Can small farmers share the pie with supermarket giants?

Economic growth on the African continent is low at just over 5%, but an African supermarket revolution on the back of new urban wealth is gaining momentum.
Issue date 5 October 2007

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However, small farmers could be squeezed out of this potentially lucrative market unless African governments support them in achieving the necessary economies of scale.
All stakeholders in agribusiness should take drastic steps to successfully include small-scale farmers in the dynamic restructured regional and local agrifood markets. This was the message from Prof André Louw of the Department of Agricultural Economics at the University of Pretoria and regional coordinator of the Regoverning Markets Project. Exclusion of small farmers is a worldwide phenomenon, he says, and “solutions must be addressed and implemented”. T he aim of the project is to find ways to include small-scale farmers in restructured agrifood markets to address the opportunities and problems they face. “development of supermarkets and their procurement policies is pushing [small farmers] further away from markets,” says Louw. The project is a 30-month research drive costing £2 million (R29,3 million), coordinated by the International Institute for Environment and Development (IIED) in the UK. It involves an international consortium and learning network of more than 14 organisations in 18 countries, including South Africa. The research uses cross-country comparisons both within and across regions, reflecting varying degrees of restructuring in the food industry. Empirical research on markets is being undertaken in China (horticulture), India (dairy), Indonesia and Mexico (horticulture), Poland (dairy), South Africa and Turkey (horticulture) and Zambia (beef and broiler chickens). Research has a global focus he project has three components: empirical research, innovation and good-practice case studies, and learning and policy processes. The third component aims to bring research findings into the wider policy arena, thereby proactively influencing public-sector policy (including donor priorities) and private-sector strategies. he global hypotheses of the programme are that traditional food markets are being displaced by new agribusiness supermarkets; that supermarket systems are changing from decentralised procurement to central distribution centres and are also implementing stringent private food standards such as Hazard Analysis and Critical Control Points (HACCP) and European Good Agricultural Practice (EurepGAP); and that smallholder farmers are excluded from modern markets because they cannot meet the supply requirements of new agribusinesses. Stringent supermarket demands According to Louw, larger supermarkets and chain fresh-produce outlets prefer to sign contracts with larger, established producers demanding timely delivery of quality products and an ongoing and sustainable supply. “Smallholders or emerging farmers cannot comply with these requirements and are gradually being sidelined,” he says. he problems of smallholders are many (see box: Problems of SA smallholder farmers). “A combination of these factors means smallholders do not have the capacity to produce for mainstream markets,” says A further problem is market accessibility. “two biggest markets, Johannesburg and Pretoria, handle 50% of the fresh produce sold on public markets, followed by Cape Town (13%) and Durban (10%). The balance is handled by 13 smaller markets all over the country.” – Cornelia du Plooy |fw See Bottom line on page 36 of this issue.
Recommended solutions
Have the right person on the farm. Lobby government to fund and support infrastructure such as packaging and transport facilities in rural areas. Train smallholder farmers in various areas of production, marketing, financing and so on. It is foolish and unfair to place an untrained and inexperienced person on a farm and expect quality produce for supermarkets within 12 months. Supermarkets and buyers of fresh produce should consider adapting • • • • their procurement strategies to accommodate the smallholder farmer. Establish trust among the stakeholders in the food supply chain. Establish cooperatives with central grading, packaging or marketing venues for 10 or more smallholders. Provide cold storage and refrigerated trucks for transporting produce to markets. Disseminate information about prices and markets to smallholder farmers so they can make informed decisions.
Problems of SA smallholder farmers
Lack of markets
No access to credit
Production constraints
Land tenure problems
Cash flow problems (receiving payments at month-end or later)
Need to combat pests and diseases
Lack of commercial production experience
Insufficient access to efficient equipment and better-yielding varieties
Poor economy of scale
Ineffective and inefficient support systems
Inability to apply market information to the farm situation
Farming for Africa’s supermarket revolution
While food security in South Africa is not a problem nationally or provincially at this stage, it is becoming a problem at household level in certain parts of the country, Prof Nick Vink of the Department of Agricultural Economics at the University of Stellenbosch told delegates to the TAU SA annual congress recently. Citing Zimbabwe as the exception, he cautioned that while the continent shows reasonably steady economic growth, the exception could become the trend. While South African farmers seem to be keeping up with current demand, warning lights are starting to flicker here and on the rest of the continent, says Vink, pointing out that unstable governance and corruption have a negative impact on the African production environment. Vink highlights high transport costs, saying it is cheaper to ship a load of maize from the Gulf of Mexico to Cape Town than to haul it over the Drakensberg. Africa also lags behind in technological advancement, and uncertain property rights are another factor affecting the viability of agriculture, he says. But Vink also notes some positive indicators. In 2004 Africa showed 5,2% economic growth, 5,3% in 2005 and 5,7% in 2006. Two-thirds of African countries are expected to show more than 5% growth in 2007. The African supermarket revolution This economic growth has seen growing consumer demand, giving rise to what Vink calls the supermarket revolution – led by Shoprite – predominantly in eastern and southern Africa. These supermarkets are built close to affluent consumers in and around major cities. Higher income levels for women create good business in these areas. “As supermarkets start to dominate the retail environment, they also become the main drivers of improved logistics in these areas,” Vink says. He explains that in Africa, where transport is expensive, logistics determines the price of produce both at the farmgate and on the shelf. To survive in Africa, farmers must learn to work with supermarket logistics and buying systems. “More and more supermarkets are buying directly from farmers, and the bigger farmers have the advantage. Smaller farmers will have to work together to compete with their bigger counterparts.” Vink says farmers must also pay attention to the new demands supermarkets are placing on them and realise they are competing on an international basis. “[Supermarkets] tend to expect farmers to deliver produce washed and sometimes packed to their specifications, and if they can find a cheaper supplier they will use that supplier, no matter where in the world the supply comes from.” Small farmers should act soon This, says Vink, is the dilemma plaguing small commercial producers and smallholder farmers in Africa today. While South African companies are currently driving the supermarket revolution, it may just be a matter of time before bigger international players like Walmart and Tesco arrive in Africa. “This could marginalise small producers even more.” While global eating patterns show consumers returning to traditional home-cooked food – which could hold some potential for niche products from small producers – Vink says the message to African leaders is clear: “Establishing small farmers and keeping them small is not a development policy, it’s a welfare policy.” – Jasper Raats |fw