Institutional development for improved smallholder market access

1. Institutional development for improved smallholder market access Litha Magingxa Zerihun Gudeta Alemu Herman van Schalkwyk 45th Annual Conference of AEASA September 26, 2007

2. OUTLINE • Introduction • Literature review • Data and methods • Results and discussion • Conclusions and recommendations

3. INTRODUCTION • Evidence that s/h farmers can benefit from market orientation • Several constraints  transaction costs?? • Small-scale agriculture beyond subsistence. • SA situation dire with respect to s/h agric. • Drop in productivity levels • General growth overall • Performance short of expectations • Dependency

4. INTRODUCTION (Cont…) • Market access a critical factor • Link to profitability • Vehicle for economic growth • Aim of the presentation

5. LITERATURE REVIEW • Market access refers to the processes by which people access markets and the nature, efficiency and costs of these processes (Killick et al., 2000). • Market access is considered according to three dimensions viz., physical access to markets (distances, costs etc.); structure of the markets (asymmetry of relations between farmers, market intermediaries and consumers); and producers’ lack of skills, information and organisation (understanding of the market, prices, bargaining etc.) (IFAD, 2003).

6. LITERATURE REVIEW (Cont…) • Market liberalisation will not necessarily increase the participation of small producers to a significant extent unless specific support measures are taken and they move to higher value added products (IFAD, 2004). • There are a number of “invisible”, yet critical, barriers to trade that must be overcome such as the lack of awareness of market opportunities and of familiarity with standards, limited scale of operations and specific skills, among others.

7. LITERATURE REVIEW (Cont…) • Many do not well understand the market, how it works and why prices fluctuate; they have little or no information on market conditions and prices; they are not organized collectively; and they have no experience of market negotiation (IITA, 2001 also cf. Freeman and Silim (2001) as well as Heinemann (2002).

8. LITERATURE REVIEW (Cont…) • No development can be expected in large areas of South Africa, and no upliftment of the rural poor can occur in the absence of significant improvements in the marketing set-up serving the people in the rural areas (van Schalkwyk et al., 2003).

9. LITERATURE REVIEW (Cont…) • No development can be expected in large areas of South Africa, and no upliftment of the rural poor can occur in the absence of significant improvements in the marketing set-up serving the people in the rural areas (van Schalkwyk et al., 2003). • To develop markets and institutions that support them takes time. At times, reforms to build markets fail entirely (World Bank, 2000).

10. LITERATURE REVIEW (Cont…) • Cooperatives, collective marketing associations, and other mutual alliances:Clearly, it is only by such means that most developing country farmers can move from a poverty cycle to an income cycle, and begin to make a real contribution to overall economic development (IITA, 2001). • Warehouse receipt systems e.g. Coulter and Onumah (2002) • Rural assembling point system e.g. Freeman and Silim (2001) • Contract farming e.g. Kirsten and Sartorius, (2002)

11. LITERATURE REVIEW (Cont…) • If agricultural reforms in Africa are to fulfil the high expectations of their proponents, improvement will have to be made in four areas (Kherallah et al., 2002): • The task of liberalizing agricultural markets must be completed. • Complementary policies in other sectors are needed to enhance the benefits of the reforms and alleviate the negative effects. • The withdrawal of the state from commercial activities should not be interpreted as withdrawal from its essential role in providing public goods. • The government can play a role in promoting non-governmental institutions in the agricultural sector.

12. Data and methods • Field plot data collected from 6 s/h irrigation schemes in Limpopo, Mpumalanga and EC Provinces. • Socio-economic data and market access related information. • Dependent variable = market access (MA) • 14 explanatory variables: Infrastructure, information availability, credit availability, extension availability, market association, transport, transport costs, training, creativity, entrepreneurship, distances, farmer age and off-farm income • Principal component analysis (PCA): a technique used to reduce dimensionality of data while retaining as much information as possible – involves transformation of variables into principal components (PCs).

13. Results & discussion • Physical access to markets • Most important market for smallholder producers • Lack of local markets that are also linked to outside buyers not divorced from institutional deficiencies • Source of transaction costs • Farmer skills • Changing policy environment • Withdrawal of government support • Capacity building system lacking • Nature of access. • Nature of organisation • Volumes • Prices

14. Suggestions for intervention • Clarification of roles for the various stakeholders • Interaction between policy-makers and scientists; a platform where government, private sector, civil society and farmers are partners. • Create conditions for conducive exchanges and contracting between the less formal small-scale agriculture and private sector entitites. • Deal with the problem of cost of transportation

15. Suggestions for intervention • Capacity building. • Collective action for farmers; Solve the issue of farmers who hold on to land for non-productive purposes. • Rebuilding of important farmer support services and institutions • Facilitate access to information.