that then also has an effect on the following subsistence crop. Brüntrup-Seidemann proposed referring to “farming for one’s own demand” rather than “subsistence farming”.
Endurance and a holistic approach required
The conclusion drawn at the event was that it could not generally be determined whether value chains were per se good or bad for small-scale farmers. Even so, some “do’s” und “don’ts” can be determined. It is important to support value chains on a long-term basis. While establishing trusting business relationships takes time, it also has to be borne in mind that changes in global demand can have a considerable impact on the functioning of the chain. For example, in 2016, all of a sudden, the demand for cashew nuts soared world-wide. Merchants from India obtained the raw nuts in Burkina Faso, which resulted in domestic producers running out of supplies and large numbers of women losing their jobs. “The cycle can only work if everyone feels they are part of it,” Brüntrup-Seidemann noted.
Preventing risks is a third important element. As a rule, for smallholders in particular, integration in value chains represents a formidable change in their farming system, for example, if they shift to concentrating on a certain cash crop and neglect the crops they need for their own demand. Buffer funds could be created to mitigate the impact of price fluctuations on the markets. Furthermore, developing networks, e.g. for purchasing and marketing, are an option that enables smallholders to benefit from scale effects that only major corporations can usually take advantage of. What is probably the most important process is the negotiating of the individual stakeholders’ interests.
Silvia Richter, editor, Rural 21