62324 ECONOMIC AND SECTOR WORK MAKING THE GRADE: Smallholder Farmers, Emerging Standards, and Development Assistance Programs in Africa A Research Program Synthesis JUNE 2011 Steven Jaffee Spencer Henson Luz Diaz Rios REPORT NUMBER 62324-AFR ECONOMIC AND SECTOR WORK MAKING THE GRADE: Smallholder Farmers, Emerging Standards, and Development Assistance Programs in Africa A Research Program Synthesis Steven Jaffee Spencer Henson Luz Diaz Rios Report No. 62324-AFR © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202–473–1000 Internet www.worldbank.org/rural E-mail ard@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank and the University of Guelph. The �ndings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the executive directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978–750–8400, fax 978–750–4470, http:// www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Of�ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202–522–2422, e-mail pubrights@worldbank.org. Cover photo: TO COME TA S K T E AM AND ACKNOWL E DGME NT S III TASK TEAM AND ACKNOWLEDGMENTS This paper provides a synthesis of the framework and major �ndings from a collaborative research program involving the World Bank (WB), the University of Guelph, the University of Ghana, the University of Makerere, the University of Nairobi, the University of Zambia, and the Institute of Development Studies. The research program was supported by grant �nancing from the Government of the Netherlands (through the Bank-Netherlands Partnership Program [BNPP] Trust Fund Trade Window) and the Government of Canada (through the IDRC). The research program was coordinated by Steven Jaffee (WB) and Spencer Henson (University of Guelph), who together with Luz Diaz Rios (Agricultural and Rural Development [ARD]/WB) are the lead co-authors of this synthesis report. Other members of the team have included the following: World Bank: Paul Siegel (ARD), Xavier Gine (Development Economics—DEC), Yolanda Strachan (Trade Department, in the Poverty Reduction and Economic Management Unit—PRMTR), Michael Jensen (PRMTR), and John Lamb (ARD) University of Guelph: Jose Blandon, John Cran�eld, Sean Field, and Oliver Makasure Institute for Development Studies: John Humphrey African Universities: Ramatu M. Al-Hassan, Henry Anim-Somuah, and George Kwadzo (University of Ghana); Gabriel Elepu and Johnny Mugisha (University of Makerere); Gelson Tembo (University of Zambia); and Julius Okello (University of Nairobi) Others: John Keyser (Consultant), Annu Ratta (Consultant), and Matthew Edwardsen (U.S. Forest Service) The research team acknowledges the support and facilitation provided by WB country of�ces, the time and insights provided by numerous development partners and practitioners, and the cooperation provided by government staff, hundreds of African companies, and nearly 2,000 farmers in interviews and responses to the research team’s surveys. The team wishes to speci�cally acknowledge the following individuals for their insights on the broad themes and speci�c cases underpinning this research: Alistair Taylor, Clive Drew, Tiku Shah, Kevin Billing, David Knapp, Guy Stinglhamber, Andrew Sergeant, Wolf- Martin Maier, Todd Thompson, Bagie Sherchand, Steffen Kaeser, Morag Webb, Edward Heinemann, Ronaldt Thoen, Peter Gibbon, Stefan Ouma, Ulrich Hoffman, Daniele Giovannucci, David Gibson, Anne Sophie Poisot, Pascal Liu, Jason Potts, Gretchen Stanton, Sasha Courville, Paul Sigombe, Bo Van Elzakker, Jean Michel Voisard, Dagmar Mithofer, Ruth Nyagah, Umran Kaggwa, Irwin Foreman, Joe Carvalho, Moses Nyabila, David Harvey, and Martin Ndjovu. During the concept review stage for this synthesis, valuable comments and suggestions were provided by Stephen Mink (WB), Patrick Labaste (WB), and Doris Gunther (Deutsche Gesellschaft für TechnischeZusammenarbeit [GTZ]—currently known as GIZ). Peer reviewers for the �nal document were Iain Shuker (WB), Vikas Choudhary (WB), Paul Guenette (ACDI/ VOCA), and Steven Schonberger (International Fund for Agricultural Development [IFAD]). The team wishes to acknowledge the valuable support and guidance provided by Juergen Voegele, Mark Cackler, John Panzer, Marc Sadler, Karen Brooks, and Sushma Ganguly. E C O N O M IC AND S E CT OR WORK IV OTH ER OUTPUTS FROM TH IS RES EA R C H PR OGR A M OTHER OUTPUTS FROM THIS RESEARCH PROGRAM This document provides a synthesis of major themes from the research program. A series of other publications have or will be prepared related to speci�c themes, case studies, or surveys. Other publications emerging from this work include the following: Diaz Rios, L., and Jaffee, S. 2008. “Barrier, Catalyst or Distraction? Standards, Competitiveness and Africa’s Groundnut Exports to Europe.� Agriculture and Rural Development Discussion Paper 39, World Bank, Washington, DC. Diaz Rios, L., Jaffee, S., Henson, S., and Mugisha, J. 2009. “Not Quite Up to Standard: The Legacy of Two Decades of Government and Donor Assistance to Uganda’s Horticultural Export Sector.� Agriculture and Rural Development Discussion Paper, World Bank, Washington, DC. Field, S. 2009. “Examining the Determinants and Impact of Asian Vegetable Production: A Case Study on the Livelihoods of Ghanaian Smallholders.� Dissertation MSc. in Agricultural Economics, University of Guelph. Field, S., Masakure, O., and Henson, S. 2010. “Rethinking Localization—a Low-Income Country Perspective: The Case of Asian Vegetables in Ghana.� Cambridge Journal of Regions, Economy and Society 3: 261–77. Henson, S., and Jaffee, S. 2008. “Understanding Developing Country Strategic Responses to the Enhancement of Food Safety Standards.� World Economy 31 (4): 548–68. Henson, S., Jaffee, S., Cran�eld, J., Blandon, J., and Siegel, P. 2009. “Linking African Smallholders to High-Value Markets: Practitioner Perspectives on Bene�ts, Constraints, and Interventions.� Policy Research Working Paper, WBS4573, World Bank, Washington, DC. Henson, S., Jaffee, S., Masakure, O., and Cran�eld, J. Forthcoming. “Do Fresh Produce Exporters in Sub-Saharan Africa Bene�t from GLOBALG.A.P Certi�cation?� World Development. Henson, S., Jensen, M., Jaffee, S., and Diaz-Rios, L. 2010. “Assessing the Demand for Trade-Related Food Safety and Quality Interventions in Agri-Food Chains.� International Trade Department, World Bank. Henson, S., Masakure, O., and Blandon, J. 2010. “The Dynamic Process of Smallholders’ Vanilla Adoption in Uganda.� Department of Food, Agricultural and Resource Economics, University of Guelph. Henson, S., Masakure, O., and Blandon, J. 2010. “The Impact of Smallholder Participation in High-Value Agricultural Markets: The Case of Vanilla in Uganda.� Department of Food, Agricultural and Resource Economics, University of Guelph. Keyser, J. Forthcoming. “Competitive Dairy Development and Challenges of Quality Upgrading in East and Southern Africa.� World Bank Discussion Paper, World Bank, Washington, DC. MA K ING TH E GR A D E C O N T E N TS V TABLE OF CONTENTS List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix List of Boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii List of Standard Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvi Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Chapter 1—Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Research Program Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 This Synthesis Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Chapter 2—The Evolution of Regulatory and Market Requirements in HVAF Markets . . . . . . . . . . 7 Drivers of Change in the Governance of Food Safety and Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Evolution of Food Safety, Quality, and Socioenvironmental Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chapter 3—Conceptualizing the Impact of Standards Compliance on Smallholder Participation in Agri-Food Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Nature of Agri-Food Value Chains and the Role of “Assured Compliance� . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Conceptual Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Chapter 4—Development Assistance, Standards Compliance, and African Smallholder Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Antecedents: NTAEs, “Lead� Firms, and Supply-Chain Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Broader Parallel Initiatives: Renewal of Agricultural Investment and Linking Farmers to Markets . . . . . . . . . 42 Development Assistance and Support for Agri-Food Standards Management in Africa . . . . . . . . . . . . . . . . . 46 Development Program Interventions Focused on Facilitating Smallholder Compliance with Standards . . . 51 Private Voluntary Standards as an Opportunity for Sustainability and Poverty Reduction . . . . . . . . . . . . . . . 58 E C O N O M IC AND S E CT OR WORK VI C ONTENTS Chapter 5: Private “Buyer� Perspectives on Alternative Sources of Supply: Evidence from a Survey of African Fruit and Vegetable Exporters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Strategic and Tactical Options and Procurement Choices in the Face of Rising Standards . . . . . . . . . . . . . . . 66 Methods and Respondents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Selection Criteria of Surveyed Fresh Produce Exporters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Changing Procurement Patterns of Fresh Produce Exporters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Chapter 6—Case Studies: Upgrading for the Domestic Market and for Traditional Export Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Case 1: “Let the Sun Shine In�: Quality Upgrading and Improved Market Linkages in Uganda’s Sunflower Sub-sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Case 2: “Milking Opportunities� in Informal and Formal Dairy Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . 83 Case 3: Brewing Up Productivity and Income Gains Linked to Sorghum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Case 4: Africa’s Groundnut Trade and EU Mycotoxin Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Case 5: Rwanda—Gaining a Place in the “Specialty� Coffee Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Chapter 7—Case Studies: Upgrading of Higher- Value ‘Non-Traditional’ Export Products . . . . . 107 Case 1: “Saving� Kenya’s Horticultural Exports, Preventing “Smallholder Exclusion� and Other Illusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Case 2: Many Donors, Yet Few Certi�ed Farmers: The Elusive Quest for a Zambian “Smallholder� Horticulture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Case 3: Servicing Europe’s Ethnic Food Markets: Tales from Kenya, Uganda, and Ghana . . . . . . . . . . . . . . 119 Case 4: Shifting Market Preferences Partially Derails Ghana’s Pineapple Industry . . . . . . . . . . . . . . . . . . . . . 126 Case 5: Intrigued by the Buzz; Stung by the Results: Adventures with Ugandan Honey . . . . . . . . . . . . . . . . 130 Case 6: Overcoming Competitive Challenges via Organics Certi�cation—Uganda’s “Success�. . . . . . . . . . 135 Chapter 8: Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 MA K ING TH E GR A D E FI G U R E S V II LIST OF FIGURES Spectrum of Regulatory and Market Requirements in Agri-Food Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xx Figure 2.1 Change in the Value Composition of SSA Exports of Food and Agriculture (%) . . . . . . . . . . . . . . . . .8 Figure 2.2 Using Food Safety as a Carrier for Sustainability Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 2.3 Evolution of Standards Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Regional Distribution of Coffee Supply by System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Figure 3.1 Upgrading Steps and Stringency of Buyer Speci�cations in Agri-Food Value Chains . . . . . . . . . . .19 Figure 3.2 Buyer Costs of Procurement from Alternative Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Figure 3.3 Conceptual Framework for Buyer Choice between Alternative Suppliers . . . . . . . . . . . . . . . . . . . . .23 Figure 3.4 Hypothetical Comparison of Capacity of Alternative Suppliers to Achieve Assured Compliance with Buyer Speci�cations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 3.5 Hypothetical Production and Transaction Cost Pro�le in Alternative Value Chains for Small-Scale, Large-Scale, and Integrated Producers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Figure 3.6 Hypothetical Marginal Supply Costs over Time Augmented by Transaction Risks in Supply Chains to Type 2 and Type 5 Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Figure 3.7 Impacts of interventions Aimed at Facilitating the Participation of Small-Scale Producers in Value Chains to Higher-Value Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Figure 4.1 Entry Points for Development Agencies’ Support for Compliance with Standards . . . . . . . . . . . . .38 Figure 4.2 Associated Factors Influencing Pessimistic Views on the “Future of Small-Scale Farmers� in SSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Figure 4.3 Hierarchy of Trade-Related SPS Management Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Figure 5.1 Composition of Survey Respondents by Value of Exports, 2007 (US$) . . . . . . . . . . . . . . . . . . . . . . .68 Figure 5.2 Performance Criteria Scores for Alternative Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 Figure 5.3 Percentage of Supply of Main Product from Alternative Supply Chains by Size of Exporter . . . . .73 Figure 5.4 Decile Distribution of Average Number of Small-Scale Producers of Less than Five Acres From Which Source Main Product Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 E C O N O M IC AND S E CT OR WORK VIII FIGUR ES Figure 5.5 Expectations of Future Changes in Volume of Leading Product Export by Firm Size . . . . . . . . . . . .76 Figure 5.6 Expectations of Future Changes in Volume of Leading Product Export by Whether Customers Required Compliance with Private Food Safety Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Figure 5.7 Expected Change in Volumes of Main Product Exports Sourced Through Alternative Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Figure 6.1 Uganda Sunflower Production and Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 Figure 6.2 Uganda Sorghum Production, 1985–2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Figure 6.3 Percent Distribution of NBL Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Figure 6.4 Evolution of EU Market Requirements and Associated Conformity Assessment Systems for Groundnuts and Groundnut Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Figure 6.5 Production and Exports of Coffee in Rwanda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 Figure 7.1 Kenya Export Volume Trends (Tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 Figure 7.2 Framework of Recent Interventions in the Uganda Horticulture Sector . . . . . . . . . . . . . . . . . . . . .124 Figure 7.3 Framework of Recent Interventions in Ghana Horticultural Sector . . . . . . . . . . . . . . . . . . . . . . . . .129 Figure 7.4 Honey Value Chain in Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 MA K ING TH E GR A D E TA B L E S IX LIST OF TABLES Table 1.1 Country and Commodity Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Table 2.1 Erosion of Consumer Con�dence in Food Systems: Examples of Well-Published Food Outbreaks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Table 2.2 Reasons for Noncompliance among EU Noti�cations on Products Imported from SSA (2006–09) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Table 2.3 Share of SSA Exports to Low- and Middle-Income Economies (as percentage of region’s total exports of each product category). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Table 3.1 Examples of Supplier Requirements Influencing Production and Transaction Costs of Producers and Associated Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Table 3.2 Generalized Strengths and Weaknesses of Small-Scale versus Large-Scale Producers . . . . . . . . . .27 Table 3.3 Resource-Market Matrix for Smallholder Assured Compliance—Illustrative Examples. . . . . . . . . . .27 Table 3.4 Factors Influencing Costs of Procuring from Small-Scale Producers . . . . . . . . . . . . . . . . . . . . . . . . . .31 Table 4.1 Main Components of WB Market-Led Projects Implemented in the Mid-1990s to Early 2000s . . . . .39 Table 4.2 Evolution of the Emphasis on Support to Agriculture and Agribusiness in SSA . . . . . . . . . . . . . . . .45 Table 4.3 Donor-Funded Programs Using Hybrid Approaches to Support Compliance with Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Table 4.4 Recent SSA Stand-Alone Initiatives Related to Private Voluntary Standards or Labels . . . . . . . . . . .51 Table 5.1 Firm Strategic Responses in the Face of Rising Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 Table 5.2 Performance of Alternative Suppliers According to Clustered Criteria . . . . . . . . . . . . . . . . . . . . . . . .70 Table 5.3 Importance of Factors in Choosing Small-Scale Producers as Supply Source for Main Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Table 5.4 Clustered Criteria Factors Influencing Choice of Small-Scale Producers of Main Export Product by Exporter Size (Mean Scores) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 E C O N O M IC AND S E CT OR WORK X TA B LES Table 5.5 Clustered Criteria Factors Influencing Choice of Small-Scale Producers of Main Export Product by Customer Requirements for Compliance with Private Food Safety Standards (Mean Scores) . . . .71 Table 5.6 Availability and Use of Supply Chains for Main Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Table 5.7 Mean Percentage of Supply of Main Product Sourced Through Alternative Supply Chains Currently and Five Years Ago. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Table 5.8 Mean Percentage of French Beans and Pineapples Currently Sourced Through Alternative Supply Chains (Weighted by Relative Export Volume) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Table 5.9 Mean Proportion of Main Product Procured Through Alternative Chains by Whether Major Customers Require Compliance with Private Food Safety Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Table 5.10 Number of Smallholder Farmers Reportedly Involved Directly or Indirectly in the Sourcing Arrangements of Difference Size Companies, 2007 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Table 5.11 Number of Smallholder Farmers Reportedly Involved Directly or Indirectly in the Sourcing Arrangements of Companies Whose Customers Do and Do Not Enforce Food Safety Standards, 2007 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Table 5.12 Proportion of Suppliers in Alternative Supply Chains for Main Product that Typically Have to Be Dropped or Voluntary Drop Out Year-on-Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Table 5.13 Proportion of Smallholder Outgrowers for Main Product that Typically Have to Be Dropped or Voluntary Drop Out Year-on-Year by Exporter Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Table 5.14 Proportion of Smallholder Outgrowers for Main Product that Typically Have to Be Dropped or Voluntary Drop Out Year-on-Year by Whether Customers Require Compliance with Private Food Safety Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Table 6.1 Continuum of Market Requirements and Associated Conformity Systems in Milk and Milk Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 Table 6.2 Costs and Returns of Smallholder Dairy Upgrades in Selected Countries . . . . . . . . . . . . . . . . . . . . .85 Table 6.3 Summary of Achievements of the Rwanda Coffee Industry in Recent Years . . . . . . . . . . . . . . . . . .102 Table 7.1 Donor Projects (Re-) Directed towards EurepGAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Table 7.2 Broad Themes of Assistance Provided by PIP Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124 Table 7.3 Participation of Farmers in Different Schemes Supported by EPOPA . . . . . . . . . . . . . . . . . . . . . . . .140 MA K ING TH E GR A D E BOXES XI LIST OF BOXES Box 2.1 Examples of Sustainability Initiatives in Coffee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Box 2.2 Penetration of Stricter Demands for Quality and Safety in SSA HVAF Domestic Markets . . . . . . . . . .15 Box 3.1 Transaction Cost Economics and the Market Participation of Small-Scale Producers . . . . . . . . . . . . .21 Box 4.1 Expanding Focus: From Support for Private-Led Initiatives to Wider Public-Private Partnerships . . .41 Box 4.2 Linking Farmers to Markets as Part of Donors’ Strategic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Box 4.3 Perceptions of “Practitioners�: Survey Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Box 4.4 Working through PMOs to Supply Certi�ed French Beans—Opportunities and Limitations . . . . . . . .55 Box 4.5 Reducing the Costs of Certi�cation for Small-Scale Producers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Box 4.6 GTZ—Mainstreaming Social and Environmental Compliance at the Farm Level . . . . . . . . . . . . . . . . .62 Box 6.1 Formalizing Milk Supply in Kenya: The Market-Oriented Dairy Enterprise Approach . . . . . . . . . . . . . .88 Box 6.2 Attempts to Develop Fair Trade Nut Exports to Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 Box 6.3 Weak Cooperatives as a Bottleneck to Improved Export Performance in Quality Coffee Markets . . .104 Box 7.1 Hot Stuff: A Cooperative-based Approach to Supply Upgrading in Kasese, Uganda . . . . . . . . . . . . .125 Box 7.2 Farmapine—A Nice Concept Yet Unsustainable Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128 Box 7.3 Reasons Why Many Certi�ed Farmers Don’t Deliver under the Organics Schemes . . . . . . . . . . . . . .140 E C O N O M IC AND S E CT OR WORK XII A B B R EV IATIONS A ND A C R ONY M S ABBREVIATIONS AND ACRONYMS ACI Agrifood Consulting International ACDI-VOCA Agricultural Cooperative Development International and Volunteers in Overseas Cooperative Assistance ACP African Caribbean Paci�c Group of States ADAR Agribusiness Development Assistance to Rwanda ADB African Development Bank ADF African Development Foundation ADHEK Association of Developing Horticulture Exporters in Kenya ADP Agricultural Diversi�cation Project AFD Agence Française de Développement AFSS Agriflora Small Scale AGOA African Growth and Opportunity Act AGSSIP Agricultural Services Subsector Investment Project AI arti�cial insemination ANEPP Agriculture Non-Traditional Export Promotion Project APDF Africa Project Development Facility APEP Agriculture Productivity Enhancement Project AQSIQ General Administration of Quality and Supervision, Inspection and Quarantine (China) ARD Agricultural and Rural Development (World Bank) B2B business to business B2C business to consumer BLCD Business Linkages Challenge Fund BNP Bee Natural Products (Uganda) BNPP Bank-Netherlands Partnership Program BoD board of directors BRC British Retail Consortium BSD Business Service Development BSE bovine spongiform encephalopathy BSMDP Business Service Market Development Program CAADP Comprehensive Africa Agriculture Development Program CBI Centre for the Promotion of Imports from Developing Countries CBTF Capacity Building Task Force on Trade, Environment and Development CIAT International Center for Tropical Agriculture CI Conservation International CIF cost, insurance, and freight CIRAD Centre de Coopération Internationale en Recherche Agronomique pour le Développement CLUSA The Cooperative League of the United States of America CmiA Cotton Made in Africa COLEACP Liaison Committee Europe-Africa-Caribbean-Paci�c COMESA Common Market for Eastern and Southern Africa MA K ING TH E GR A D E A B B R E V I AT IONS AND ACRONYMS X III COMTRADE Commodity Trade Statistics Database CSN Coffee Support Network CSPA Certi�ed Sustainable Products Alliance CSR corporate social responsibility CWS coffee washing station DANIDA Danish International Development Agency DC Dairy Corporation DDT Dichlorodiphenyltrichloroethane DEC Development Economics DED German Development Service DEG Deutsche Investitions und Entwicklungsgesellschaft mbH DFID Department for International Development DIIS Danish Institute of International Studies EADD East Africa Dairy Development Project EC European Commission EMPRENDA Empowering Private Enterprise in the Development of Agriculture EMQAP Export Marketing and Quality Awareness Program EPADU Export Policy Analysis and Development Unit EPOPA Export Promotion of Organic Products from Africa EPV Export Promotion Village ETI Ethical Trade Initiative ETP Ethical Tea Partnership EU European Union EUREP Euro-Retailer Produce Working Group FAO Food and Agriculture Organization of the United Nations FDA Food and Drug Administration FGL Farmapine Ghana Limited FLO Fairtrade Labelling Organizations International FOB free on board FPEAK Kenya’s Fresh Produce Exporters Association FRICH Food Retail Industry Challenge Fund FSAP Japan’s Financial Sector Assessment Program FSMA Food Safety Modernization Act FT fair trade FTF Fair Trade Foundation GAP good agricultural practice GDA Global Development Alliance GFAR Global Forum on Agricultural Research GHP good hygienic practices GHPPP Ghana Horticultural Public-Private Partnership GMP good manufacturing practices GoG Government of Ghana GoR Government of Rwanda GoU Government of Uganda GRASP good, risk-based agricultural social practice GSB Growing Sustainable Business program (UNEP) GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (currently known as Deutsche Gesellschaft für Internationale Zusammenarbeit—GIZ) HACCP Hazard Analysis and Critical Control Points E C O N O M IC AND S E CT OR WORK XIV A B B R EV IATIONS A ND A C R ONY M S HCDA Horticultural Crop Development Authority HEII Horticulture Export Industry Initiative HIVOS Humanistisch Instituut voor Ontwikkelingssamernwerking (Dutch: Humanistic Institute for Development Cooperation) HMF Hydroxymethylfurfural HORTEXA Horticultural Export Association HVAF higher-value or differentiated agricultural and food products IARC International Agency for Research on Cancer IBDR International Bank for Development and Reconstruction ICCO Inter-Church Organization for Development Cooperation ICIPE The International Centre of Insect Physiology and Ecology ICRISAT International Crops Research Institute for the Semi-Arid Tropics ICS Internal Control System IDA International Development Association IDEA Investment in Developing Export Agriculture project IDRC International Development Research Centre IEHA Initiative to End Hunger in Africa IFAD International Fund for Agricultural Development IFC International Financial Corporation IFOAM International Federation of Organic Agriculture Movements IFPRI International Food Policy Research Institute IFS International Food Standard IITA International Institute of Tropical Agriculture ILO International Labor Organization ILRI International Livestock Research Institute IPM integrated pest management IQAM Improving Quality Assurance in Milk Markets ISEAL International Social and Environmental Accreditation and Labelling Alliance ISO International Organization for Standardization ITC International Trade Center JECFA Joint Expert Committee in Food Additives and Contaminants JICA Japan International Cooperation Agency KBSDP Kenya Business Service Development Project KDDP Kenya Dairy Development Program KDSCP Kenya Dairy Sector Competitiveness Program KEPHIS Kenya Plant Health Inspectorate Services KHDP Kenya Horticultural Development Program KSIIP Kasese Smallholder Income and Investment Program KTB Kenya Top Bar Hives LACCU Lubulima Agricultural and Commercial Cooperative Union LEAD Livelihoods and Enterprises for Agricultural Development MAAIF Ministry of Agriculture, Animal Industries, and Fisheries (Uganda) MAAR Ministry of Agriculture and Animal Resources (Rwanda) MATEP Market Access, Trade and Enabling Policies Project (Zambia) MFEP Ministry of Finance and Economic Planning MKIS Market Knowledge Information System MLFD Ministry of Livestock and Fisheries Development (Kenya) MOA Ministry of Agriculture MoU Memorandum of Understanding MA K ING TH E GR A D E A B B R E V I AT IONS AND ACRONYMS XV MRLs maximum residue levels NAADS National Agriculture Advisory Services NaCRRI National Crops Resources Research Institute (Uganda) NAPU Natural Pride of Uganda NARO National Agriculture Research Organization (Uganda) NaSARRI National Semi-Arid Resources Research Institute (Uganda) NASFAM National Smallholder Farmers Association of Malawi NBL Nile Breweries Limited NEMA National Environmental Agency NEPAD New Partnership for African’s Development NES Uganda National Export Strategy NGO nongovernmental organization NIE new institutional economics NOGAMU National Organic Agriculture Movement of Uganda NORAD Norwegian Agency for Development Cooperation NRI Natual Resources Institute NTAE nontraditional agricultural exports ODA Overseas Development Agency OECD Organisation for Economic Cooperation and Development OPV open-pollinated variety PCRSP Peanut Collaborative Research Support Program PDCRE Smallholder Cash and Export Crop Development Project PEARL Partnership for Enhancing Agriculture in Rwanda through Linkages PIP Pesticide Initiatives Programme PMA Plan for Modernization of Agriculture (Uganda) PMO Product/Produce Marketing Organization PRMTR Trade Department, in the Poverty Reduction and Economic Management Unit PROFIT Production Finance and Technology Project (Zambia) PSFU Private Sector Foundation Uganda PSD Private Sector Development PPP Public Private Partnerships PSI Private Sector Investment program (Dutch) PSOM Programme for Cooperation with Emerging Markets QMS quality management system RA Rainforest Alliance RASFF Rapid Alert System for Food and Feed (EU) RATES Regional Agriculture and Trade Expansion REAP Rural Enterprise and Agri-business Production Project RFCA Rwanda Fine Coffee Association REC Regional Economic Community RNCS Rwanda National Coffee Strategy RSP Regional Standards Programme RWASHOSCCO Rwanda Smallholder Specialty Coffee Company SAARI Serere Agricultural and Animal Production Research Institute (Uganda) SAB South African Breweries SCOPE Strengthening the Competitiveness of Private Enterprise (Uganda) SDC Swiss Agency for Development and Cooperation SECO Swiss State Secretariat for Economic Affairs SENASA National Service for Health and Quality of Agri-Foodstuffs (Argentina) E C O N O M IC AND S E CT OR WORK XVI S TA ND A R D UNITS SEP Strategic Export Programme SFP Safe Fishery Program SIDA Swedish International Development Cooperation Agency SITE Strengthening Informal Sector Training and Enterprise SMEs small- and medium-sized enterprises SPEG Sea-freight Pineapple Exporters of Ghana SPREAD Sustaining Partnerships to Enhance Rural Enterprise and Agribusiness Development Project SQF Safe Quality Food SPS Sanitary and Phytosanitary SSA sub-Saharan Africa SSI State of Sustainability Initiatives STDF Standards and Trade Development Facility TIP Trade and Investment Project (Ghana) TIPCEE Trade and Investment Program for a Competitive Export Economy project (Ghana) TIRP Trade and Investment Reform Program (Ghana) TSPN Trade Standards Practitioners Network TUNADO The Uganda National Apiculture Development Organization (Uganda) UEPB Uganda Export Promotion Board UEMOA Union Économique et Monétaire Ouest-Africaine UgoCert Uganda Organic Certi�cation Ltd. UHA Uganda Honey Association UHB Uganda Honey Beekeepers UIA Ugandan Investment Authority UNADA Uganda National Agro Input Dealer’s Association UNBS Uganda National Bureau of Standards UNCTAD United Nations Conference on Trade & Development UNDP United Nationals Development Program UNEP United Nations Environmental Program UNIDO United Nations Industrial Development Organization UOEXI Uganda Organic Export Initiative UOSPA Uganda Oilseeds Producers and Processors Association USAID US Agency for International Development USDA U.S. Department of Agriculture USADF U.S. African Development Foundation VODP Vegetable Oil Development Project WHO World Health Organization WSSD World Summit on Sustainable Development WTO World Trade Organization ZATAC Zambia Agribusiness Technical Assistance Center LIST OF STANDARD UNITS MT metric tons Kg kilogram US$ international dollar Ha hectare € euro MA K ING TH E GR A D E E X E C U T I V E S UMMARY X V II EXECUTIVE SUMMARY BACKGROUND: STANDARDS AS THREATS AND OPPORTUNITIES FOR SMALLHOLDER FARMERS Market access has been identi�ed as one of the foremost factors influencing the performance of small-scale producers in developing countries, and in particular least-developed countries. Smallholder access to markets for higher-value or dif- ferentiated agricultural and food products (hereafter HVAF) is recognized as a vital opportunity to enhance and diversify the livelihoods of lower-income farm households and reduce rural poverty more generally (World Bank 2007a). Smallholder participation in HVAF markets is typically constrained by inadequate farm-level resources, farm-to-market logisti- cal bottlenecks, and more general transaction costs in matching and aggregating dispersed supplies to meet buyer and consumer demand. These traditional constraints have been ampli�ed and, in some cases, surpassed by a new set of chal- lenges associated with compliance with product and process standards—set and enforced by governments as well as private supply-chain leaders. The tightening, broadening, and proliferation of pertinent quality, food safety, and other standards have been the product of various factors that have been previously analyzed (World Bank 2005).1 A vibrant debate has emerged over the extent to which emerging standards pose barriers for developing countries’ trade rather than catalysts for production and downstream upgrades, thereby improving welfare and competitiveness. There is ample evidence to support both contentions because different circumstances have yielded diverse outcomes. A subset of this debate relates to the smallholder farmers’ position and room for maneuvering, especially in sub-Saharan Africa (SSA). There is considerable concern that the opportunities provided by HVAF markets will go unrealized by smallhold- ers because of either their technical inability to meet emerging regulatory and private standards or the high compliance and certi�cation costs involved. That is, whatever productivity or production cost advantages small-scale farmers might have would be outweighed by the burgeoning transaction costs associated with facilitating, monitoring, and certifying smallholder compliance with standards. The cause celebre of this policy debate has been compliance with the fruit and vegetable standard for good agricultural practices, GLOBALG.A.P (formerly known as EurepGAP). A wave of empirical studies has sought to examine patterns of smallholder adoption of GLOBALG.A.P, the associated compliance costs, and evidence of �nancial and other bene�ts. Claims and counterclaims have been made as to whether GLOBALG.A.P requirements—in and of themselves—have served to exclude smallholder farmers from potentially remunerative export-oriented supply chains, especially those serv- ing western Europe. As if this threat were not enough, other observers have highlighted the pace of change in food retailing within developing countries, documenting the rise of the supermarkets and the opportunities and challenges that modern retailing poses for local farmers and small- and medium-sized (SME) food companies. The spectre of smallholder market “exclusion� thus rises again, this time on domestic turf, as smallholders (and their groups) may be unable to meet the volume or quality and food safety requirements of these end markets, or face high costs in having such compliance certi�ed. Against these ominous scenarios are more optimistic perspectives. Rather than losing their competitiveness in a web of standards, some have argued, smallholders in fact bene�t by having their supplies differentiated by social, environmental, 1 Food Safety and Agricultural Health Standards: Challenges and Opportunities for Developing Country Exports,� Report 31207, Washing- ton, DC, The World Bank, Poverty Reduction and Economic Management Trade Unit. E C O N O M IC AND S E CT OR WORK XVIII EX EC UTIV E S UM M A RY and other “voluntary� standards in otherwise crowded commodity markets. These arguments also highlight broader bene�ts of standards in terms of safer work conditions, positive spillover effects in local communities, and their role in catalyzing the modernization of export and domestic food supply chains. In the face of emerging challenges and opportunities associated with standards and serving HVAF markets, many develop- ment agencies, nongovernmental organizations (NGOs), government agencies, and private companies have implemented measures to level the playing �eld, strengthen speci�c technical or institutional capacities, or otherwise act to facilitate smallholder compliance with standards and continued or increased participation in HVAF supply chains. Such investment, cost-sharing, capacity-building, or capacity-bridging activities have expanded considerably in recent years, especially in SSA. These initiatives have taken varied forms and involved various entry points. Many initiatives have been bottom-up, focusing on smallholder (group) capacities for production, collective action, standards compliance, and so forth; others have been top-down, seeking to better link farmers to remunerative markets through the efforts and enhanced capacities of lead �rms; and others have opted for intermediary models, with donors and NGOs assuming critical supply-chain functions. Still other interventions have focused outside of speci�c value chains, seeking to strengthen the overall enabling environment and sup- port services for HVAF more generally. Relatively little of this expanding �eld of development assistance has been formally evaluated to consider its cost-effective- ness and impacts. Nevertheless, there are evident signs of learning and adjustment within the development community regarding the strengths, limitations, and pitfalls of various approaches and, relatively recently, some efforts to begin to share these lessons and to better coordinate development assistance in this �eld. RESEARCH PROGRAM OVERVIEW Although there is a growing body of research analyzing the constraints facing African smallholder farmer participation in HVAF markets and the importance of standards therein, there has been a lack of comparative analysis of the modalities and ef�cacy of public and private interventions designed to address these constraints, particularly in the context of compliance with market requirements. With growing interest and resource commitments in this �eld, there was an evident need to take stock of past and ongoing public and donor interventions, to consider the interplay between these interventions and private- sector strategies, and to broaden the observed terrain beyond the GLOBALG.A.P—fruit and vegetables—European Union (EU) supermarket nexus. A research program was thus implemented to better inform ongoing policy discussions about smallholder market access and standards and to contribute to evolving rethinking within the development community regarding areas of focus, speci�c approaches, and entry points for supporting smallholder compliance with emerging standards. The research program was not designed to evaluate any speci�c project, and, in this report, the authors have speci�cally refrained from examining the details and evident impact of any single project or donor program. Instead, a broader, medium-term perspective is provided that cuts across various types of standards and commodities and across industries of varying degrees of size and maturity. A range of methods were used, including literature reviews; surveys of farmers, exporters, and development practitioners; and a series of in-depth country and industry case studies (in Kenya, Uganda, Zambia, and Ghana) examining the relative importance of standards and other factors in facilitating or constraining growth and smallholder participation, the interplay between private-sector strategies and development interventions, and how all that activity relates to broader economic development objectives. This report provides a synthesis of the framework used and the major �ndings from this research program. The research program addressed a range of issues, falling under the following headings: Smallholders, comparative (dis-)advantage, and compliance with HVAF buyer or market standards: What are the critical constraints that hamper the sustained participation of small-scale producers in supply chains to high-value markets? Which of these are speci�cally related to the challenge of “assured compliance� with downstream buyer (or regulatory) requirements? In which contexts are these constraints most apparent? MA K ING TH E GR A D E E X E C U T I V E S UMMARY X IX Private-sector perceptions and approaches: What are the perceptions of key HVAF buyers (e.g., exporters, proces- sors) regarding the role and pitfalls of sourcing products from smallholder farmers in an era of evolving standards? What strategic and tactical approaches do they adopt to manage evident sourcing problems and risks? What changes have or might occur in the ways they include smallholder supplies into their overall procurement arrangements? What assistance—from governments, development agencies, or industry organizations—has or could help them to over- come the problems and costs of sourcing from smallholders? Development agency and practitioner responses and approaches: What are the perceptions of development practitioners regarding the constraints and opportunities facing smallholders when participating in HVAF markets? In practice, how and why have development assistance approaches to linking small-scale producers to HVAF markets changed over time? What patterns can be observed in the interplay between private-sector product sourcing strate- gies and development assistance measures in this �eld? What evidence is there that the development community is learning from past experiences and adjusting core approaches, bene�ciary targeting, and so forth? Understanding impacts: How is the success of interventions aimed at linking small-scale producers to high-value markets normally de�ned and assessed? How might these measures be re�ned and improved? Based on available evidence, what can be said about the ef�cacy of past and ongoing interventions to facilitate smallholder compliance with emerging HVAF requirements? Based on this evidence, what can be said about the impacts of adopting or not adopting standards for smallholder market participation, incomes, and non�nancial effects? Overall lessons learned and operational implications: What types of interventions, focused on “assured compli- ance,� seem to be most effective at achieving the sustained participation of smallholders in HVAF markets? What does the available evidence suggest about program foci and bene�ciary targeting, intervention entry points, the sequencing of activities, and realistic time frames to achieve and maintain results? ANALYTICAL FRAMEWORK: A SPECTRUM OF MARKETS, YET “BUYERS� ARE THE GATEKEEPERS Stringent standards are being primarily associated with high-value markets for agri-food products. Yet the implied dichotomy between low- and high-value markets presents an unduly simplistic picture of the market choices available to small-scale producers. In reality, there is a wide spectrum of alternative market options, depending on the nature, foci, and stringency of sourcing requirements. The accompanying �gure exempli�es different levels of upgrading, which can be broadly associated with particular “types� of markets or value chains. These levels of upgrading are frequently incremental, starting with basic visual quality parameters, preferred varieties, grades, and packing materials and progressively incorporating a wider range of compliance parameters related to production and process practices, record keeping, traceability along the supply chain, and risk and quality manage- ment structures. Compliance is assessed through �rst- and second-party inspection in the less demanding segments or markets (levels 1 to 3) and through third-party conformity assessment and certi�cation at the higher end. Moving across from level 1 to level 6, one can visualize a move away from localized traditional markets toward increasingly higher-value domestic and international value chains. This change is accompanied by progressively stricter food safety, quality, and other requirements. The various types of markets available to small-scale producers described above represent alternative marketing choices and supply response strategies. This variety implies a need for the potential returns from achieving assured compliance to be compared with the associated challenges and costs of undertaking the required functions. Recognition must be given to the producer’s starting point when contemplating upgrades and shifts to different market foci. For example, a producer already participating in a value chain of level 3 is presumably better placed to achieve assured compliance than a competing producer that is currently engaged in a value chain of level 1. This situation suggests the logic of an iterative strategy toward capacity building, with producers moving step-by-step from lower- to higher-value markets. However, the highest-value (and most exacting) markets represent simply one end of a continuum; value chains toward the middle of this spectrum may be more appropriate for smallholders in that the costs of achieving assured compliance are arguably more achievable, while targeting the highest-value markets does not necessarily translate into higher incomes for smallholder producers. E C O N O M IC AND S E CT OR WORK XX EX EC UTIV E S UM M A RY Spectrum of Regulatory and Market Requirements in Agri-Food Systems + specifications for more advanced/quite + specifications specific process for more advanced standards, yet and often quite implemented in + specifications specific process the context of for selected standards with highly integrated Upgrading steps basic standards, associated supply chains basic GAP, good greater detail in and where the hygiene, and record-keeping supplier has a + internal approaches to relatively quality safe pesticide sophisticated characteristics use/storage and management of products record-keeping structure for + quality systems quality control grades and + basic and risk varietals requirements on management preferences pesticide use + visual characteristics + consistent quality and quantities 1st and 2nd + 2nd and 3rd + 2nd and 3rd + 2nd and 3rd party party party party + visual + visual inspections/ conformity conformity conformity inspections inspection testing assessment assessment assessment Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Stringency of official and buyer’s requirements Level of sophistication of the conformity assessment systems Developing Countries Traditional retail Small local High-end/International supermarkets markets & small supermarkets stores Industrialized Countries Retail markets High-end supermarkets Local stores Discount supermarkets Source: The Authors. Therefore, the targeted segment and the speci�c product or process de�ne the challenges associated with compliance, while the starting point of the �rm, farmer, or industry de�nes the degree of individual or collective effort and investment required to achieve compliance in the targeted market. A clear assessment of the gap to be bridged is therefore a necessary �rst step in the process of supporting upgrades in smallholder production processes and market links. In the context of HVAF markets, it is often the case that value chains are buyer-driven, such that the participation of small- scale producers is more a function of the procurement decisions of buyers than the market choices of small-scale producers. A complex set of factors impact the structure of supply chains, the “make or buy� decisions by buyers (including processors, exporters, etc.) of higher-value products, and the decisions on whether and how to involve smallholder farmers. Challenges and costs associated with standards compliance and its assurance are among the pertinent factors, although these rarely dominate other factors. Many interventions by governments and the development community are designed to tilt or level the playing �eld so that prominent “buyers� choose to procure commodities and raw materials from smallholder farmers. HIGH-VALUE HORTICULTURAL EXPORTS AND SMALLHOLDER EXCLUSION: SURVEY AND OTHER EVIDENCE Much of the prevailing literature has viewed standards and smallholders through the very narrow lens of the experience with horticulture and with the GLOBALG.A.P standard. This limited focus has contributed to a rather sterile debate about whether or not standards (in and of themselves) exclude small farmers from markets. MA K ING TH E GR A D E E X E C U T I V E S UMMARY XXI The evidence in that sterile debate remains inconclusive—in part because of the multiplicity of factors driving entry and exit into and from supply chains. Results from a large survey of African fruit and vegetable exporters, conducted under this study program, sheds light on the changing structure of fresh produce procurement arrangements and the underlying factors driving “make or buy� and “from whom to buy� decisions. The results of the survey provide supportive evidence for both the optimists and pessimists regarding the prospects for continued smallholder participation in Africa’s fresh produce export trade. For the optimists, there is evidence that many ex- porters see the bene�ts of continuing to work with smallholders. For example, many exporters have developed and re�ned a procurement system built on a combination of “make� AND “buy,� with direct (and sometimes indirect) sourcing from smallholders being a critical part of the “buy� portfolio, especially for labor-intensive crops. Exporters are well aware of the strengths and limitations of sourcing from smallholders—yet also understand the constraints and risk involved in sourcing large quantities of produce from their own farms and from those of larger outgrowers. Large companies, in particular, have continued to substantially draw upon smallholder supplies and then to implement bimodal procurement systems combining their own farm-integrated supplies and those sourced from smallholders via contractual or other routinized arrangements. These companies account for the bulk of Africa’s fresh produce exports. To the extent that these companies continue to see the strategic advantages of smallholder sourcing—and have the capability to cost-effectively procure from this source and ensure that supplies meet their downstream requirements—there are likely to be ample opportunities for remunerative involvement by smallholders. Indeed, a majority of respondent �rms, including companies who supply standards-stringent markets, expect to either maintain or increase the volumes of supply that they obtain from smallholders in the future. For the pessimists, who believe that standards have and will continue to marginalize the role played by smallholders in this sector, certain supportive evidence can also be drawn from the survey. For example, the overall numbers of smallholders re- ported to be supplying the main product to the respondent �rms did decline from 2002 to 2007, with signi�cant proportional declines in the procurement arrangements for SMEs. Noncompliance (or rising costs associated) with emerging standards may have played some role in this decline, although other factors were certainly also involved. More than half of the decline in reported smallholder numbers is attributable to companies which indicate that either none or a minority of their customers enforce food safety standards. As an illustration, a substantial reduction has occurred in the role of smallholders in Ghana’s fresh pineapple export trade. Issues with (non-)compliance with food safety requirements have not been a factor in this trend. Instead, the shift to a dominant large farm structure has been driven by a change in the main pineapple variety sought by the European market and the higher investments in irrigation and other facilities needed in Ghana. Very high levels of turnover of smallholders involved in the procurement for all size categories of companies were reported. This �nding does not suggest a stable structure in which both producers and �rms develop trust and promote the upgrading of productivity and the application of good agricultural practices. There appears to be much fluidity in smallholder participa- tion, with considerable entries, exits, and shifts in involvement between one �rm or another. Export-oriented horticultural production entails quite a bit of production and commercial risk. If a large proportion of smallholders are engaged in this activity only periodically or as “free agents,� not immersed in the management systems of leading or long-standing compa- nies, then the prospects for remunerative and sustainable participation are not strong. The consequences of this possible trajectory need to be put in proper perspective. The survey respondents reportedly accounted for some 88 percent of SSA’s fresh horticultural trade (outside of South Africa) in 2007. The total number of small- holders supplying—either directly or through intermediaries—the lead export product to these companies was just under 48,000. Across the sample, the lead product accounted for just under 70 percent of these companies’ exports. Hence, we would roughly estimate that these companies source from 55,000 smallholders. Some 55 percent of these farmers supply companies which report that either none or a minority of their customers enforce food safety standards. Even if the total number of regular suppliers to this trade were facing more dif�cult challenges ahead, the implications for broader rural development patterns are not so clear. To put those numbers in perspective, in Kenya alone it is variously esti- mated that the number of smallholder households supplying horticultural produce to the domestic market exceeds 500,000 while the number of people employed on export-oriented commercial farms or pack houses for horticultural and floricultural products has exceeded 200,000 in some years. In contrast, the number of smallholders regularly supplying Kenya’s fresh E C O N O M IC AND S E CT OR WORK XXII EX EC UTIV E S UM M A RY vegetable export trade is approximately 11,500. In other case study countries, the number of people employed in various capacities in the export horticultural supply chain is similarly a very large multiple of the number of smallholder households supplying produce to this trade. For example, in Zambia the number of smallholders participating in the export horticultural trade peaked at about 450, while some 5,000 to 7,000 people have variously been employed in the larger, integrated vege- table operations. Thus an argument could readily be made that the largest welfare bene�ts from export-oriented horticulture relate to employment rather than to direct smallholder produce supply and that the largest opportunities for future welfare gains from smallholder engagement in markets relate to the development of domestic and regional value chains involving much larger numbers of producers, with consequent bene�ts also accruing to domestic consumers. As mentioned before, the analytical concentration on GLOBALG.A.P helped to steer the donor community down the path of programs to subsidize smallholder GLOBALG.A.P compliance and certi�cation. Yet, while there have been some limited success stories—generally amid already successful and dynamic industries—this path of assistance has proven to be a cul-de-sac, impacting relatively few bene�ciaries in relation to the much larger number of African smallholders engaged in horticultural crop production. Donor programs to facilitate GLOBALG.A.P compliance may have had some minor impact on African trade flows, yet their impact on broader rural development patterns and poverty reduction appears to have been rather marginal. After several years of experimentation, there is a palpable sense of frustration within the development com- munity regarding the impacts achieved and the sustainability of these gains in an ever-changing commercial environment. Thus, the challenges of GLOBALG.A.P compliance represent something of an outlier, pertinent for only a small segment of African smallholders and larger export-oriented horticultural companies. The vast majority of African horticultural producers are (and should be) oriented to servicing different markets for which the standards requirements are readily achievable and which offer opportunities for differentiation and price advantage. The same applies for most SME trading companies whose success rate in supplying and sustaining business relations with high-end international supermarkets is very low. Programs pushing SMEs in this direction may well be diverting them away from more remunerative and sustainable commercial strategies and therefore accelerating their demise. While the numbers of “excluded� producers may go up or down with each new academic study, the development com- munity seems to have moved on to other concerns, recognizing that the scope for sustainable smallholder participation in certain markets relates to many factors, and also recognizing that there is little prospect for large numbers of African smallholders to participate in GLOBALG.A.P-certi�ed markets. These realizations have led to several shifts in the direction and emphasis of development assistance in this area. One is from a strong emphasis on supply-side constraints (working at the �rm or farmer level) toward more emphasis on standards-related enabling factors (e.g., providing generic training and training materials, improving associated services to reduce costs and improve outreach, enhancing policy frameworks, etc.). A second shift is in devoting more attention to standards-based markets that appear to be more accommodating and suitable for smallholder farmers—thus ful�lling a vision of large numbers of African smallholders actually bene�ting from improved standards. OPERATIONAL LESSONS FROM DEVELOPMENT PROGRAM INTERVENTIONS The evidence found on the cost-effectiveness and impacts of development programs in this �eld is decidedly mixed, with many initiatives perceived as “failures� and others as “successes.� Quotation marks are used because sometimes “fail- ures� resulted in valuable learning, subsequently applied, while some “successes� involved missteps along the way or bene�ted from highly fortuitous circumstances (i.e., price spikes for focal commodities). In addition, we still know very little about the sustainability of impacts and institutional capacity. This is a relatively young �eld of development assistance. Looking across the broad range of projects and case studies that were examined in this research, the leading, if not domi- nant, “success factor�—in explaining achievements in enabling smallholders to comply with standards and remain partici- pating in remunerative supply chains—was the prior strength and capabilities of so-called lead �rms. Where these were well managed and amply resourced and had a competitive position within domestic or speci�c international markets, various support schemes were able to get reasonable traction on the sustained upgrading of smallholder production. MA K ING TH E GR A D E E X E C U T I V E S UMMARY X X III In contrast, fragmented and weak industries have generally not effectively used and absorbed standards-related technical assistance. There must be at least a subset of leaders who can provide a local demonstration effect. It is the lead �rms that have tended to drive improved standards adoption by smallholder farmers—through the requirements they set and, typi- cally, through their outreach and procurement oversight systems. Programs that initially ignored the lead �rms or somehow sought to bypass them with project staff acting to link farmers to markets have generally had either modest or poor results. Efforts to link African smallholders to high-value markets via emerging SMEs have frequently encountered problems in attaining and especially sustaining signi�cant upgrades. In circumstances where lead �rms themselves apply low standards, we observe that efforts to independently promote improved product and production standards by smallholders have generally failed or obtained little leverage. If the focal market is not calling for or rewarding a change, it simply is not going to happen even in the presence of enlightened advisers. Bottom-up standards initiatives—that is, involving the improvement of farmers’ products and systems and the assumption that enthusiastic buyers will come charging—seem to rarely work in practice, in large part because such initiatives do not typically achieve a consistency of standards and supply and a large enough volume to command the market power that is being sought. Not all bottom-up market initiatives have this fate, although those whose centerpiece is standards compliance (rather than basic produce assembly, logistics, etc.) do not appear to have a good track record. Thus, experience shows that development interventions in this �eld work best when they complement the commercial strategies being pursued by “lead� and other companies. And they should be consistent with those strategies. While it has been bene�cial to encourage �rms to be proactive and to anticipate requirements and opportunities emerging in their focal markets, there has been some tendency, especially in programs supporting SMEs, to reorient �rms down the path of a speci�c standard or protocol, sometimes exposing them to a level of �nancial risk and technical challenge that they cannot manage without the intensive resources provided under the donor program. When the program ends, some such companies �nd themselves caught in the middle, having adopted certain investments and other changes, having raised their cost structure, yet still not able to fully comply with the focal standard or meet the other (including volume) requirements of buyers. Thus, the structure and maturity of an industry should strongly influence the design of standards-related and complementary interventions. Looking across the range of experiences, a second critical success factor appears to be the targeted market and the “proximity� of the improved standards with the prevailing practices and capabilities of farmers, service providers, and com- modity buyers. For smallholder agriculture, incremental upgrades involving technical learning, institutional coordination, and increased record keeping can progress well over time, yet radical shifts, entailing costly investments, are rarely successful or appropriate. Thus, for the most part, great leaps forward are neither necessary nor practical. Despite the impression given by some of the prevailing literature and commentary, our observation is that African small- holders—or at least those with some commercial orientation—only rarely encounter situations where there are signi�cant technical barriers for them to meet quality and other market requirements. There may certainly be �nancial constraints or inadequate economic incentives to meet this or that requirement. Generally, however, there still remains a spectrum of market segments with improved standards representing an opportunity space for farmers or farmer groups to differentiate their supply from the norm. In fact, one could argue that the broadest opportunities for development impact in lower-income countries—that is, where the chances of success are highest, where more people are impacted, and where gains are more readily sustained after interventions—lie across levels 1, 2, and 3 in the analytical framework presented earlier. Evidence for this argument was provided by case studies on sunflower, coffee, sorghum, dairy products, and groundnuts. For most countries of SSA, there are very ample opportunities to upgrade smallholder productivity and make very basic improvements in product quality, presentation, and assembly—to service domestic and regional, and less demanding, export markets. Thus, while well meaning and underpinned by a growing academic literature, a sizable proportion of donor activity in this space seems to have centered on the “wrong� end of the standards spectrum. The foci of attention have been on stan- dards and market segments that are most familiar to Western market actors and technical professionals. That is, greater E C O N O M IC AND S E CT OR WORK XXIV EX EC UTIV E S UM M A RY understanding has existed about the standards required by European and North American (upper-end) supermarkets and those associated with social movements in the West, including movements related to organics and fair trade. Meeting high-end supermarket standards was deemed to be “necessary� for African smallholders to remain engaged in export- oriented production, while adopting one or another social or sustainability standard has been cast as an opportunity to reposition smallholders in global supply chains, to their bene�t. Both streams have required an elaborate apparatus of paperwork, advisers, and auditors. The shortcomings of this approach and areas of emphasis have been recently recognized and have led to shifts in some programs. Still, comparatively fewer donors have been active and less emphasis has been placed on the early and middle levels in the standards spectrum, those levels that are associated with nearer or more mainstream markets and more incremental and less visible upgrades, that are amenable to local solutions and South-South technical advice, that yield bene�ts for local con- sumers, and that have greater potential for long-term sustainability. Unless this imbalance is addressed, standards-related initiatives will remain marginal to the broader challenges of promoting agricultural commercialization and rural development in SSA. During the past few years there is an encouraging trend toward a better balance of activity, with increased attention being given to support for upgrading domestic and regional value chains. Along these lines, a growing number of donors have come to understand the limitations of focusing attention on achieving farmer and product certification under some specific international standard. The point of departure of some earlier sup- port for smallholder certi�cation was that fundamental upgrades had already been made and that the remaining gaps can be easily narrowed. In many cases, this assumption was incorrect, with the need to ‘go back to basics’—in farmer organization, applied research and advisory services, business development services, and logistics improvements—frequently emerging as ‘lessons learned’ from these experiences. Thus, it has become increasingly evident that the strategy to use certi�ed production as a tool for smallholder market inte- gration needs to be based on a continuum of improvements, with the target being to provide tools for long-term competitive- ness. When certi�cation is applied as a replacement for undertaking the upgrades required for gradually achieving gains in terms of quality, consistency, and improved on-farm information, it is very unlikely to contribute to sustainable outcomes. In the end, international buyers will buy the product that ful� lls their requirements. Social and environmental claims are not a substitute for quality and consistency. In SSA, challenges of consistency in supply and quality remain major bottlenecks of small-scale farmers’ participation in markets. The need for farmer collective action and for strong group cohesion to aggregate volumes and facilitate small- scale farmers’ access to services remains an important bottleneck to be solved, both in certi�ed and noncerti�ed markets. Therefore, the emphasis on the achievement of certi�cation by farmers and farmer groups should not detract from the criti- cal role of development efforts in supporting continuous improvements to achieve quality and productivity gains, promote smallholder organization and empowerment, and so forth. Overall, this �eld seems to be struggling to identify and apply “exit strategies� for development programs. In comparatively weak institutional environments, many donors have opted for capacity-bridging rather than capacity-building approaches, with project-hired staff providing the core technical assistance and brokerage services. In some cases, efforts have been made to “localize� the technical assistance units, yet these entities have commonly struggled and have remained depen- dent on subsequent donor programs to sustain their operations. Programs designed to support local “business development services� have tended to initially oversubsidize these services and then prematurely withdraw the support (in line with short project cycles), all too often leaving behind a distorted market for technical, advisory, and auditing services and relatively few examples of viable service providers able to withstand any signi�cant production or market shock. And, while in the sanitary and phytosanitary �eld some signi�cant attention has been given to strengthening public-sector capacities, especially among “competent authorities� responsible for company licens- ing and product clearance for selected export products, little attention has been given to public-sector capacities pertinent to the support of improved social and environmental standards. After all, such standards are widely regarded as both “private� and “voluntary.� MA K ING TH E GR A D E E X E C U T I V E S UMMARY XXV Thus, while there have certainly been important advances over the past decade, much of the enhanced capacity for stan- dards management has been embedded in a range of processing and exporting companies with comparatively little broader institutional capacity put or sustained in place. The pool of local advisers, quality managers, and standards certi�ers has certainly grown, but not nearly in proportion with the investments that the development community has made in this area. The results of this research work have highlighted the need to balance attention to both the old and new sets of constraints and solutions associated with remunerative smallholder participation in agri-food markets. This does not mean that efforts to promote smallholder participation in niche and very exacting markets are not without potential or merit. Rather, these efforts appear to be more dif�cult, to involve comparatively higher costs per direct bene�ciary, and to likely entail longer time frames to demonstrate sustainable results, particularly when “great leaps forward� are promoted. Therefore, the broader debate on whether supporting high-value agriculture or rather focusing on less exacting markets is the way forward to en- suring large development gains might still be needed. However, in the speci�c case of smallholders, the evidence strongly suggests that the best approach is to support incremental upgrades along the broader spectrum of market opportunities. There are clearly no shortcuts to progress. In many contexts, there remains un�nished business in addressing the old constraints to remunerative smallholder participation in markets—those constraints related to basic infrastructure, farmer organizations, access to �nance, and so forth. These constraints have not disappeared as the new realities of stricter standards have set in. For governments, private companies, and development partners, the challenge of smallholder in- tegration to markets still lies in supporting gradual upgrades, helping farmers to move progressively along a continuum of improvements, and being linked to value chains for which they can meet downstream and consumer requirements, on a remunerative basis and with a manageable degree of risk. E C O N O M IC AND S E CT OR WORK I N T R O D U CT ION 1 Chapter 1: INTRODUCTION Market access has been identi�ed as one of the foremost GLOBALG.A.P standard (formerly known as EurepGAP). A factors influencing the performance of small-scale produc- wave of empirical studies has sought to examine patterns of ers in developing countries, and in particular least-developed smallholder adoption of GLOBALG.A.P, the associated com- countries. Smallholder access to markets for higher-value or pliance costs, and evidence of �nancial and other bene�ts. differentiated agricultural and food products (hereafter HVAF) Claims and counterclaims have been made as to whether is recognized as a vital opportunity to enhance and diversify GLOBALG.A.P requirements—in and of themselves—have the livelihoods of lower-income farm households and reduce served to exclude smallholder farmers from potentially re- rural poverty more generally (World Bank 2007). munerative export-oriented supply chains, especially those serving western Europe. As if this threat were not enough, Smallholder participation in HVAF markets is typically con- other observers have highlighted the pace of change in food strained by inadequate farm-level resources, farm-to-market retailing within developing countries, documenting the “rise logistical bottlenecks, and more general transaction costs in of the supermarkets� and the opportunities and challenges matching and aggregating dispersed supplies to meet buyer that modern retailing poses for local farmers and small- and and consumer demand. These traditional constraints have medium-sized (SME) food companies (Weatherspoon and been ampli�ed and, in some cases, surpassed by a new set Reardon 2003). The specter of smallholder market exclusion of challenges associated with compliance with product and is thus raised again, this time on domestic turf, as smallhold- process standards—set and enforced by governments as ers and their groups may be unable to meet the volume and well as private supply-chain leaders. The tightening, broaden- quality or food safety requirements of these end markets, ing, and proliferation of pertinent food safety, environmental, or face high costs in having such compliance assured or and other standards have been the product of various factors certi�ed. that have been previously analyzed (World Bank 2005). A vi- brant debate has emerged over the extent to which emerging In the face of emerging opportunities and challenges associ- standards pose barriers for developing countries’ trade rather ated with servicing HVAF markets, many development agen- than catalysts for production and downstream upgrades, cies, nongovernmental organizations (NGOs), government thereby improving welfare and competitiveness. There is agencies, and private companies have implemented a grow- ample evidence to support both contentions because differ- ing array of measures to level the playing �eld, strengthen ent circumstances have yielded diverse outcomes. speci�c technical or institutional capacities, or otherwise act to facilitate smallholder compliance with emerging standards A subset of this debate relates to the smallholder farmers’ and continued or increased participation in HVAF supply position and room for maneuvering. There is considerable chains. Such investment, cost-sharing, capacity-building, or concern that the opportunities provided by HVAF markets will capacity-bridging activities have expanded considerably in go unrealized by smallholders because of either their technical inability to meet emerging regulatory and private standards or the high compliance and certi�cation costs involved. That is, 2 The following example serves to illustrate this point. Sixty whatever productivity or production cost advantages small- percent of nearly 100 African practitioners that responded to an electronic survey, within the context of an e-learning scale might have would be outweighed by the burgeoning course on standards and trade organized by the World Bank transaction costs associated with facilitating, monitoring, and (WB) in 2007, agreed with the following statement: “Com- certifying smallholder compliance with standards.2 pliance with standards has emerged as the single most im- portant constraint on African small-farmer/small-enterprise participation in export supply chains for higher value prod- The cause celebre in this policy dialogue has been com- ucts.� Yet the same percentage of the respondents agreed pliance with the fruit and vegetable protocol under the that important “spillover� bene�ts can arise from compliance. E C O N O M I C AND S E CT OR WORK 2 C H A PTER 1 recent years, especially in sub-Saharan Africa (SSA). They was to strengthen the capacities of African researchers for have taken varied forms and involved various entry points. policy-oriented work in this �eld.3, 4 Many initiatives have been bottom-up, focusing on smallhold- er (or smallholder group) capacities for production, collective The research program has involved a partnership between action, standards compliance, and so forth; others have been the WB, the University of Guelph, and African researchers top-down, seeking to better link farmers to remunerative located in Kenya, Uganda, Zambia, and Ghana. In addition markets through the efforts and enhanced capacities of lead to a broad literature review and the development of a pro- �rms. Still other interventions have focused outside of spe- gram-speci�c conceptual framework, the research program ci�c value chains, seeking to strengthen the overall enabling involved the following: environment and support services for HVAF more generally. A review and characterization of donor and NGO evolving approaches to value chain development and For some organizations, these efforts to facilitate small farmer smallholder and SME standards compliance, based on compliance with standards have been a core line of activity; institutional documentation and correspondence with for others, such efforts have been included in broader value key personnel. chain or other rural development initiatives. Most of the World A survey of practitioners (development agency, NGO, Bank’s (WB) support in this area has been of the latter variety, and technical organization representatives) eliciting focusing on strengthening the broader enabling environment perceptions of opportunities and constraints facing of policies, regulations, public institutions, and infrastructure, small-scale producers in the context of HVAF markets, yet with some forays into training and technical assistance at the roles of different entities in “leveling the playing company and farm group levels. Other development partners �eld,� and the ways in which the ef�cacy of such have had a deeper, although still relatively short, experience interventions are and should be assessed. working to support compliance with speci�c regulatory re- A workshop bringing together a range of international quirements or private voluntary standards. practitioner entities to highlight and draw lessons from speci�c programs whose primary or secondary objective was to upgrade production and supply-chain RESEARCH PROGRAM OVERVIEW standards and management practices in selected While there is a growing body of research analyzing the commodity subsectors in SSA. constraints facing African smallholder farmer participation A survey of 172 horticultural exporting companies in in HVAF markets, as well as the importance of standards SSA to gauge their attitudes toward procuring product therein, there is a lack of comparative analysis of the modali- from alternative sources, to map current patterns of ties and ef�cacy of public and private interventions designed sourcing and changes over time, and to delineate the to address these constraints, particularly in the context of compliance with market requirements. With growing inter- est and resource commitments in this �eld, there was an 3 A more ambitious objective of highlighting “best practices� and evident need to take stock of past and ongoing public and providing “guiding principles� to improve the effectiveness and donor interventions, to consider the interplay between these poverty reduction impacts of project interventions was also iden- ti�ed, yet the available evidence remains both insuf�cient and interventions and private-sector strategies, and to broaden inconclusive, largely because of the short time frame of many re- the observed terrain beyond the GLOBALG.A.P—fruit and cent interventions, to presently draw such generalizations across vegetables—European Union (EU) supermarket nexus. quite diverse experience. Work in this latter area, with the more systematic sharing of implementation experiences and results, needs to continue in order to raise the overall standard of devel- With assistance from the Bank-Netherlands Partnership opment assistance in this �eld. Program (BNPP) (Trade Window) and the Canadian 4 A Trade Standards Practitioners Network (TSPN) has been International Development Research Centre (IDRC), a re- formed, a major objective of which is shared learning and the characterization and identi�cation of good or better practices search program was implemented to inform better ongoing in standards-related technical assistance programs. The TSPN policy discussions about smallholder market access and focuses on interventions to improve developing country re- standards and to contribute to evolving rethinking within sponses to emerging environmental, social, and private food safety standards. The Standards and Trade Development Facility the development community regarding areas of focus, spe- (STDF), whose secretariat is based at the World Trade Organiza- ci�c approaches, and entry points for supporting smallholder tion (WTO), is working to better coordinate technical assistance for compliance with of�cial food safety and agricultural health compliance with emerging standards. A parallel objective regulations, and also to share experiences among organizations involved in delivering and receiving such technical assistance. MA K ING TH E GR A D E I N T R O D U CT ION 3 signi�cance of standards requirements in driving these outcomes. Such surveys also highlight the reported procurement decisions and patterns. A key focus here impact of various government, donor, and NGO in- has been the decision to source from smallholders terventions. Relatively large surveys were conducted versus other available sources of supply. among Kenyan green bean farmers, Ugandan vanilla A series of in-depth country and industry case stud- growers, and Ghanaian pineapple and vegetable ies examining the relative importance of emerging producers. Both descriptive and econometric analyses standards in facilitating or constraining growth and are being undertaken. participation, the interplay between private-sector The research program addressed a range of issues, falling strategies and developmental interventions in ensur- under the following headings: ing standards compliance, and how all this activity relates to broader economic development objectives. Smallholders, comparative (dis-)advantage, and Industry case studies were selected to represent compliance with HVAF buyer or market standards: some diversity of operating contexts, including dif- How adversely tilted is the playing �eld against small- ferences in product and market characteristics and holders? How might emerging standards create new differences in the size and maturity of industries. It opportunities or exacerbate underlying constraints was hypothesized that these factors (e.g., techno- facing smallholder farmers? What are the critical economic characteristics of production and products; constraints that hamper the sustained participation of farmer and �rm past experience; industry maturity and small-scale producers in supply chains to high-value leadership, etc.) would have a profound effect on the markets? Which of these constraints are speci�cally needed resource commitments to level the playing related to the challenge of assured compliance with �eld in favor of smallholders and the likelihood of suc- downstream buyer and regulatory requirements? In cess (see table 1.1).5 which contexts are these constraints most apparent? Conceptually, how might different types of interven- A series of smallholder farm household surveys exam- tions by governments and development agencies ining crop and standards adoption patterns, economic adjust the playing �eld, in the short or longer terms? and other impacts, reported good agricultural practices (GAPs), and explanatory factors contributing to these Private-sector perceptions and approaches: What are the perceptions of key HVAF buyers (e.g., export- ers, processors) regarding the role and pitfalls of sourcing products from smallholder farmers in an era TABLE 1.1: Country and Commodity Case Studies of evolving standards? What strategic and tactical COMMODITY COUNTRY approaches do they adopt to manage evident sourc- Horticulture Kenya, Ghana, Uganda, Zambia ing problems and risks? What changes have or might Honey Ghana, Uganda, Zambia occur in the ways they include smallholder supplies Vanilla and other spices Uganda into their overall procurement arrangements? What Dairy Kenya, Uganda, Zambia assistance—from governments, development agen- cies, or industry organizations—has or could help Organic coffee, cotton, and industrial Uganda, Rwanda raw materials them to overcome the problems and costs of sourcing from smallholders? Development agency and practitioner responses and approaches: What are the perceptions of devel- 5 Although the focus of attention has been on export-oriented opment practitioners regarding the constraints and supply chains and the challenges and strategies associated with smallholder participation, in some cases attention was given to opportunities facing smallholders when participating in the interface between exports, standards compliance, and the HVAF markets? In practice, how and why have devel- domestic or regional market (as in the case of dairy). In most opment assistance approaches to linking small-scale cases, the primary sources of information have been interviews with a representative range of processors and exporters, public producers to HVAF markets changed over time? What of�cials, producer organizations, and donor or support organi- are the predominant approaches at the current time? zations. Drawing from the information and data collected from How and why have approaches that address the spe- these sources, a qualitative assessment of the ef�cacy of the project or intervention, in terms of achieving the sustainable par- ci�c challenges of standards compliance changed over ticipation of small-scale producers in supply chains to high-value time? What patterns can be observed in the interplay markets for agricultural and food products, was undertaken. E C O N O M I C AND S E CT OR WORK 4 C H A PTER 1 between private-sector product sourcing strategies smallholders in participating and complying with standards in and development assistance measures geared toward HVAF markets and supply chains, on the one hand, and the tilting the playing �eld in favor of smallholders? What scope for effective government and development agency evidence is there that the development community is interventions in this area, on the other. In so doing, this work learning from past experiences and adjusting core ap- will help to enhance the strategies, prioritization, and ap- proaches, bene�ciary targeting, and so forth? proaches taken by development practitioners in this �eld. Smallholder farmer perspectives: How do farmers A complementary objective is to provide, in readily accessible perceive the relative signi�cance between traditional form, various insights, perspectives, and empirical evidence constraints (i.e., access to land, water, and labor; related to the challenges and opportunities facing African logistics) and new constraints (i.e., production process smallholders and supply-chain entities in HVAF markets, es- standards; certi�cation costs; product traceability) in pecially in relation to compliance with pertinent standards. accessing and maintaining access to remunerative This review seeks to “tone down the heat� in ongoing policy agri-food supply chains? What tangible and intangible discussions of standards as barriers versus catalysts, provid- bene�ts have been associated with movement toward ing, as best as possible, an objective assessment of the pat- (and support for) higher product and production pro- terns and representativeness of available evidence, including cess standards? that generated from the present research program. Understanding impacts: How is the success of interventions aimed at linking small-scale producers to While coverage of GLOBALG.A.P-related issues is unavoid- high-value markets normally de�ned and assessed? able, the review and analysis will extend well beyond this What role does sustainability (of outcomes, institu- coverage to demonstrate the diversity of settings, opportuni- tional capacities, etc.) play in these assessments? ties, and approaches to enabling smallholders to participate How might these measures be re�ned and improved? in standards-based markets. In much of SSA, domestic or Based on available evidence, what can be said about international supermarket chain market penetration remains the ef�cacy of past and ongoing interventions to very limited, and so little attention will be directed here to facilitate smallholder compliance with emerging smallholder-supermarket links (or lack thereof). Other re- HVAF requirements? Based on this evidence, what search programs have been focusing on that issue. The paper can be said about the impacts of standards adoption highlights both the opportunities and challenges associated or nonadoption for smallholder market participation, with accessing markets characterized by varying speci�c- incomes, and nonpecuniary effects? How representa- ity and stringency of standards. In so doing, it inquires into tive or generalizable is this evidence? whether donor and government support efforts should de- Overall lessons learned and operational impli- vote considerable attention and resources to aid smallholder cations: What types of interventions, focused on participation in the more exacting markets, or whether less assured compliance, seem to be most effective at exacting markets potentially provide an appreciable return achieving the sustained participation of smallholders (and far less risk) to larger numbers of farmers. Rather than in supply chains to HVAF markets? What does the an either/or question, this may be simply one of getting the available evidence suggest about program foci and balance of attention right. bene�ciary targeting, intervention entry points, the sequencing of activities, and realistic time frames to The paper is structured as follows. Chapter 2 summarizes the achieve and maintain results? evolution of regulatory and market requirements in HVAF mar- kets. It highlights the key elements in the evolving structure of regulatory requirements and private standards governing THIS SYNTHESIS REPORT access to and participation in higher-value product markets. This synthesis report provides a condensed and readily acces- Chapter 3 provides a conceptual framework that helps to ex- sible discussion of the main themes, �ndings, conclusions, plain the sets of factors influencing the inclusion or exclusion and “empirical greatest hits� from the broader research program; it also integrates core insights from the parallel, expanding research and advocacy work in this �eld.6 6 Not all of the above themes and issues are fully addressed in this synthesis report. For example, smallholder farmer perspectives The broad purpose of this synthesis report is to provide a emerged from the program’s farmer surveys, the quantitative stronger bridge between analyses of constraints facing �ndings from which are reported elsewhere. MA K ING TH E GR A D E I N T R O D U CT ION 5 of smallholder farmers in higher-value supply chains, how the lessons emerging from these efforts. Chapter 5 provides a challenges of assured compliance with standards �t into this commercial buyer’s perspective on the sourcing of high-value overall picture, and the roles that development assistance products and raw materials from smallholders and alterna- programs can and do play to influence the playing �eld and tive sources. It combines results from a large-scale survey the ways in which smallholders are impacted—positively or involving African fresh produce exporters with insights into negatively—by emerging product and production process strategic and tactical considerations derived from selected standards. research case studies. Chapter 4 provides an overview of the patterns of develop- Chapters 6 and 7 provide summary �ndings from a range of ment assistance pertinent to this �eld, tracing this assistance the research program’s case studies and �eld surveys. These to 1980s and 1990s antecedent programs related to nontra- cases illustrate a diversity of experiences, with both easy ditional export development and supply-chain partnerships, and more challenging processes of smallholder adoption of as well as to subsequent initiatives to “link smallholder farm- improved standards and both successful and decidedly less ers to markets� and address broad-capacity needs related to effective development community interventions, including agri-food standards management. A summary is then pro- various lessons that have or could be gleaned. Chapter 8 of- vided of the past decade’s interventions centered on facilitat- fers some conclusions. ing smallholder compliance with standards, including some E C O N O M I C AND S E CT OR WORK T H E E V O L UT ION OF RE GUL AT ORY AND MAR K ET REQUIREMENTS IN H VA F MA RK ETS 7 Chapter 2: THE EVOLUTION OF REGULATORY AND MARKET REQUIREMENTS IN HVAF MARKETS In order to understand the opportunities and challenges faced whole, they are indicative of the broad thrust of changes in the by smallholders in the face of emerging and expanding supply governance of food safety and quality in global markets.7 chains for higher-value or differentiated agricultural and food products (HVAFs), it is necessary to examine the changes DRIVERS OF CHANGE IN THE GOVERNANCE OF that are occurring in the regulatory requirements and private FOOD SAFETY AND QUALITY standards governing these chains and the related compliance According to Henson and Humphrey (2010), there are three processes. There is ample evidence that smallholders can main drivers of the evolution of regulatory requirements and gain substantively from participation in HVAF supply chains private standards in agri-food markets: (see, for example, McCulloch and Ota 2002; Maertens and 1. Heightened interest and changing conceptions of Swinnen 2009), even in the face of stricter food safety and food safety and quality among consumers quality requirements. At the same time, there are concerns 2. Restructuring and progressive globalization of agri- that the adjustment processes associated with compliance, food supply chains in terms of production practices and management systems, 3. Broader trends toward the “privatization� of market as well as the related costs, may be prohibitive, especially for governance smaller or poorer farmers (see Dolan and Humphrey 2000; Jaffee 2003; Okello 2005; Jensen 2004; OECD 2006). Hence, As will be seen below, these drivers have stimulated re- as discussed below, interventions directed at smallholder forms in food safety and quality regulatory systems, which participation in HVAF supply chains have tended to focus themselves have been a major driver of private standards on overcoming these compliance challenges, alongside and and related processes of conformity assessment. This fact sometimes instead of the traditional preoccupation with farm- suggests a complex and nonlinear process of restructuring level productivity, supply-chain bottlenecks, and so forth. This and regovernance of agri-food supply chains, which is seen refocusing reflects both a recognition of the bene�ts to be most profoundly with HVAF products but increasingly within gained from linking smallholders into HVAF supply chains and the global agri-food economy as a whole. also a general view that compliance challenges more gener- ally are increasingly the norm and are unavoidable. Consumer Demand and Conceptions of Food Safety and Quality This chapter aims to provide a broader context to the chal- In the markets of industrialized countries, attitudes toward lenges associated with the assured compliance faced by food and related demand patterns for higher-value food smallholders attempting to gain access to HVAF supply products have evolved with demographic and socioeco- chains. In particular, it examines two key questions. First, nomic trends. In all industrialized countries, the share of what broad changes are taking place in HVAF supply chains, notably as they relate to regulatory requirements and private standards governing food safety and quality? Second, what 7 In the United States, for example, the Food Safety Modern- ization Act (FSMA), passed by Congress in December 2010, factors are driving these changes in the governance of food signi�cantly expands the powers of the Food and Drug Ad- safety and quality? Given that the predominant focus of the ministration (FDA) with respect to food. It includes provisions research program was on HVAF exports from sub-Saharan for traceability requirements and Hazard Analysis and Critical Control Point (HACCP) implementation. Speci�c provisions Africa (SSA), primary attention is given here to ongoing on imports include the Foreign Supplier Veri�cation Program, changes in European markets. While the evolving regulatory the Voluntary Quali�ed Importer Program, and FDA authoriza- tion to require import certi�cates. The law also authorizes the requirements and private standards in Europe are certainly agency to create a system for recognition of bodies that ac- not universal to industrialized country agri-food markets as a credit third-party auditors to certify eligible foreign facilities. E C O N O M I C AND S E CT OR WORK 8 C H A PTER 2 FIGURE 2.1: Change in the Value Composition of SSA Exports of Food and Agriculture (%) Cereals & cereals Cereals & cereals preparations preparations 5% 1970 –1979 3% Others 2000 – 2009 Animal & Animal & 6% vegetables oils & fats vegetables oils & fats 4% 2% Others Beverages & tobacco 8% Beverages & tobacco 2% Coffee, cocoa, 11% tea & spices Oil seeds, oil nuts & oil kernels Coffee, cocoa, 29% Oil seeds, oil 5% tea & spices nuts & oil kernels Non-traditional 49% 3% FFV, fish, (FFV, fish, cut flowers, cut flowers, meat & dairy) meat & dairy Textile fibers 11% 32% 8% Sugar & sugar Sugar & sugar preparations, Textile fibers preparations, honey 10% honey 6% 6% Source: Calculations based on the United Nations Commodity Trade Statistics Database (COMTRADE). income spent on food has fallen dramatically over time. income populations of developing countries, are associated While consumers now spend a smaller proportion of what with a rising prevalence of obesity and an array of diet-related they earn on food, they have shifted consumption toward diseases. In part, such trends reflect the progressive ageing higher-value products, including fresh fruits and vegetables, of the population, but also a mismatch between the nutrient �sh, nuts, and spices. This shift in consumption patterns has composition of the diet and the dietary needs of consumers. had tremendous implications for developing country exports. Thus, there is an increasing interest in foods perceived to be With about 40 percent of the trade in agriculture, �sheries, healthy and food products that incorporate ingredients that and forestry occurring between developing and developed are purported to be health-promoting. countries, the former have experienced a tremendous transformation of their agri-food export portfolio in recent Alongside concerns about the longer-term health effects of decades. For example, for SSA, the aggregate average share food, and despite major advances in scienti�c knowledge of traditional exports—coffee, cocoa, tea, and spices—out and technology, food safety remains a considerable source of of total agri-food exports decreased from 49 percent during anxiety to consumers in industrialized countries.8 Indeed, an the period 1970–79 to only 29 percent during 2000–2009, ongoing series of food safety failures related to recognized while the share of nontraditional exports (including fresh hazards in foods (for example, Salmonella in eggs or E. coli in fruits and vegetables, �sh, cut flowers, etc.) increased from salad greens), and the emergence of new hazards with real 11 percent during the period 1970–79 to 32 percent for the or plausible links to food (for example, bovine spongiform period 2000–2009 (�gure 2.1). encephalopathy [BSE]), have served to shake consumer con- �dence (Henson and Caswell 1999; Henson and Jaffee 2008) In many cases, consumers in industrialized countries have (table 2.1). As a result, consumers have looked to foods that been tempted to try an increasingly wide array of “exotic� are perceived to be safer (for example, organic) and to food foods to which they are exposed through foreign travel, im- producers, processors, and distributors that are seen as em- migration, television, and other forms of media. More broadly, ploying more rigorous food safety controls. foods are increasingly purchased partially or fully prepared, with cooking increasingly relegated by many consumers to a leisure pursuit. There is a progressive mismatch between the interests of consumers in food and the amount of time 8 According to a survey among U.S. consumers carried out they are willing to spend preparing the food they eat, as their by the Food Marketing Institute in 2007, the percentage of lifestyle puts an increasing strain on their time. consumers “completely� or “somewhat con�dent� in the safety of supermarket food declined from 82 percent in 2006 to 66 percent in 2007, with 68 percent of respondents report- Shifts in food consumption patterns in industrialized coun- ing to be more concerned about the safety of imported food tries, and also increasingly among the middle- and high- than two or three years prior (FMI Consumer Trends 2007). MA K ING TH E GR A D E T H E E V O L UT ION OF RE GUL AT ORY AND MAR K ET REQUIREMENTS IN H VA F MA RK ETS 9 TABLE 2.1: Erosion of Consumer Con�dence in Food Systems: Examples of Well-Published Food Outbreaks 1980s 1990s 2000s DEVELOPED COUNTRIES Beef hormones (European Union) E. coli in hamburgers (U.S.) Contaminated olive oil (Spain) Salmonella in eggs and chicken (U.K.) BSE* (U.K.) Staphylococcus in milk (Japan) Alarin apples (U.S.) Cyclospora in raspberries (U.S., Canada) E. coli in spinach, carrot juice (U.S.) Dioxins in animal feed (Belgium) Listeria in ready-to-eat meat (Canada) Salmonella in peanut butter (U.S.) DEVELOPING COUNTRIES Hepatitis A, raw oyster, 300,000 cases (Shanghai, Salmonella typhimurium, more than 1,000 cases, E. coli O157:H7, various animal foods, 20,000 cases, China) meat products (Ningxia, China) 177 deaths (Jiangsu and Anhui provinces in China) Melamine in milk (China) Maize contaminated with aflatoxins (Kenya) * Bovine spongiform encephalopathy. Source: Compiled by the Authors. At the same time, the safety concerns of consumers span While food quality has long been almost synonymous with a wide range of potential hazards that are microbiological, food safety, consumers in industrialized countries have in- chemical, or physical in nature and that increasingly require creasingly focused on a wider range of quality attributes that system- and management-based approaches to minimize may be intrinsic (for example, authenticity) or extrinsic (for the attendant real or perceived risk. Table 2.2 illustrates example, animal welfare, impact on the environment, and the causes of noncompliance associated with nearly 500 concepts of social welfare) to the food itself. Thus, questions European Union (EU) noti�cations on products imported are asked about where food is from and how it is produced, from SSA during the period 2006–09. the impact of methods of food production and processing methods on the wider world, and so forth. This trend puts the focus not only on foods per se but also on the perfor- TABLE 2.2: Reasons for Noncompliance among EU mance of the broader agri-food complex. Given that many of Noti�cations on Products Imported from the associated quality attributes cannot be veri�ed by exam- SSA (2006–09) ining or consuming the food itself, the focus of consumers has progressively turned to reliable information and assur- REASONS FOR NONCOMPLIANCE PERCENT ance about the nature of the food they are eating (Jaffee and Aflatoxins 41.3 Henson 2004). Mercury 6.6 Salmonella 4.6 The sum effect of these trends is increasing consumer ex- Bad hygiene, bad state of preservation, bad 9.2 pectations of food across a wider spectrum of safety and temperature control, etc. quality attributes. Some such attributes relate to the food Benzo(a)pyrene 7.6 itself; that is, does it contain pesticides? Other attributes Spoilage 1.6 relate to “how it got to what and where it is� and whether it Too high content of color E 124—Ponceau 4R, 6.2 is good or bad for the wider social and environmental world. sulphite, benzoic acid , etc. For food producers, such concerns are potentially a double- Unauthorized colors (e.g., Sudan) 7.0 edged sword. On the one hand, they imply greater controls Undeclared sulphites 1.0 and oversight of food throughout the supply chain. On the Histamine 1.4 other hand, they present potentially valuable opportunities for value addition; if consumers are concerned about particu- Unsuitable organoleptic characteristics/transport 0.6 lar attributes of food, presumably some may be willing to pay Package damage 0.4 more for foods that have such attributes. Parasitic infestation 0.8 Ochratoxin 1.6 Restructuring and Globalization of Agri-Food Supply Altered organoleptic characteristics 1.2 Chains Others 8.8 The structure and modus operandi of agri-food marketing sys- Source: Calculations based on Rapid Alert System for Food and Feed (RASFF) data. tems across the world, especially in industrialized countries, E C O N O M I C AND S E CT OR WORK 10 C H A PTER 2 have changed profoundly over recent decades. Key trends above) (Raikes et al. 2000) as a means of “decommodifying� include the following (World Bank 2005): products. Indeed, it is argued that the very ways in which The consolidation of food retailing such that a relative- agricultural and food markets are both structured and oper- ly small number of �rms command a large proportion ate are de�ned by quality-based competition; at the same of retail food sales, �rst nationally but also increasingly time, the associated institutional arrangements are crucial to globally. Thus, in many industrialized countries, and the legitimacy of the quality attributes embedded in agri-food especially in Europe, the largest �ve food retailers products (Busch and Bain 2004). have a market share of greater than 50 percent. The declining importance or more specialized roles “Privatization� of Market Governance of wholesale or terminal markets as food retailers Across many product and service markets, including �nancial increasingly source direct from food producers and services, accountancy, and product safety, there has been manufacturers. Thus, in many industrialized countries, a trend toward increased private governance of markets wholesale markets have been relegated to serving (Henson and Humphrey 2010). This trend is seen through the as a residual market for lower-quality and surplus evolution of new rule-setting, conformity assessment, and products, or have evolved to supply more specialist enforcement institutions, including standards-setting bodies, markets, such as “ethnic� foods. auditors, and certi�cation agencies (NRC 1995; Hatanaka The rapid growth of the food service sector, �rst in et al. 2005). In part, this evolution reflects recognition that the United States and Canada and more recently in governments lack the resources or expertise to regulate other industrialized countries. This trend has ridden on effectively the private sector in areas that are increasingly the back of consumer demand for eating outside the technological or administratively complex. In areas such as home and for ready-to-eat foods for consumption in food safety, furthermore, management-based controls that the home. As with the food retail sector, the food ser- are employed increasingly along the entire supply chain are vice industry has consolidated, so that a small number seen as more effective than traditional end-product and pro- of large (and increasingly global) �rms account for an cess-based controls. Thus, requiring the private sector to be increasing market share. proactive in ensuring safety of the end product is seen as a logical transition in the way the agri-food sector is regulated. As a consequence, agri-food supply chains are increasingly buyer-driven (Humphrey and Schmitz 2001), with a diminish- In many product lines, the private sector has long played a key ing number of key economic players having power over na- role in the development and adoption of product standards tional and, increasingly, global agricultural and food markets. that act to codify information, manage interface complexities Thus, large food retail and food service �rms are increasingly and reduce transaction costs (Henson and Humphrey 2010). sourcing direct from preferred suppliers along supply chains Examples include standardized color descriptions for textiles that are being rationalized to facilitate greater integration and and electrical standards designed to facilitate modular designs oversight. and product interfaces. While product standards do exist in the agri-food sector, more often public standards perform Increasingly, agri-food supply chains are extending beyond this function, while private standards tend to concentrate national and regional boundaries, driven in part by consumer on process attributes. Henson and Humphrey (2010) argue demand for year-round availability of an increasingly broad that this difference reflects the frequency and intimacy with array of indigenous and nonindigenous foods. In turn, global which consumers interact with food and the importance of procurement has been facilitated by new food, commu- established norms of consumption, such that the safety and nications, and transportation technologies that have been healthiness of food products and the wider social and ethical implemented within a policy environment that encourages implications of agri-food systems take on great importance. more liberal international trade (Henson 2007). Thus, these dominant food retailers and food service �rms increasingly have a global influence, employing comparable systems of EVOLUTION OF FOOD SAFETY, QUALITY, AND procurement and quality management, almost regardless of SOCIOENVIRONMENTAL GOVERNANCE what and where they are sourcing. Governments and the private sector have responded to The ways in which dominant �rms in the agri-food sector developments in agri-food markets through institutional compete is also changing, with increased emphasis on reforms that have yielded a new paradigm in food safety product safety and quality attributes (of the types discussed and quality governance. The public sector has implemented MA K ING TH E GR A D E T H E E V O L UT ION OF RE GUL AT ORY AND MAR K ET REQUIREMENTS IN H VA F MA RK ETS 11 new or revised regulations alongside signi�cant institutional come to the fore: for example, the British Retail Consortium changes in the oversight of food safety (Jaffee and Henson (BRC) Global Standard for Food Safety, the International Food 2004). In many cases, food safety regulations have been Standard (IFS), and GLOBALG.A.P standard. tightened for foods that have long raised safety concerns (for example, Salmonella and Campylobacter in meat and Both reflecting and supporting the development and adop- poultry and pesticide residues in fresh fruit and vegetables), tion of private food safety and quality standards has been the while new regulations have been implemented for emerging development of quality metasystems (Caswell et al. 1998) hazards and in areas that were previously less regulated (for such as Hazard Analysis and Critical Control Point (HACCP) example, mycotoxins). With respect to food quality, public system, good manufacturing practice (GMP), good agricul- regulations and/or standards have been implemented to tural practice (GAP), and traceability. Some of these quality ensure fair competition and to prevent consumers from be- metasystems are embedded in voluntary public standards ing misled (for example, organic products), and to otherwise at the national or international levels (for example, the food promote quality-based competition on a level playing �eld. safety management system ISO 22000 standard, developed At the same time, product liability has come to play a more by the International Organization for Standardization [ISO]) prominent role, both through tort liability standards (Buzby et and may not be speci�c to agricultural and food products (for al. 2001) and the “duty of care� required of food sellers with example, ISO 9000), while others are propriety private stan- respect to their legal food safety obligations, most notably dards developed by standards bodies (for example, SQF (Safe the concept of “due diligence� (Henson and Northen 1998). Quality Food) 2000) or by individual food �rms (for example, Tesco’s Nature’s Choice). Such metasystems can be viewed In parallel with the evolution of public controls on food as codes of conduct for the agri-food system in achieving safety and quality have been moves by the private sector both a particular bundle of food safety or quality attributes to address consumer concerns across a broad spectrum of and the processes by which safety and quality are achieved. safety and quality attributes and to harness these concerns Private food safety and quality standards are increasingly as a means to differentiate their products and to compete in enwrapped in a broader system of conformity assessment quality-de�ned markets. Much of the motivation behind this and management. Such so-called private schemes have trend has been the mitigation of reputational or commercial been both stimulated and facilitated by the development of a risks associated with the safety of food products, related multitiered system of conformity assessment based around in part to the level and nature of public regulatory require- third-party certi�cation and accreditation (NRC 1995). ments, alongside quality-based modes of product differentia- tion (�gure 2.2). More broadly, a wide range of market- and While the predominant focus of management-based food �rm-level factors motivate the implementation of enhanced safety controls has been on food processing, the increas- food safety and quality controls (Henson 2007). Thus, there ing importance of traceability and the management of food has been a rapidly increasing plethora of private “codes safety from “farm to fork� has served to draw increasing at- of practice,� standards, and other forms of supply-chain tention to the integrity of the entire supply chain (Humphrey governance (Jaffee and Henson 2004). These efforts have 2008; Henson and Humphrey 2010). Thus, while food safety been especially prominent among large food retailers, food requirements have traditionally been passed down the supply processors, and food service �rms, reflecting both their con- chain through the requirements of buyers, now explicit tech- siderable market power and competitive strategies based on nology, performance, and management standards are being private brands that tie a �rm’s reputation and performance to applied at various levels of the chain. For example, Regulation the safety and quality performance of its products (Bergès- (EC) No 178/2002 of the the European Parliament and of sennou and Réquillart 2004). Initially, �rms tended to develop the Council, which established the European Food Safety and adopt their own standards (for example, Tesco’s Nature’s Authority, raises the issue of traceability and controls along Choice), but increasingly collective private standards have the value chain, stating that “in order to ensure the safety of food, it is necessary to consider all aspects of the food production chain as a continuum from and including primary FIGURE 2.2: Using Food Safety as a Carrier for production and production of animal feed up to and including Sustainability Criteria Environmental Labor Rights Business Equity sale or supply of food to the consumer because each element may have a potential impact on food safety� (CEC 2002). EXISTING Food Safety Standards and Monitoring Systems Not surprisingly, the GLOBALG.A.P standard, which encom- passes large elements of attendant EU law and provides a Source: Homer 2010. E C O N O M I C AND S E CT OR WORK 12 C H A PTER 2 roadmap to regulatory compliance in primary production, is This complexity is reflected in the wide variation between now widely required by major food retailers and food service schemes. For example, Liu (2009) and others categorize dif- �rms when procuring fresh fruit and vegetables. ferent voluntary systems according to different criteria: their target dimension, or whether the standard targets the mass The net effect of the above transformations is that con- market (mainstream standard, e.g., 4C) or a niche market temporary agri-food systems are increasingly governed not (e.g., organic labeling); their expected outcomes and func- only by public regulations and private standards, but also by tions (social, worker safety, quality, environmental, etc.); public and private modes of enforcement. While many of their key drivers (businesses, nongovernmental organiza- these metasystems started out as voluntary codes of good tions [NGOs], coalitions of public and private actors, etc.); practice, they are increasingly pervading public regulations their geographic coverage (national, regional, international); (for example, through the inclusion of HACCP-based require- their �nal use or immediate objectives (e.g., protecting the ments in food safety regulations). At the same time, regula- environment, promoting sustainable agriculture, advanc- tors are increasingly putting the onus on the private sector ing social goals, responding to cultural demands, etc.); and for ensuring food safety. For example, the preamble to the their targeted clients: either corporate clients (business to European Union’s General Food Law legislation states that business [B2B] schemes) or �nal consumers (business to “a food business operator is best placed to devise a safe consumer [B2C] schemes). Most of the food safety, trace- system for supplying food and ensuring that the food it sup- ability, and good agricultural practice standards are B2B. On plies is safe; thus, it should have primary legal responsibility the other hand, product quality and ethical and sustainability for ensuring food safety� (CEC 2002). standards usually, but not always, belong in the B2C category While this legislation provides �rms with considerable lati- (see �gure 2.3). They signal the speci�c qualities of the prod- tude in designing systems of control aimed at ensuring food uct to consumers through the use of a label to be attached safety, there is an evident compulsion for such controls to to the product. Some of them target both corporate clients be implemented (Henson and Humphrey 2010). The task of and �nal consumers (e.g., Rainforest Alliance [RA]). In recent �rms is to provide a defense against the legal liability they years, there has been an evident proliferation of such social face in supplying food. The adoption of private standards and environmental standards (see box 2.1 on p. 14), with such as the BRC Global Standard, IFS, and GLOBALG.A.P is discussions intensifying about the scope for harmonization designed to provide such a defense. Furthermore, these pri- and collaboration and the need for a better understanding of vate food safety standards are not all created equal. Versions their intended impacts in the ground. of these standards are promulgated to reflect speci�c regula- The landscape of standards initiatives is rapidly changing and tory concerns in the intended market or speci�c demands is characterized by increasing overlap of standards, which from leading market players. For example, distinct versions are more and more becoming de facto mandatory and used of so-called global standards, speci�cally targeting the North as a tool for managing risks (e.g., food safety, social issues), American market, have been released in recent years. differentiating products and cobranding, and communicating Concerns about the proliferation of private food safety stan- with consumers or business partners. dards, their prescriptive nature, their legitimacy and trans- However, the picture painted above, of increasingly integrat- parency, and their potential to undermine public food safety, ed global agri-food supply chains that are driven by dominant as well as their potential economic development impacts, buyers and that govern their supply chains through private have transformed into an intense debate.9 In recent years, perhaps a more intense dynamic has emerged around initia- 10 For example, the Rio Declaration in 1992 set a foundation for tives dealing with social, environmental, and sustainability not only governmental action but for all stakeholders to inte- concerns—pushed by international agreements10 and civil grate sustainable development consequences within their con- society pressures—giving rise to a complex and evolving sumption and production decisions (Rio Declaration, Principle 8). Other agreements include the issue of the Kyoto protocol landscape of voluntary standard initiatives in agricultural and in 1997 and the World Summit on Sustainable Development in agri-food markets. Johannesburg, 2002. According to SSI (2008), the most immedi- ate outcome of the Rio Earth Summit process was the launch of a concerted effort to develop and promote a series of national 9 A detailed discussion of private food safety standards, in terms “eco-labeling initiatives.� By 2000, there were more than 30 of their purpose, relation to of�cial standards, and their impli- national eco-labeling initiatives around the world. These govern- cations, can be found in the discussion paper prepared for the mental efforts were simultaneously complemented by a rapid 33rd Session of the Codex Alimentarius Commission, held in Ge- growth in the adoption of corporate codes of conduct, corporate neva, Switzerland, July 5–9, 2010, and in Henson and Humphrey social responsibility (CSR) programs, and social reporting activi- (2009). ties by the private sector. MA K ING TH E GR A D E T H E E V O L UT ION OF RE GUL AT ORY AND MAR K ET REQUIREMENTS IN H VA F MA RK ETS 13 FIGURE 2.3: Evolution of Standards Systems 1990 2000 2010 Business to Business Business to Consumer Business to Society ISO 2200 ISO 9000 GLOBAL CIVIL SOCIETY SHAREHOLDERS ENTERPRISES CONSUMERS ISO 14000 Testing Services SOCIAL & LABOR Private GAP ENVIRONMENTAL Private GMP EQUALITY & RIGHTS Source: Homer 2010. standards, though it has become increasingly common, is niche domestic markets are certainly emerging, attention to certainly not universal (see box 2.2 on p.15). There remain the safety and particularly social and environmental dimen- markets (for example, smaller supermarket chains and food sions of food production is far from mainstreamed in African service �rms) and products (for example, �sh) for which less countries. elaborate systems of regulations or private standards exist, Along with domestic markets, the importance of other re- even in the more exacting European countries. There are also gions—beyond the EU and other Organisation for Economic countries (for example, the United States and Canada) where Cooperation and Development (OECD) economies—has been private standards still play a lesser role. Prevailing regulatory growing as destinations for SSA exports in recent decades. systems, as well as related liability norms and systems of For example, increasing volumes of traditional exports from conformity assessment and enforcement, play a role in ex- the region are now targeting low- and middle-income econo- plaining such variation, as do modes of competition and the mies (table 2.3). African exports to Asia are growing rapidly structure and modus operandi of agri-food markets. for oil, minerals, and timber, but also for tea, cotton, tobacco, In most SSA countries, the bulk of the population still relies and other agricultural raw materials. Low- and middle-income on traditional market channels for purchases of staple foods economies in East and South Asia accounted for some 28 and on so-called wet markets for fresh produce, �sh, and and 43 percent, respectively, of SSA exports of tea and cot- livestock products. Thus, while concerns about food safety ton over the 2000–09 period. are growing, cost and very basic quality attributes remain Therefore, while linking producers to local, regional, or less the dominant concerns of most SSA consumers. While strict international markets has not traditionally been the most attractive proposition within development circles due TABLE 2.3: Share of SSA Exports to Low- and Middle- to several factors, consensus is growing on the potential of Income Economies (as percentage of these markets to offer major opportunities for adding value region’s total exports of each product to smallholder production.11 category) PRODUCT CATEGORY 1970–79 1980–89 1990–99 2000–09 11 Recent studies in Ghana among Asian vegetable producers sug- Fruit & vegetables 7 7 16 26 gest that growing Asian vegetables instead of local vegetables or Coffee, tea, cocoa, and spices 5 9 16 23 staples may not necessarily lead to higher smallholder incomes (Henson et al. forthcoming). Similarly, studies in horticulture Oil seeds, oil nuts & oil kernels 12 24 41 57 domestic value chains in Zambia (wholesale markets supplying Tobacco & tobacco manufactures 21 20 28 52 tomatoes and watermelons) demonstrate that farmers exhibit 18 19 49 60 healthy returns on their participation in these value chains— Textiles returns reach US$1.94 a day for tomato production and nearly Source: Calculations based on COMTRADE data. US$6 a day in watermelon production (World Bank 2009). E C O N O M I C AND S E CT OR WORK 14 C H A PTER 2 BOX 2.1: Examples of Sustainability Initiatives in Coffee Coffee sold under sustainability schemes designed by on coffee quality but has evolved to incorporate social, NGOs or individual companies, with or without third- economic, and environmental criteria as well. The pro- party monitoring and veri�cation, has shown tremen- gram was developed in consultation with Conservation dous growth in recent years. According to data pre- International, an independent third-party organization. sented by the State of Sustainability Initiatives report Suppliers are scored based on their practices, and those (SSI 2010), sustainable coffee sales have grown by 433 with high scores receive preferential buying status with percent during the last �ve years and, at 457,756 metric Starbucks. tons, accounted for 8 percent of global exports in 2009. Agritrade (2009) estimated the gross total purchases of Fair Trade 0.76 0.05 certi�ed “sustainable coffee� for 2007 in about almost Rainforest Alliance 0.85 0.06 6 million bags. Examples of sustainability schemes in UTZ Certified 0.62 0.06 coffee include the following: Organic 0.77 0.09 Rainforest Alliance (RA) certi�ed coffee—This certi�- 4C 0.83 0.02 cation focuses on sustainable farm management, includ- Conventional Global… 0.59 0.12 ing social, labor, and environmental responsibility. The 0% 20% 40% 60% 80% 100% label also guarantees that the coffee beans have been shade-grown under the rainforest canopy, minimizing Latin America Africa Asia soil erosion and preserving the biodiversity and natural Regional Distribution of Coffee Supply by System ecosystem of the area. Once the coffee farm is inspect- ed by RA, an independent team evaluates the report to “Bird Friendly� coffee—This certi�cation is provided by determine quali�cation. Child labor is strictly prohibited. the Smithsonian Migratory Bird Center of the National UTZ Certi�ed “Good Inside�—Coffee farmers who are Zoo and ensures that the coffee has been shade-grown “UTZ Certi�ed� must comply with the program’s Code under a canopy of trees, thus preventing habitat de- of Conduct, which outlines standards for socially and struction for select migratory birds and minimizing soil environmentally responsible practices, improved farm erosion. management, and product traceability. Annual third-par- However, penetration of these schemes has been low in ty audits are conducted to ensure compliance. Africa in comparison with other regions, where coffee is 4C Association—Supported by several European-based more developed (see accompanying �gure ). Colombia, donors, 4C Association aims to achieve sustainability Brazil, Peru, and Vietnam account for 77 percent of total along the entire coffee value chain. The initiative em- sustainable coffee production. The supply of sustainable phasizes the setting of baseline standards that allow coffee is set to increase signi�cantly in the coming years as many producers as possible to begin a stepwise ap- due to various buyer initiatives: Kraft, Nestlé, and Sara proach to sustainable practices. Lee all have made commitments to increase sustainable supply in the near future. C.A.F.E. Practices (Coffee and Farmer Equity) pro- gram of Starbucks—The program’s primary focus is Source: SSI 2010; Agritrade 2009. MA K ING TH E GR A D E T H E E V O L UT ION OF RE GUL AT ORY AND MAR K ET REQUIREMENTS IN H VA F MA RK ETS 15 BOX 2.2: Penetration of Stricter Demands for Quality and Safety in SSA HVAF Domestic Markets Late in the 1990s and early 2000s, several studies be- much lower than expected, particularly in the fruit and gan to highlight the emerging and expected growing vegetables sector. In Nairobi, for example, supermar- influence of the global agri-food restructuring trends— ket chains held only about 4 percent of Nairobi’s fresh the so-called global food retail revolution—in develop- produce market in late 2003, with less than 1 percent ing and emerging economies, including SSA econo- of all fresh produce sold within Kenya passing through mies. According to these studies, there were parallel supermarket preferred supplier programs; it is very un- trends in the domestic food markets within Africa, with likely that this situation has changed since then, result- a growing involvement of modern supermarket chains ing in the low growth of supermarket shares in Nairobi and increased application of stringent private standards (Tschirley 2010). This pattern of low supermarket pen- (Reardon et al. 2003; Louw et al. 2008). Indeed, in sev- etration has been observed by others in other SSA coun- eral African countries, modern food distribution and food tries (Reardon and Timmer 2006; Minten 2008). service channels are expanding, and a growing number The studies concluded that the influence of supermar- of consumers are asking for and willing to pay for prod- kets—and consequently the penetration of safety and uct attributes beyond basic visual and sensory quality quality requirements—are expected to grow as a result attributes. Nevertheless, outside of South Africa, the of continued growth in per capita income and urbaniza- penetration of supermarket chains beyond leading cit- tion. Yet the growth rate will be much lower than pre- ies and upper-middle-income consumer segments is still viously expected, particularly for fresh produce, where limited. higher gains were expected from the forthcoming su- A number of recent studies are contributing to an in- permarket revolution. In nearly the entire continent, the creased understanding of the influence that modern so-called traditional marketing sector—open air markets, agri-food systems (particularly supermarkets) might dispersed informal vendors, and traditional shops—is have on SSA economies (Tschirley 2010; Tschirley et expected to continue to play a dominant role in fresh al. 2010; Tschirley et al. 2004). Clearly, while the influ- produce marketing for several decades to come. ence of modern retailer systems in SSA is growing, su- permarket shares of the regional and local market are Source: Compiled by the Authors. E C O N O M I C AND S E CT OR WORK C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 17 Chapter 3: CONCEPTUALIZING THE IMPACT OF STANDARDS COMPLIANCE ON SMALL- HOLDER PARTICIPATION IN AGRI-FOOD VALUE CHAINS INTRODUCTION NATURE OF AGRI-FOOD VALUE CHAINS AND THE ROLE OF “ASSURED COMPLIANCE� As already discussed, while the ongoing transformation of agri-food value chains presents potentially valuable oppor- Chapter 2 has highlighted how standards have emerged as tunities for the enhancement of rural livelihoods, signi�cant an increasingly dominant mechanism through which food challenges are faced in facilitating the participation of small- safety and quality attributes are governed in global agri-food scale producers. Thus, a wide range of interventions have value chains. The concern here is the ability of small-scale been employed to overcome the inherent dif�culties faced producers in developing countries to gain access to agri-food by smallholders, including the long-standing and pervasive value chains and to compete in the longer term in the con- problems associated with production and logistics and the text of such standards. Although a great deal of attention newer issues related to achieving compliance with food has been given to the challenges for developing countries safety and quality standards. Such interventions have ap- posed by compliance with food safety and quality standards plied a wide range of instruments and blends of top-down (see, for example, World Bank 2005), and although the spec- and bottom-up approaches. It is worrying, however, that our ter has been raised of small-scale producer exclusion (see, understanding of which of these approaches works best for example, Dolan and Humphrey 2001; Minot and Ngigi in particular contexts remains surprisingly weak. Evidently, 2004; Graffham et al. 2007; de Battisti et al. 2009), there the development community is still on the steep part of the is a lack of systematic analysis of the associated processes learning curve in drawing lessons from past experiences and of inclusion and exclusion. Indeed, much of the analysis to then acting upon those lessons. date of smallholder marketing challenges focuses on well- established concerns relating, for example, to economies of This chapter provides a conceptual framework that highlights scale in production (see, for example, Eastwood et al. 2009). the fundamental processes through which small-scale pro- The framework proposed here contends that, in the context ducers are included or excluded from agri-food value chains of contemporary high-value agri-food markets that are buyer- and notably those processes where standards compliance is driven, a critical issue for small-scale producers is achieving a predominant driver. It is assumed that such value chains and maintaining assured compliance. are mostly buyer-driven (Humphrey 2005) and that these buyers acts as gatekeepers that strongly influence the extent “Assured compliance� is de�ned here as the collection of and forms of smallholder participation. While recognizing functions required to meet the various speci�cations of a the importance of a wider set of constraints on smallholder producer’s immediate buyer and to demonstrate compli- production and physical market access, it is also assumed ance through established systems of conformity assess- that a critical constraint facing smallholders is their ability to ment while preserving inclusion in value chains of interest. establish and maintain “assured compliance� with standards Success from the viewpoint of international development and speci�cations set by dominant buyers—for example, requires that compliance be achieved in a manner that does as a response to regulatory challenges and changes in con- not place the small-scale producer at an undue disadvantage sumer demands or as a way to differentiate products. Thus, relative to competing suppliers, while not imposing an in- the framework outlines the critical resources required for ordinate burden on the buyer. Assured compliance requires such assured compliance and the associated production and access to resources that are critical to performing the func- transaction costs that determine the procurement decisions tions needed to meet the buyer’s standards and other re- of buyers. quirements in a competitive manner. E C O N O M I C AND S E CT OR WORK 18 C H A PTER 3 The process of assured compliance involves the dynamic compliance represent particular challenges for small-scale sequencing of the actions through which the needs of the producers (Poulton et al. 2006), making these a critical issue buyer are identi�ed, achieved, recorded, veri�ed, and com- in future interventions aimed at facilitating the participation municated, and then adjusted as these speci�cations change of small-scale producers, most notably in higher-value agri- over time. Here, the critical actor for small-scale producers food value chains. is taken to be their aggregator, whether an exporter, whole- saler, processor, or other market intermediary. The speci�ca- Food safety and quality standards are seen as being primarily tions of downstream actors in the value chain are assumed to associated with high-value markets for agri-food products, be reflected in the �rst receiver’s own speci�cations.12 These such as supermarkets in industrialized countries (see, for speci�cations can be subdivided into three categories: example, de Battisti et al. 2009). It should be noted that the implied dichotomy between low- and high-value markets, Product attributes: Physical characteristics of the however, presents an unduly simplistic image of the market product, including size, shape, degree of damage, ma- choices available to small-scale producers. In reality, there turity, variety, and so forth, as well as less visible at- is a continuum of alternative supply systems, which can be tributes such as tolerance levels of decay, pathogens, subdivided into six “levels� according to the nature, foci, and �lth, heavy metals, pesticide residues, and so forth. stringency of sourcing requirements: Process attributes: Characteristics of the process by which the product is grown, processed, and marketed. Level 1: Application of informal standards that These attributes can encompass practices that have a relate to basic search characteristics13 (for example direct impact on the product’s physical characteristics color, blemishes, etc.). Veri�cation is through visual (for example, agronomic practices, producer hygiene) inspection. as well as wider concerns (for example, impacts on Level 2: Of�cial grades and standards that are pre- the environment, worker welfare, etc.). speci�ed and cover observable physical characteristics Transaction attributes: Characteristics of the physi- of the product (for example, variety, size, ripeness, cal delivery of the product, flow of information, pay- damage, etc.). Veri�cation is through visual inspection. ment schedules, contracting, and so forth. Examples Level 3: Product-based grades and standards corre- may include the physical volume flow (according to sponding to experience characteristics14 of the product some plan) and the identi�cation of the origin and (for example, levels of microbiological or chemical source on the packaging. contamination, sugar levels, fat content, etc.) or on simple process parameters (for example, use of pes- The level and blend of these attributes will have a direct influ- ticides). Veri�cation is by testing or inspection by the ence on the functions required to achieve assured compli- producer or the self-assessment of the seller. ance and the related production and transaction costs. Level 4: System or process-based standards gov- Assured compliance is a necessary but not suf�cient condi- erning credence characteristics15 that are assessed tion for smallholder participation in high-value supply chains. through self-assessment by the producer and second- Access to production resources and physical infrastructure, or third-party processes of conformity assessment. for example, may be major constraints that impede market Examples include the application of good agricultural access. The assertion here, however, is that the ability to practice (GAP) and Hazard Analysis and Critical Control achieve assured compliance in a cost-effective manner Point (HACCP) systems, as well as associated sys- is increasingly a critical issue for small-scale producers in tems of record keeping. markets for high-value products and plays a predominant role in processes of inclusion and exclusion in the context of value chains that are buyer-driven. Indeed, the blends of production and transaction costs associated with assured 13 Search characteristics are product attributes that can be veri�ed by the buyer prior to purchase, such as through visual inspec- tion. 14 Experience characteristics are product attributes that, while not 12 For example, supermarkets in target markets have certain speci- veri�able prior to product purchase, can be validated following �cations for the fresh produce they purchase. These are con- consumption. veyed to their buyers, some of whom act as “category manag- 15 Credence characteristics are attributes predominantly associated ers.� Those buyers pass on and interpret those speci�cations with the processes involved in the supply of the product, which for prospective domestic and international suppliers (including are not veri�able even following consumption. They require that African exporters) that develop their own speci�cations and veri�able information accompanies the product on which of communications vis-à-vis domestic producers. these attributes is or is not present. MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 19 Level 5: A broader range of (and more detailed norms to “experience� to “credence� characteristics. The progres- for) system- or process-based standards governing sion also matches movement away from localized traditional credence characteristics, as well as associated record- markets toward increasingly higher-value domestic and keeping systems, that are assessed through certi�- international value chains. This upgrading process is ac- cation or other third-party processes of conformity companied by progressively stricter food safety, quality, and assessment and use of electronic data interchange. other requirements and associated processes of conformity Level 6: Implementation of broadly the same stan- assessment, and thus by increasingly challenging processes dards as level 5, but in the context of highly integrated of achieving assured compliance. The associated production supply chains such that relatively sophisticated man- and transaction costs, both in total and relative to one anoth- agement structures are required for quality control er, associated with this process also change. For example, and risk management. This level is generally associ- the transaction costs incurred by both the buyer and seller ated with standards schemes such as GLOBALG.A.P, increase as one moves from value chains of type 1 to type 4. the British Retail Consortium (BRC) Global Standard This point will be illustrated in the following text. for Food Safety, the International Food Standard (IFS), and so forth. The various types of markets available to small-scale produc- ers described above represent alternative marketing choices These different levels are frequently incremental. That is, a and supply response strategies. This fact implies that poten- level 3 system would already embody the use of more for- tial returns from achieving assured compliance should be mal grades and standards for physical product attributes and compared with the associated challenges and costs of under- add to these standards for not easily observable character- taking the required functions. Recognition must be given to istics. A level 5 system would build upon and extend speci- the producer’s starting point when contemplating upgrades �cations associated with the prior levels. A level 6 system and shifts to different market foci. For example, a producer would integrate standards compliance within a broader and already participating in a value chain of type 3 is presumably more sophisticated management system along the value better placed to achieve assured compliance than a compet- chain. Hence, movement from one level to the next (or leap- ing producer that is currently engaged in a value chain of type ing across multiple levels) necessitates certain upgrades to 1. This fact suggests the logic of an iterative strategy toward production processes, postharvest handling, or conformity capacity building, with producers moving step-by-step from assessment procedures and systems (�gure 3.1). The dif- lower- to higher-value markets. However, the highest-value ferent levels can be broadly associated with particular types (and most exacting) markets represent simply one end of of markets or value chains; hence reference is made to (for a continuum; value chains toward the middle of this spec- example) type 3 or type 6 markets. trum may be more appropriate for smallholders, in that the costs of achieving assured compliance are arguably more Moving across the spectrum from level 1 to level 6, there is a achievable, while targeting the highest-value markets does progressive change in the relative importance from “search� not necessarily translate into higher incomes for smallholder producers. The extent to which small-scale producers face barriers to FIGURE 3.1: Upgrading Steps and Stringency of Buyer entry (or exit) as they try to upgrade from value chains of Speci�cations in Agri-Food Value Chains type 1 to those directed at higher-value markets depends on the existence or absence of competing suppliers and the degree to which there are economies of scale in assured compliance that can or cannot be altered over time. At one Upgrading steps extreme, there may be little or no large-scale production and only limited economies of scale in compliance, so that buyers have little choice but to source from smallholders; the bind- ing constraint here will be the costs of procuring from small- scale producers compared with the situation facing �rms with whom the buyer competes. In such contexts, the buyer Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 is likely to be highly committed to sourcing from small-scale Stringency of buyer specifications producers and has the greatest propensity to take actions Source: The Authors. that facilitate smallholder participation in the value chain. E C O N O M I C AND S E CT OR WORK 20 C H A PTER 3 At the other extreme, there may be signi�cant large-scale to the “farming systems perspective� that is frequently em- production and economies of scale in compliance such that ployed in analysis of the commercialization of subsistence small-scale producers face an uphill battle in competing. and semisubsistence producers (see, for example, Dorward Alternatively, smallholders may have a comparative advan- et al. 2003). In the context of markets for higher-value or tage (i.e., lower unit production costs) and can compete, differentiated agricultural and food (HVAF) products, it is as- provided that the playing �eld relative to larger suppliers sumed that value chains are buyer-driven, such that the par- is level. Under both of these scenarios there may be little ticipation of small-scale producers will largely be a function or no commitment on the part of the buyer to source from of the procurement decisions of buyers rather than the mar- small-scale producers, which, as a consequence, will need ket choices of small-scale producers per se. This assumption to compete head-to-head with large-scale competitors. The contrasts with many previous studies of the market participa- likely success of interventions aimed at facilitating the par- tion of small-scale producers, which typically examine market ticipation of small-scale producers in value chains to higher- choices in terms of decision variables entering a household value markets, and the complications of the task at hand, are production or utility function (see, for example, Holloway et quite different across these contexts. al. 2000; Winters et al. 2005). It is assumed here that value chains directed at higher-value markets are perceived as an The focus on assured compliance points to the dynamic na- attractive proposition to small-scale producers; they yield at ture of processes of inclusion and exclusion of small-scale least the same returns as alternative markets, taking account producers in the context of agri-food value chains directed of differences in the costs or risks of entering and supplying at higher-value markets, which are increasingly governed by higher-value and alternative markets.16 Higher-value markets standards. Attention should not be devoted only to achiev- that are not perceived by small-scale producers to yield a net ing assured compliance in the short term, but rather to the economic bene�t are not explored here. ability of small-scale producers to maintain compliance and competitiveness as standards and other market require- The conceptual framework employed in this study is based ments evolve over time. This statement highlights the need on the assumption that the ultimate decision on whether to establish the capacity required to achieve and maintain small-scale producers are included in value chains to high- compliance, rather than simply achieving compliance per se. value markets lies with the immediate receiver in the supply Unless the capacities are put in place that enable small-scale chain, whether a trader or other intermediary, such as a local producers to upgrade their products and procedures over processor, local exporter, or importer in a foreign market. time, once any intervention ends the eventual exclusion is This agent may itself be part of a multitiered value chain and almost a foregone conclusion. This longer-term perspective subject to the speci�cations of downstream customers; the on the success and sustainability of interventions is a key speci�cations of downstream buyers (for example, an indus- element of the conceptual framework outlined below. trialized country supermarket) are assumed to be reflected in the speci�cations of the immediate buyer (for example, a developing country exporter). Such speci�cations, and the CONCEPTUAL FRAMEWORK associated functions that need to be performed, will influ- Using transaction cost economics (box 3.1) as the underlying ence the propensity of the buyer to source from small-scale theoretical paradigm, a conceptual framework is developed producers.17 that permits analysis of the processes of inclusion and exclu- sion of small-scale producers in value chains for high-value products, with a particular focus on assured compliance. In turn, this framework is employed to assess the role of al- 16 The realism of this assumption varies from setting to setting. ternative interventions aimed at facilitating the inclusion of There are certainly circumstances where the perceived or actual small-scale producers in such value chains, highlighting the costs and risks associated with smallholder participation in value chains of types 3, 4, or 5 can outweigh the real or perceived critical constraints that need to be alleviated to bring about bene�ts accruing to those farmers. participation on a sustainable basis. 17 Thus, supermarkets in an industrialized country, for example, are assumed not to determine directly whether small-scale produc- ers participate in the value chains in which they participate. Rath- Basic Framework er, such decisions are made by their upstream suppliers, who may or may not source from small-scale producers depending on The approach adopted here positions small-scale producers the associated relative costs compared with alternative sources within value chains for agri-food products, which contrasts of supply, in the context of the supermarket’s speci�cations. MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 21 BOX 3.1: Transaction Cost Economics and the Market Participation of Small-Scale Producers Transaction cost economics, which forms part of new and Morton 1995).* Transaction costs can be �xed or institutional economics (NIE), has become an attractive variable. Fixed transaction costs are “the speci�c in- framework in which to analyze market transactions in vestment made in setting up institutional arrangements� general (Williamson 2000) and agricultural markets in (Furubotn and Richter 2005, p. 51), while variable trans- particular (see, for example, Jaffee 1991; Jaffee and action costs depend on the number or volume of trans- Morton 1995; Fafchamp and Hill 2003; Fafchamp 2004). actions. Identifying and distinguishing between �xed Transaction costs are associated with the process of ex- and variable transaction costs is important, since �xed change of goods, services, information, and money, as costs represent the minimum costs to start a market well as the transfer of property rights associated with arrangement. Once the arrangement is made, variable these assets. transaction costs will depend on the volume of transac- tions (Key et al. 2000). Transaction costs result because of the existence of asymmetric information, bounded rationality, and the A critical issue in transaction costs economics is the so- prospects for opportunistic behavior (Williamson 1985). called “make or buy� decision (Klein 2004). In the con- Economic transactions usually face problems of asym- text of value chains to HVAF markets, this issue relates metric information, which may lead to bounded rationali- to the decision of buyers to source from independent ty or opportunism by one of the parties. Contractual rela- producers or to establish their own production facilities tions can provide guidelines for relaxing these problems on land that they own or lease. Between these two ex- (Ménard 2005); however, it is practically impossible to tremes there are a myriad of governance mechanisms write “complete� contracts (Williamson 2000). The (Peterson et al. 2001; Ménard 2004). Transaction cost common principal-agent problem that may result in mor- economics has become the dominant paradigm for ana- al hazard and adverse selection is typical in the context lyzing alternative sourcing arrangements and marketing of asymmetric information (Miller 2005). In the world of institutional issues (Ghosh and John 1999, p. 131). value chains to higher-value agri-food markets, problems Most studies of smallholder participation in HVAF mar- of asymmetric information become more pertinent (and kets have focused on the analysis of transaction costs potentially more serious) the greater the importance of faced by producers, assuming that these costs deter- credence and experience attributes of products and pro- mine their participation in alternative supply chains (see, duction practices. for example, Staal et al. 1997; Holloway et al. 2000; In the context of agri-food value chains, transaction costs Winters et al. 2005). This leaves a gap in our knowledge can be associated with different stages or phases of the relating to how buyers select their suppliers in the con- trading relationship between actors. Search and screen- text of buyer-led value chains. According to transaction ing costs are incurred to determine potential buyers and cost economics, the buyer will choose a contractual re- suppliers and to gauge their ability and willingness to lationship that minimizes their total procurement costs, transact, bargaining costs are incurred to determine the of which transaction costs are an important element. terms of trade (and the overall relationship), transfer costs are incurred when shifting physical possession * An additional market transaction cost that has received less and ownership, and monitoring and enforcement costs attention, however, relates to investments in social relations (Furubotn and Richter 2005, pp. 52–54), which acknowledg- are incurred to determine whether the agreed-upon es the importance of the social structure of markets and the terms were actually complied with. These costs can role of social capital. Forms of social capital, such as coopera- take various tangible forms, including staff time, travel tion, reputation, and trust, have, however, been recognized as factors that can influence the costs of exchange (see, for and communications, licensing fees, product inspection example, Wilson and Kennedy 1999; Wilson 2000; Chambers and audit fees, system management costs, insurance and King 2002) and influence the various transaction costs premiums, investments in measurement devices, stor- described above. age and handling costs, legal fees, and so forth (Jaffee Source: Compiled by the Authors. E C O N O M I C AND S E CT OR WORK 22 C H A PTER 3 According to this transaction costs-based model, the partici- group of small-scale producer(s) will only be chosen if their pation of any individual or group of small-scale producer(s) selling price plus the total transaction costs for the buyer are in supply chains to high-value markets will consist of three lower than those associated with competing producers, for critical factors: example, medium- or large-scale outgrowers. The ability of the small-scale producer (as an individual This selection process is depicted in �gure 3.2, which further or part of a group) to meet the standards and other acknowledges that costs of procurement will change over supply terms stipulated by their immediate receiver time as production and transaction costs for the seller and in a consistent manner. This ability will likely reflect transaction costs for the buyer evolve. For example, due to both the regulatory grades and standards that those learning processes on the part of both the buyer and seller, buyers or sales agents face and their own private the costs could decline over time. In �gure 3.2, the buyer speci�cations. would purchase from small-scale producers if the associated The ability of these smallholder farmers to gain costs of procurement were CPBS1, large-scale out-growers and maintain the trust of buyers or sales agents to and/or producing themselves (CPL). However, instead as- meet other conditions of supply, including its tim- suming costs of procurement CPS2, small-scale producers ing, continuity, and volume, and related reliable only compete in the longer term. This situation might reflect, communications. for example, signi�cant processes of capacity building and The selection of the given individual or group of learning through which either the seller’s or buyer’s costs small-scale producer(s) by their immediate buyer from were eroded over time, perhaps as a result of a successful among the alternative supply options in its choice set. development program intervention. It is possible, however, Thus, we assume that the procurer’s choice set only in- for these costs to increase over time, perhaps as a result of cludes producers that are perceived to be able to meet its a policy change, the deterioration of some important infra- speci�cations. Small-scale producers, for example, that do structure, or evident opportunistic behavior on the part of not possess or cannot acquire these basic capacities will farmers or farmer groups. not be considered. For example, producers that cannot gain access to the basic resources required for production, includ- FIGURE 3.2: Buyer Costs of Procurement from ing land, access to water, and so forth, will be excluded from Alternative Supply Chains the outset. For simplicity, this decision-making process is outlined in the context of a two-stage supply chain; for example, sourcing of products by an exporter direct from producers. Thus, the CPtBL focus here is on the decision-making process of the buyer $ CPBS1 that determines which producers are sourced from. This CPBS2 framework is, however, applicable and can be generalized to situations with multiple-stage supply chains, for example, where an exporter sources from producers through an inter- mediary agent or to include all levels of a global value chain. Time Note: CPtBL represents buyer costs of procurement over time from large- Assuming that there is no implicit preference for sourcing scale outgrowers or integrated own production; CPBS1 represents buyer from a particular type of producer, buyers will select from costs of procurement over time from small-scale producers—scenario 1; CPBS2 represents buyer costs of procurement over time from small-scale among the available set of producers that are able to meet producers—scenario 2. their speci�cations on the basis of the associated total cost Source: The Authors. of procurement. The cost of procurement borne by the buyer will be determined by the purchase price, which will embody the production and transaction costs faced by the producer 18 Note that the transaction costs borne by the buyer will embody, in supplying the buyer and the buyer’s own supplier-speci�c among other things, the risks it faces in procuring from a particu- transaction costs.18 In turn, these individual cost elements lar producer and the procedures it has to implement in order to manage these risks. Such risks might include those associated are assumed to vary with �rm-, market-, and industry-spe- with production (for example, due to weather and pests), logis- ci�c determinants. This fact suggests that an individual or tics (for example, later delivery), or standards compliance. MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 23 FIGURE 3.3: Conceptual Framework for Buyer Choice between Alternative Suppliers Macroeconomic & External Resource Base Environmental Conditions A: - Infrastructure - Institutions - Technological conditions Medium-/Large-Scale Large-Scale Exporter Integrated Small-Scale Producer Outgrower Production Functions: - Product attributes Resource Resource Resource B: - Production costs - Production costs - Production costs Internal Internal Internal - Process attributes Base Base Base - Transaction costs - Transaction costs - Transaction costs - Transaction attributes Selling Price Selling Price Selling Price C: Buyer Transaction Costs Buyer Transaction Costs Buyer Transaction Costs Buyer Specifications: - Standards C: - Delivery terms Procurement Cost Procurement Cost Procurement Cost - Other specifications Supply-Chain Choice Buyer D: Market Product /Market /Supply-Chain Demand Characteristics Source: The Authors. Determinants of Small-Scale Producer Participation is a price premium associated with sourcing from small-scale The framework suggests that small-scale producers must producers, the buyer’s costs of procurement can exceed be able to comply with buyer speci�cations in value chains those for other available supply sources. However, these ad- directed at HVAF markets in a manner that the total procure- ditional procurements costs can be no greater than the price ment cost borne by the buyer is no more than for competing premium associated with smallholder sourcing. supply sources, whether integrated production by the buyer Figure 3.3 provides an overview of the conceptual frame- itself or medium- and large-scale outgrowers.19 Where there work, which outlines the factors influencing the nature and magnitude of the production and transaction costs that drive the choice between alternative producers. Much traditional analysis of small-scale producer marketing of agricultural 19 There may potentially be incentives for buyers to source from commodities focuses on the supply side, examining �xed and small-scale producers even where the associated procurement costs are higher than in competing supply chains. For example, variable costs of production under various scenarios (see, for there may be a market or political premium derived by sourcing example, Key et al. 2000; Vakis et al. 2003). Such analyses from small-scale producers, whether because consumers value attempt to measure the ef�ciency of production, including the support given to small farmers (for example, with fair trade products) or because policy makers and donors grant conces- the existence and magnitude of economies of scale that sions or provide subsidies to buyers that work with small-scale might disadvantage small-scale producers. The conceptual producers (for example, through access to lower-cost working framework presented graphically in �gure 3.3 recognizes the capital). In other cases, the use of an atomistic supply base of small-scale producers may act to mitigate supply risks, for ex- importance of production costs as one, but not the only, ele- ample, due to pests or weather. ment influencing the participation of small-scale producers in E C O N O M I C AND S E CT OR WORK 24 C H A PTER 3 value chains to higher-value markets. Broadly, �xed produc- with most nonlabor transactions, including input supplies, tion costs, which will be discounted by the producer over �nance and capital, and certi�cation, are typically greater for some time horizon, will reflect the costs of achieving access smallholders (Lipton 1993; Dorward 1999). to the value chain, that is, acquiring the required capacity to be included in the buyer’s choice set. These �xed costs will The production and transaction costs associated with the include investments in equipment (for example, a pesticide inclusion of small-scale producers in HVAF markets will re- applicator), physical infrastructure (for example, storage ar- flect the product, process, and transaction attributes that eas, acquisition of the required skills, etc.), and human capital are required to achieve assured compliance. These are (for example, training, skills development, etc). Variable costs determined by the speci�c requirements of buyers or other of production will reflect the associated costs of participating receivers as well as of�cial grades and standards imposed in the supply chain, including labor, agricultural inputs, fuel by regulatory authorities in markets where they operate. for irrigation pumps, and so forth. The requirements of buyers may encompass product quality and safety, supply and logistical factors, social and ethical The framework presented here focuses on the demand or issues associated with production, and so forth (table 3.1). In buyer side. In the context of buyer-driven supply chains, turn, these may impact on input use, methods of production, where the participation of small-scale producers is consid- methods of postharvest handling, and so forth. ered to be more a function of selection by buyers than the participation decisions of producers, the transaction costs The production and transaction costs associated with sourc- of both buyers and sellers are relevant, the latter being re- ing from smallholders may also be associated with differing flected in the selling price of the product. As described in box mechanisms to demonstrate conformity and to minimize the 3.1, a distinction can be made between �xed and variable risk for buyers of purchasing products that are not in com- transaction costs. Fixed transaction costs are independent of pliance, for example, certi�cation of production systems, the volume of transactions and are broadly associated with product testing, ex post review of suppliers, record keeping, the inclusion of the producer(s) in the buyer’s choice set, auditing, and so forth. To some extent, these mechanisms their selection by the buyer, and the establishment of a cred- aim to reduce the transaction costs, in some cases for both ible supply relation. Variable transaction costs are associated buyers and sellers, associated with managing risks in the with the flow of transactions over time following the inclu- value chain, but at the same time they may transfer transac- sion of the producer(s) in the buyer’s procurement system. tion costs from the buyer to the seller. A further distinction is often made between observable and The range and stringency of standards, delivery terms, and unobservable transaction costs (Staal et al. 1997). Observable other supply requirements vary across agri-food products transactions costs are most generally associated with the and markets, such that the production and transaction costs physical transaction (for example, transportation, storage, associated with procurement from smallholders also varies. etc.) and frequently involve �nancial outlays that make them As a general rule, however, buyer speci�cations as a whole relatively easy to quantify. Unobservable transaction costs tend to be more stringent in HVAF markets than for tradi- are associated with the collection of information, administra- tional agricultural commodities (Henson 2007). Therefore, tion of transactions, and so forth and may or may not involve everything else being equal, the production and transaction discernable �nancial outlays. costs associated with the value chains for higher-value prod- ucts are likely to be greater.20 There is evidence that small-scale producers may have lower production costs and that the economies of scale for The capacity of small-scale producers to achieve assured many higher-value crops are often limited (see, for example, compliance with buyer speci�cations can be represented Eastwood et al. 2009; World Bank 2009), while they are of- diagrammatically (�gure 3.4). This type of depiction is gener- ten more competitive in the production of “high-care� fruits ally referred to as critical success factor analysis (see, for and vegetables that require a signi�cant input of labor (see, example, Schmitz and Knorringa 2000; Humphrey 2005). for example, Dolan and Humphrey 2001; Henson et al. 2005; Comparison of the capacity to achieve assured compliance Poulton et al. 2006). Small-scale producers can also have a across the full range of requirements identi�es areas of comparative advantage over large-scale competitors with respect to the transaction costs of accessing and supervis- 20 See Jaffee and Morton (1995) for a broader discussion of prod- ing family labor and access to local knowledge (Poulton et uct, production, and other factors impacting on transaction al. 2005, 2006). However, the transaction costs associated costs. MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 25 TABLE 3.1: Examples of Supplier Requirements Influencing Production and Transaction Costs of Producers and Associated Functions REQUIREMENT EXAMPLE ATTRIBUTES PRODUCT PROCESS TRANSACTION Phytosanitary standards Plant health controls – Pest surveillance Certi�cation Good agricultural practice GLOBALG.A.P – Food safety and environmental Certi�cation standards controls Food safety standards Maximum residue levels for Pesticide residue limits Integrated pest management Product testing pesticides systems, record keeping on chemical usage Maximum residue levels Limits on toxins and Application of process controls Product testing of toxins and other product contaminants contaminants Quality management systems SQF (Safe Quality Food) 1000 – Process controls, supplier Certi�cation speci�cations, traceability, etc. Supply and logistics Volume and minimum quantity Varieties or species grown Production systems Contracted quantities of requirements; traceability product Manual or electronic systems in place to trace products Social and ethical standards Labor codes – Minimum wage rates Certi�cation Child labor Source: The Authors. FIGURE 3.4: Hypothetical Comparison of Capacity of Alternative Suppliers to Achieve Assured Compliance with Buyer Speci�cations Logistics 50 40 30 Environmental 20 controls Quality grades 10 0 Good agricultural Postharvest handling practice Buyer requirements Small-scale producers Large-scale producers Integrated production Source: The Authors. E C O N O M I C AND S E CT OR WORK 26 C H A PTER 3 noncompliance relative to buyer speci�cations. Conceivably, small-scale producers is predominantly driven by transaction noncompliances might act as absolute barriers to procure- costs that largely reflect the challenge of assured compli- ment from small-scale producers, such that they do not even ance with buyer speci�cations that encompass food safety enter the buyer’s choice set. These requirements are termed and quality standards, exacting logistics requirements, and noncompensatory requirements. Alternatively, noncompli- so forth, such that the scope for lower production costs for ance with respect to certain requirements may be offset by “high-care� crops is “drowned out�—that is, in value chains overcompliance with respect to others. These requirements of type 3 through type 6. are termed compensatory requirements. The relative ability of small- and large-scale producers, and of integrated pro- The production and transaction costs incurred by producers duction, to achieve assured compliance with buyer speci�ca- in undertaking the functions required to enter and maintain tions can also be compared. Such a perspective highlights participation in value chains will vary across producers, buy- critical areas of competitive advantage and disadvantage of ers, commodities, and locations (Pingali et al. 2005). In turn, small-scale producers, using assured compliance with the these costs will reflect the resources of producers and their portfolio of buyer speci�cations as the metric. access to support services, and the more general advan- tages and disadvantages that small-scale producers face vis- As described above, small-scale producers face a continuum à-vis their larger counterparts (see table 3.2 for a summary). of alternative value chains in terms of the buyer speci�ca- These resources include capacities internal to the producers tions with which they must demonstrate assured compli- (for example, their skills and experiences), access to natural ance, from local “spot� markets that are supply-driven and resources and endowments of physical and social capital, governed by informal basic grades and standards, to dis- and external capacities (for example, national certi�cation ca- tinctive export markets requiring third-party certi�cation for pacity). Some of these resources are general to all activities system- or process-based standards. The move from type 1 (for example, the quality of extension services), while others to type 6 value chains in �gure 3.1 represents a progressive are function-speci�c (for example, certi�cation). shift from search to credence characteristics and the imposi- tion of more formal and stricter standards and conformity Although the production and transaction costs associated assessment regimes. Thus, the challenges associated with with attaining assured compliance are the ultimate arbiters achieving assured compliance increase. In turn, this shift of smallholder inclusion in HVAF markets, the ability to per- influences the pro�le of production and transaction costs form the underlying functions reflects the level of access to faced by competing suppliers; while the total costs of supply internal and external resources. Hence, the level of these are likely to increase, the relative importance of production resources is the primary focus of the framework; indeed, as and transaction costs will change. At the same time, the bal- will be seen below, the primary focus of interventions aimed ance between �xed and variable costs will shift, for example, at facilitating smallholder participation is on addressing weak- with more up-front investments acting as a barrier to initial nesses in the resource base, whether internal or external market entry. to small-scale producers themselves. Everything else being equal, enhancement of the resources available to small-scale An alternative way of looking at �gure 3.1 is the contrast producers will augment their ability both to comply with the between the “old� and “new� worlds of integrating small- speci�cations of buyers (that is, move out along the axes scale producers into markets. Thus, in the “past,� small- of �gure 3.4) and to achieve compliance in a manner that scale producers typically faced problems with meeting scale achieves or maintains competitiveness. In some cases, en- or logistics requirements, while their total cost of supply hancement of the resource base of producers will increase was predominantly driven by costs of production. In this overall ef�ciency in achieving or maintaining assured com- context, the high labor costs associated with production of pliance. The development of entrepreneurial abilities might “high-care� crops driven by quality grades were seen as a be one example. In other cases, particular resources may critical means of small-scale competitiveness. This situation be required to overcome weaknesses in speci�c functional corresponds with value chains of type 1 and (maybe) type.21 capacities. For example, access to certi�cation services In the contemporary context, however, the cost of supply for might be critical to achieving assured compliance (on a cost- competitive basis) with respect to the buyer’s requirements for good agricultural practice (GAP). 21 See the “older� literature on contract farming and smallholders, including Williams and Karen (1985); Minot (1986); and Glover To the extent that resources are function-speci�c, their and Kusterer (1990). importance and criticality to assured compliance will differ MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 27 TABLE 3.2: Generalized Strengths and Weaknesses of Small-Scale vs. Large-Scale Producers SMALL-SCALE PRODUCERS STRENGTHS WEAKNESSES • Comparative advantage in managing • Small-sized holdings, lacking economies of scale labor-intensive production activities • Diversi�ed production in small areas as a risk management strategy; yet, this strategy • Self-supervision, motivation, etc. limits their possibilities to commercialize surplus production • Local knowledge • Nonproximity to the market • Education standards that are often low • Reluctant to introduce new technology • Dif�culty in obtaining information, capital, and support • Weak in negotiation, often lacking con�dence, especially when dealing with traders and companies • Adverse to risk (rightly) • Need income stability and cannot afford losses • Often on inferior land, without access to irrigation LARGE-SCALE PRODUCERS STRENGTHS WEAKNESSES • Skilled labor • High overhead cost • Market knowledge • Poor at motivating and instilling a sense of ownership for large numbers of laborers • Technical knowledge • Poor at servicing small and niche markets • Inputs purchase • Finance and capital • Land • Output markets • Product traceability and quality and safety assurance • Risk management Source: Poulton et al. 2005; TecnoServe 2004. between value chains. The importance of particular resources the grading function might be undertaken by the buyer. The in speci�c value chain contexts can be represented through underlying issue is that, while small-scale producers may a resource-market matrix (table 3.3). Thus, in type 2 value operate in a world that is generally resource-constrained, chains, only basic grading skills may be important; enhance- not all of these resources are binding in terms of assured ment of any of the other types of resources will have little compliance given the value chains in which they participate. or no impact on assured compliance. Conversely, skills in At the same time, switching to value chains directed at new basic grading may be a relatively minor resource require- (presumably higher-value) markets may result in additional ment in value chains of type 4 through type 6; here much of (or at least different) resources becoming critical constraints. TABLE 3.3: Resource-Market Matrix for Smallholder Assured Compliance—Illustrative Examples RESOURCE SKILLS MARKET IN BASIC MEMBERSHIP PESTICIDE QUALITY OF FARMER APPLICATION SKILLS IN CERTIFICATION GRADING GROUP EQUIPMENT GAP CAPACITY Type 1 X Type 2 XXX X Type 3 XX XX XX Type 4 XX XXX XXX XX Type 5 XX XXX XXX XXX XXX Type 6 XX XXXX XX XXXX XXXX Note: X: minor importance; XX: moderate importance; XXX: major importance. Source: The Authors. E C O N O M I C AND S E CT OR WORK 28 C H A PTER 3 This is clearly an important issue in the analysis of processes mediated by product and value chain characteristics, deter- of inclusion and exclusion of small-scale producers, as well mines the production and transaction costs they face. Thus, as in establishing priorities for capacity building. while the magnitude and relative importance of production and transaction costs vary across value chains for particu- To some extent, internal and external resources may sub- lar subgroups of producers, within any one value chain the stitute for one another. For example, larger producers may costs across subgroups also tend to differ. Thus, small-scale internalize certain resources (such as laboratory testing ca- producers may be able to compete face-to-face with large- pacity), while small-scale producers may be reliant on their scale producers in some value chains (for example, type 3 in availability externally, perhaps from a public body. As will be �gure 3.5), either because they have access to the required seen below, most interventions aimed at facilitating the par- resources or because economies of scale in achieving as- ticipation of small-scale producers in HVAF markets aim to sured compliance are limited. However, in other value chains augment access to these resources by enhancing their sup- they face a competitive disadvantage because of excess pro- ply, reducing their price, and so forth. This fact suggests that duction or (more likely) transaction costs. In such a context, the development of external resources can possibly have a it might be reasonable to expect larger-scale production to differential impact on the level of buyer procurement costs predominate in value chains of type 5 and type 6, except for small- versus large-scale producers, while reducing the where there is no competing large-scale sector. costs of procuring from all supply chains (�gure 3.5). At the same time, there may be some minimum level of external In the context of buyer-driven value chains, the transaction resource for small- or large-scale producers to participate in costs of the buyer also strongly influence procurement HVAF. Below this level, the procurement costs for buyers choices. It is generally assumed that procuring from a large will, in effect, be in�nite. The scope for vehicular access to base of small-scale producers involves higher transaction prime production areas is an example. costs for the buyer than procurement from a small number of larger producers, for example, in terms of the (a) identi- The differential access of small-, medium-, and large-scale �cation and selection of the base of suppliers (information producers and of buyers to internal and external resources, costs); (b) negotiation and monitoring of contractual relation- ships with a large number of suppliers; (c) risk of noncompli- ance with standards (for example, quality certi�cation) given FIGURE 3.5: Hypothetical Production and Transaction that small-scale producers may lack speci�c assets (for ex- Cost Pro�le in Alternative Value Chains for ample, irrigation, transportation, etc.); (d) risk of unreliable Small-Scale, Large-Scale, and Integrated supply (for example, compliance with schedule, frequency, Producers etc.); and (e) collection or receiving small volumes from a Transaction costs large number of sellers, which requires more buyer effort to Production costs ensure traceability and homogeneity of quality. It is also assumed that, as producer scale increases, the number of transactions made by the buyer decreases; the number of individual suppliers from which it needs to pro- cure declines. Further, the producer, location, and product- $ speci�c transaction costs associated with coordination and management along supply chains involving numerous small suppliers can be prohibitive, especially where there are sig- ni�cant risks of transactions failure due to opportunism, lack Small-Scale Outgrowers Integrated Buyer Production Small-Scale Outgrowers Integrated Buyer Production Small-Scale Outgrowers Integrated Buyer Production Medium- and Large-Scale Medium- and Large-Scale Medium- and Large-Scale of coordination, or rent seeking (Poulton et al. 2005, 2006; Pingali and Rosegrant, 1995). These costs act as a motiva- Outgrowers Outgrowers Outgrowers tion for the buyer to exclude small-scale suppliers, everything else being equal. Of course, the actual magnitude of the rela- tive transaction costs faced by the buyer in procuring from small- and large-scale producers is an empirical question. Further, any offsetting gains derived when sourcing from Type 3 Type 4 Type 5 small-scale producers are excluded, for example, in the form Source: The Authors. of enhanced product quality and so forth. Again, the extent MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 29 and magnitude of any offsetting bene�ts of procuring from governance have been established. In the medium term, the smallholders in practice constitute an empirical question. predominant concern is likely to turn to the ability of suppli- ers to conform to buyer speci�cations on a consistent basis While the transaction costs of the buyer tend to decrease and to broader coordination of the supply chain. with producer scale, at some point these costs can begin to increase with scale. This fact suggests that procuring from The transaction and production costs faced by both suppliers very large-scale producers imposes higher transaction costs. and buyers can vary appreciably over time, while this time For instance, the largest producers may enjoy high levels of pro�le of costs will differ according to the type of market bargaining and other market power that represent risks to being supplied. On the one hand, �xed costs (which are the buyer. If a very large supplier fails, the buyer may not be presumably discounted over some �nite time period) tend able to �nd an alternative supplier in the immediate time pe- to enhance the up-front costs. On the other, processes of riod—and possibly lose an important downstream customer adjustment and learning mean that variable transaction costs whose order cannot be ful�lled. Conversely, the supply from will tend to decline over time. This fact suggests that the any one (or number of) small-scale producers may represent marginal cost pro�le, such as that faced by small-scale pro- an insigni�cant supply volume for the buyer. ducers, will tend to have a “hump� around the time of value chain entry, which can potentially act as a barrier to entry. The transaction costs faced by buyers broadly reflect the The scale of this “hump,� as well as the overall level of sup- risks they face in procurement, which in turn are influenced ply costs over time, will tend to be enhanced as suppliers are by the characteristics of suppliers, products, and so forth. In required to achieve and maintain assured compliance with part, these risks reflect the investments required by buyers, stricter buyer speci�cations; thus, one can see a transfor- in the form of �xed transaction costs, in establishing supply mation of the temporal distribution of costs as one moves relations. Such investments are risky in that they are sunk; progressively from “low� (say, type 2) (for example, MC2 in they are not recouped should transactions fail. Such risks �gure 3.6) to “high� (say, type 5) (for example, MC5 in �gure relate to traditional uncertainties associated with produc- 3.6) value chains. The predominant drivers of this shift in the tion and supply (for example, due to weather, disease, etc.), cost pro�le are the marginal transaction costs associated but they have been enhanced signi�cantly by the scope for with assured compliance; as described above, the relative nonconformity with food safety, quality, and other standards. contribution of transaction versus production costs to total The larger the sunk costs associated with establishing and producer supply costs increases with the progressive shift maintaining the supply chain, the greater the risks of trans- from type 1 to type 6 value chains. actions failure. This is especially the case where there are The development of the required capacity to meet emerg- interdependencies between the investments required in ing standards itself consists of multiple stages, reflecting sourcing from value chain actors that require coordination of dynamic learning-curve effects (Henson et al. 2005). This actions and actors and provide scope for opportunism and rent seeking (Poulton et al. 2006). The existence of transaction risks has two impacts on the FIGURE 3.6: Hypothetical Marginal Supply Costs over procurement costs of buyers. On the one hand, transaction Time Augmented by Transaction Risks in costs (or at least perceived transaction costs) will reflect Supply Chains to Type 2 and Type 5 Value the level of risk and trust associated with alternative sup- Chains ply sources. For example, if buyers perceive small-scale producers to be more risky, the consequent risk-augmented transaction costs will be greater. In this case, the buyer will procure from other suppliers unless these higher transac- tion costs are offset by a lower supply price. On the other $ hand, the time pro�le of the transaction costs associated MC5 with alternative supply chains will reflect differences in MC2 the associated risks (Poulton et al. 2006). Thus, we might envisage that early in the establishment of supply relations there is signi�cant scope for opportunism or rent seeking but that these diminish as trust and mutual dependencies Time MC = marginal cost are established over time and when systems of supply-chain Source: The Authors. E C O N O M I C AND S E CT OR WORK 30 C H A PTER 3 process influences the production and transaction costs as- the scope for backward integration into primary production or sociated with value chains to higher-value markets due to sourcing from larger growers may be limited by the prevail- the enhancement of access to internal or external resources ing agrarian structure and the ability or cost of acquiring land or the more ef�cient use of resources over time. However, on a signi�cant scale in suitable growing areas. The buyer individual producers will differ in their starting point in this may then try to maximize its sourcing from its own farms process according to prevailing capacity, degree and nature or larger outgrowers, but it needs to supplement this sup- of existing marketing chains, and so forth. For example, a ply with smallholder supplies (even at higher cost) to meet small-scale producer who is currently supplying value chains demand and perhaps expand the business. for local spot markets (type 1) may �rst be required to un- dergo a shift in attitude with respect to his or her production The use of potentially more expensive smallholder supplies and marketing practices. Conversely, another producer who may assist the “buyer� not only in spreading production already participates in more exacting value chains (for exam- risks (i.e., related to weather or pests), but also in transfer- ple, type 3) may understand the production and marketing ring commercial risks. Downstream demand might fluctuate. challenges he or she faces in moving to a type 4 value chain A buyer can grow part of its requirements and contract larger but still needs to upgrade certain functional capacities. While outgrowers for another substantial proportion of needs. It some resource requirements may cut across all of these can then contract smallholders to supply certain quantities stages (for example, the level of education of the producer), but adjust its actual purchases in order to prevent shortfalls many resources are likely to be stage- or market-speci�c (for or take advantage of favorable market conditions. Adjusting example, development of certi�cation capacity), highlighting its own supply would be more expensive (i.e., plowing in a again the need for prioritizing capacity enhancement. At the crop during a market downturn), and such opportunistic buy- same time, the end point of capacity development may differ ing would not be tolerated by larger outgrowers. between markets due to differences in buyer requirements. The prevailing discussion highlights the need to examine Processes of capacity building by small-scale producers, efforts to integrate small-scale producers into particular agri- while acting to reduce the production or transaction costs food value chains in the context of the stages and trajectories associated with participation in higher markets, can also of an industry’s development: from start-up and emergence reduce the transaction costs borne by buyers. Thus, as the through growth to maturity. On the one hand, the level of competence and experience of producers increase through learning, attitudinal change, development of functions, and processes of learning, buyers may be able to relax their required internal and external resources will be closely controls and rely on an established record of supply as an aligned with the overall level of development of value chains indicator of future performance. The internal capacities of for a particular product. Thus, a “mature� industry may be buyers for supply-chain management and standards compli- better able to manage the challenges of smallholder assured ance oversight may themselves be strengthened. Likewise, compliance than a newly emerging industry. Yet, in a nascent third-party certi�cation may be accepted in lieu of the buyer industry, buyers may face relatively high costs in establish- itself visiting and inspecting its suppliers. Similar processes ing relations with all suppliers, both large and small. In such will take place for competing suppliers, and indeed buyer contexts, buyers may search out smallholders as sources of transaction costs might be expected to decline more quickly supply, if only on an experimental basis. In nascent indus- for medium- and large-scale outgrowers to the extent that tries, supplier failure may pose little risk as the industry’s trust is established more readily. reputation and brand capital has not yet been developed.22 The foregoing discussion posits the buyers’ choices as be- Recognizing the various stages that producers may go tween (a) “make� or “buy� and (b) buying from smallholders through to participate in higher-value markets, and noting versus medium or larger outgrowers. It is entirely possible that buyers will opt for a portfolio of suppliers. This would certainly be the case if the buyer (for example, a fresh pro- 22 An alternative perspective is that, in contemporary competitive markets, new entrants have little or no room for error. Mistakes duce exporter or a fruit and vegetable processor) needs to or noncompliant supplies could doom efforts to gain an enlarged procure multiple commodities or raw materials. The relative toehold in the marketplace in the presence of long-standing in- strengths and weaknesses of different types of suppliers cumbent suppliers. Hence, new entrants will seek even tighter control over their suppliers. Of course, this outcome depends could vary substantially among this basket of commodities, quite strongly on the segment of the market being targeted and warranting a mixed procurement strategy. In some contexts, the stringency of standards being applied. MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 31 that individuals or groups of producers are situated at dif- value chain characteristics; (2) the production and market- ferent “starting points,� emphasizes the need to examine ing functions required to be performed by buyers in order the nature and level of prevailing skills and capacities at to establish and maintain assured compliance with buyer the industry and producer levels. Where attempts are be- speci�cations; (3) the internal resources of small-scale pro- ing made to integrate small-scale producers into a particular ducers; and (4) the external resource base that is available value chain alongside established suppliers, for example, to small-scale producers, within both the public and private middle- or large-scale outgrowers, many of the required ex- sectors. Table 3.4 provides a summary of these factors and ternal resources may exist (for example, certi�cation capac- illustrative examples. While some of these factors may be ity). The existence of such external resources will tend to common to all suppliers (for example, the absolute level of diminish the scale of the tasks and associated investments food safety performance required of all suppliers), others involved in facilitating smallholder participation and may may be speci�c to the value chain or supplier (for example, also reduce the cost of developing the internal resources of context-speci�c food safety process standards). smallholders, for example, because of the existence of local expertise and experience. Prevailing external resources may Impact of Development Program Interventions substitute, at least in the short term, for weaknesses in the internal resource of small-scale producers. Having provided a conceptual model of the process of inclu- sion of small-scale producers in value chains to higher-value In conclusion, the participation of small-scale producers in agri-food markets, it is now possible to examine the poten- HVAF markets ultimately reflects the procurement choices tial impacts of development program interventions that are of immediate buyers—except, perhaps, in those few cases geared, at least in part, to improving the ability of small-scale where supply is so tight that suppliers have considerable producers to achieve and maintain assured compliance while leverage. In turn, such decisions will reflect the relative maintaining competitiveness. costs of procuring from alternative suppliers, which are de- termined by the transaction costs faced by the buyer and In terms of the conceptual framework, interventions can the supplier’s production and transaction costs as embodied take four forms, corresponding to different levels of the con- in its selling price. Attention thus focuses on the nature and ceptual framework in �gure 3.3: magnitude of these costs in value chains incorporating small- Form A: Augment the external resource base avail- scale producers relative to those involving larger outgrowers able to small-scale producers or buyers, either by and integrated production by buyers. Clearly, in examining enhancing speci�c elements of this base or by facili- mechanisms to facilitate the participation of small-scale tating small-scale producer access and thus reducing producers in higher-value markets, one needs to focus on the production and transaction costs of small-scale the factors that determine these production and transaction producers or the transaction costs of buyers in sourc- costs. The conceptual framework suggests that the key ing from small-scale producers. determinants of these costs are (1) product, market, and TABLE 3.4: Factors Influencing Costs of Procuring from Small-Scale Producers PRODUCT AND PRODUCTION AND MARKET CHARACTERISTICS MARKETING FUNCTIONS INTERNAL RESOURCES EXTERNAL RESOURCES • Unit value • Supply of minimum volumes • Agro-climatic suitability of growing • Roads infrastructure • Perishability • Consistency, timing, and duration conditions • Communications infrastructure • Technical complexity of production of supply • Quantity and quality of land • Airport and seaport capacity • Stringency of standards • Adherence with basic quality grades • Irrigation capacity • Certi�cation services for private • Size and dynamism of market • Application of prescribed production • Production tools and equipment standards • Competitiveness of local and interna- practices • Communications equipment • Laboratory testing services tional markets • Production process certi�cation • Skills and expertise • Certi�cation capacity • Nature and rate of change in value • Adherence with maximum residue • Recording-keeping systems • Regulations chain structure and modus operandi levels for pesticides • Pesticide application equipment and • Public and private standards facilities • Surveillance systems • Postharvest handling facilities Source: The Authors. E C O N O M I C AND S E CT OR WORK 32 C H A PTER 3 Form B: Augment the internal resource base of immediately target the public or private sectors. In many small-scale producers and thus reduce the production cases, the intervention is necessarily applied to the immedi- and transaction costs of small-scale producers or the ate point where resource constraints are being augmented transaction costs of buyers in sourcing from small- or offset. For example, establishment of an of�cial laboratory scale producers. will generally involve interventions targeted at the public sec- Form C: Offset any additional production and trans- tor. In other cases, however, resources can be developed action costs for small-scale producers and buyers through interventions that differ in their direct locus. For sourcing from small-scale producers through a example, the expertise of farmers can be enhanced through �nancial transfer or by providing support services or the provision of training directly to farmers, through the assurances. enhancement of the capacity of public extension agents Form D: Enhance the market price received by buyers to provide training to farmers, through the development of for products procured from small-scale producers technical support functions within agribusiness buying com- through market creation and promotion, taxation poli- panies, and so forth. The immediate locus of an intervention cies, and so forth. will influence the speed at which resource constraints are offset, and also the degree to which that intervention pro- Thus, an intervention might boost the external or internal re- motes capacity that is transferable to bene�ciaries that are source base (for example, by building laboratories, establish- outside the immediate target group. ing certi�cation services, training farmers, providing equip- ment to farmers, etc.) or act to overcome constraints that Finally, interventions differ in the nature of their funding. In small-scale producers face in accessing existing resources some cases, they augment or offset resource constraints (for example, through training of farmers, establishment of through actions that are fully funded by grants, such as those links, etc.). In some cases, external and internal resources provided by government, bilateral, or multilateral donors or will be complementary or mutually exclusive, while in others NGOs. In other cases, partial grants or loans are employed they will be substitutes. The degree to which such interven- whereby bene�ciaries have to cover at least some of the tions are sustainable will reflect the degree to which dynamic cost of the intervention themselves. The form of funding capacity is developed—that is, the scope for resources to be employed by an intervention is likely to influence the degree maintained and enhanced over time. to which the offsetting of resource constraints can be sus- tained once the intervention comes to an end and can adjust Alternatively, interventions can offset the additional transac- to changes in buyer speci�cations. tion and production costs faced by small-scale producers giv- en prevailing weaknesses in internal or external resources. The conceptual framework suggests that the impact or “suc- This aid can take the form of subsidies or cash transfers to cess� of interventions aimed at small-scale producer par- permit access to required resources or services (i.e., certi- ticipation in value chains to higher-value markets should be �cation services) or the direct provision of these resources judged in terms of the time path of the procurement costs or services. Finally, and most probably where the produc- of buyers in sourcing from small-scale producers. Thus, a tion and transaction costs for small-scale producers exceed given intervention is effective if the costs of procurement for those for competing supply chains, interventions may seek buyers in sourcing from a small-scale producer at any point to promote offsetting price premiums by boosting consumer in time are no greater than the costs of procuring from other demand. Everything else being equal, interventions of type suppliers in the buyer’s choice set. In turn, this scenario re- A and B are likely to be more sustainable in the medium to quires that critical functional capacity in terms of internal and long term, in terms of smallholder participation in the tar- external resources is put in place to enable small-scale pro- get value chain(s), but interventions of type C will probably ducers to compete once the intervention comes to an end. have a more rapid impact on the functional capabilities of bene�ciaries. In the short term, small-scale participation can be achieved by bridging any gap in procurement costs, although such inter- Conceivably, the locus of these various forms of interven- ventions will not be sustainable unless they simultaneously tion—the immediate point at which it is applied—can be address the weaknesses in internal or external resources either internal or external to the value chain. Within the value that are the cause of these higher costs, such that resources chain, interventions can be applied to small-scale producers critical to assured compliance can be maintained. The time and buyers. External to the supply chains, interventions can frame over which this is achieved is clearly an important MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 33 FIGURE 3.7: Impacts of Interventions Aimed at Facilitating the Participation of Small-Scale Producers in Value Chains to Higher-Value Markets Spillovers: Macro Impacts Exporter • Health Performance • Productivity • Input access Production & Farmer Income: Market Returns, Market Access: Marketing Supply Chain • Level Prices & Costs • Entry Functions Internal Resources Intervention • Resilience • Resilience • Failure rates External Farmer Welfare Resources Source: The Authors. variable and provides a measure of the performance of al- be causally related to the ability of small-scale producers to ternative interventions in terms of the time taken to achieve achieve assured compliance and compete on the basis of sustainability. Examining the time horizon of procurement the buyer’s procurement costs. On the other hand, there are costs allows a distinction to be drawn between “quick hit� undoubtedly further factors that might be considered in as- interventions, for example, that aim to offset short-term ex- sessing the impact of an intervention, in particular impacts cess procurement costs for buyers, and interventions that on producer income and poverty, as well as spillover effects address structural “excess� procurement costs and require on the wider community and economy (�gure 3.7). longer-term support to achieve sustainability. This time hori- zon also permits alternative withdrawal strategies to be com- Taking �gure 3.7 and the conceptual framework, a series of pared and contrasted: for example, interventions whereby potential “success� measures, which are broadly iterative in support is gradually wound down as opposed to projects that nature, can be derived for interventions aimed at facilitating come to an abrupt end. the participation of small-scale producers in HVAF markets. Thus, an intervention can be assessed in terms of its im- pacts at a variety of levels, perhaps depending on the degree Assessing the “Success� of an Intervention to which each is measurable: (1) the amount of de�ned in- The conceptual framework represents the impact of inter- tervention inputs delivered; (2) the degree to which internal ventions rather narrowly in terms of the procurement deci- or external resource constraints are offset; (3) the degree sions of buyers and the constraining impact of internal and to which assured compliance is achieved; (4) the degree to external resources on the ability to achieve assured compli- which participation in the target value chain is achieved in ance with buyer speci�cations in a manner that maintains the short term; (5) the degree to which participation in the competitiveness relative to alternative sources of supply. target value chain is maintained over time; (6) the impact On the one hand, this framework suggests that the impact on livelihoods of producers and agribusinesses; and (7) the or success of an intervention can be assessed at a number impact on the wider society and economy. At each level, the of different levels, perhaps corresponding to the individual impacts of the intervention need to be assessed in terms elements of the conceptual framework that are assumed to of clearly de�ned target groups and over a prespeci�ed E C O N O M I C AND S E CT OR WORK 34 C H A PTER 3 time period in order to permit the effective comparison of value chains to higher-value markets and the ability to “pick interventions. winners�: It is likely to be more cost-effective and sustainable for The impact of a particular intervention or set of interven- small-scale producers that participate in value chains tions will both reflect and be influenced by the implementing to lower-value markets (for example, type 1) to take agent, form, locus, and nature of funding, as well as a wider small steps toward value chains directed at higher- set of design and implementation variables, for example: (1) value markets (for example, types 2 and 3) rather than the number and nature of other interventions implemented wholesale shifts to value chains directed at the most simultaneously; (2) the sequencing of interventions and exacting markets (types 5 and 6). That is, fostering scheduling over time; (3) entry and exit strategies associated “great leaps forward� is rarely a good idea. with intervention implementation; (4) intervention objectives; Efforts to achieve assured compliance among small- (5) the quality of technical assistance or other aspects of in- scale producers are more likely to be effective and tervention management; (6) the level and modes of impact less costly where there is an existing mature industry assessment and resultant impact on intervention delivery; and thus more external resources. This is especially and (7) the wider commercial and political environment. In the case in relation to type 5 and type 6 markets. analyzing interventions aimed at facilitating the participation Attempts to develop a smallholder supply base for of small-scale producers in HVAF markets, it is important to such markets in a nascent industry will likely have low capture information on these variables in order to assist in in- rates of success. terpreting differences in the assessed impact and in diagnos- ing which interventions work better than others in particular The movement of small-scale producers to value contexts. chains directed at type 5 and 6 markets is particularly dif�cult given the associated production and transac- A critical issue for practitioners in comparing and contrasting tion costs relative to competing resources, while the interventions aimed at facilitating the participation of small- additional bene�ts over participation in value chains scale producers in HVAF markets is cost-effectiveness, and to type 4 markets might be limited. This fact implies thus replicability. Historically, this issue has tended to be as- that efforts aimed at achieving assured compliance in sessed in terms of the amounts of assistance delivered for value chains to type 3 and type 4 markets might be a a given level of �nancial resource, or alternatively the cost more effective approach in the short to medium term. per unit of assistance provided. Here, with the focus on the In circumstances where alternative supply arrange- augmentation of internal and external resources, assured ments face critical bottlenecks (i.e., of�cial restric- compliance, and sustainable participation in high-value mar- tions on landholding sizes or leases), there are higher kets, cost-effectiveness needs to be measured somewhat prospects for cost sharing in interventions as buyers differently. Such measures might include the unit cost per will be more motivated and dedicated to fostering a producer achieving assured compliance with the speci�ca- smallholder supply base. Conversely, where the policy tions of its immediate buyer or per additional producer par- environment leans toward larger-scale production (i.e., ticipating in the target value chain over a prescribed period through favorable land-leasing arrangements, subsi- of time. dies for mechanization, etc.), cost and capacity sharing for smallholder-oriented interventions are unlikely, as are the prospects for success. HYPOTHESES The second set of hypotheses relate to the approaches Through the development of the conceptual framework, a adopted by interventions aimed at facilitating the participa- series of tentative hypotheses emerged that served to drive tion of small-scale producers in value chains to higher-value the direction of the research undertaken through this project markets, as well as their scalability and sustainability: and the related collection and analysis of data. The �rst set Interventions of type A and type B that aim to aug- of hypotheses relate to the targeting of interventions aimed ment available internal or external resources will tend at facilitating the participation of small-scale producers in to MA K ING TH E GR A D E C O N C E P T UAL IZ ING T HE IMPACT OF STANDA RD S COMPLIA NCE ON S MA LLH OLD ER PA RTIC IPATION 35 • take longer to achieve the assured compliance of • be more scalable, in terms of the number of small- small-scale producers; scale producers achieving assured compliance • take longer to achieve the initial participation of relative to bottom-up interventions, for example, small-scale producers in target value chains; through small-scale producer groups. • have lower rates of small-scale producers achiev- Top-down (or vertical) interventions via lead �rms ing successful assured compliance; will be most suitable in relation to type 5 and type 6 • have lower rates of failure among small-scale markets; bottom-up (or horizontal) interventions will producers achieving assured compliance, rela- be more suitable to type 2 and type 3 markets. This tive to interventions of type C that aim to offset difference relates to differences in the speci�city of weaknesses in the prevailing internal or external skills and knowledge required and the differential risks resource base. of noncompliance. Interventions of type A and type B that aim to aug- Interventions that augment or offset weaknesses in ment available internal or external resources will tend the internal and/or external resource base through to be more sustainable in the medium to long run in local service providers will tend to be more sustain- terms of maintaining access to critical resources as able in terms of longer-term processes of upgrading. buyer requirements change, relative to type C inter- However, because many development programs need ventions that aim to offset weaknesses in the prevail- to show immediate results and may have a short ing internal or external resource base. implementation period, the attention given to (and pa- Top-down interventions, such as through exporters, tience with) the development of local service provision will tend to will be less than optimal. • take less time to achieve the initial assured compli- Interventions that engage with the public sector in ance of small-scale producers; enhancing the external resource base will tend to be more scalable, in terms of the number of small-scale • have lower rates of failure among small-scale pro- producers achieving assured compliance. ducers achieving assured compliance; E C O N O M I C AND S E CT OR WORK D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 37 Chapter 4: DEVELOPMENT ASSISTANCE, STANDARDS COMPLIANCE, AND AFRICAN SMALLHOLDER FARMERS INTRODUCTION for certi�cation costs. An increasing number of programs Over the past decade, multilateral development agencies, and projects are now employing a hybrid approach involving bilateral donors, and nongovernmental organizations (NGOs) multiple entry points, both general and speci�c. Figure 4.1 have initiated or otherwise supported a flurry of initiatives depicts the varied entry points for development assistance geared toward facilitating African smallholder compliance in this �eld. with emerging regulatory and market agri-food standards. It The recent development assistance efforts related to African is very dif�cult to quantify the scale of this assistance since smallholders and standards compliance have a mixed ances- many interventions with this focus have been embedded in try. One line of the family can be traced to the initiatives, broader trade, agriculture, or rural development programs beginning in the late 1980s and early 1990s, to promote and projects. However, a rough estimate is made here of “nontraditional� agricultural exports from Africa in response $350–$450 million, meaning average expenditures of some to growing pessimism about the prospects for traditional $35–$40 million per year for technical assistance, training, commodities and positive recognition of changing consumer certi�cation costs, small equipment, and so forth. This does tastes and rising demand for high-value food products. This not include related investments in physical infrastructure— ancestry featured a proliferation of “private-sector develop- which are considerably larger.23 ment� and “value chain� initiatives. A second line of the Development assistance in this area has taken many differ- family can be traced to a revival in development assistance ent forms and has involved varied entry points. Some assis- for agriculture in the early to mid-2000s, with an increasing tance has centered on the broader capacities for standards emphasis on “linking farmers to markets.� A third line of the management at the national or sector levels, seeing this family derives not from traditional development assistance approach as a precursor to interventions targeting a speci�c work but from the long-standing social and environment bene�ciary group (i.e., smallholder farmers); other assistance “movements� in higher-income countries that have, increas- has focused on strengthening pertinent capacities at the lev- ingly, found market-based applications. el of speci�c industries, companies, or farmers (groups). Still This chapter provides a bird’s-eye view of development other assistance has mostly just defrayed certain costs of assistance in the nexus involving standards, higher-value participation in standards-based markets—that is, by paying markets, and smallholder farmers. Only limited details about speci�c projects and programs are noted here, and then only to illustrate broader trends. The review is contextualized by 23 In the larger picture of development assistance to African trade reference to two types of broader initiatives and the lessons or agriculture, this is not a huge amount of money. For example, that have been learned from these initiatives. The key ele- new World Bank loan commitments—including those from the ments of the antecedent programs to promote nontraditional International Financial Corporation (IFC), the International Devel- opment Association (IDA), and the International Bank for Develop- agricultural exports and various supply-chain partnerships ment and Reconstruction (IBDR)—to African agriculture and rural are highlighted �rst. Then, the more recent efforts to revital- development were US$7.3 billion in 2009 alone, much higher than for the period 2006–08 (US$4.1 billion per annum). However, while ize investment in African agriculture are considered. Recent a large part of such a lending program goes for investments in development assistance efforts geared toward strengthen- physical infrastructure (i.e., rural roads; irrigation facilities; testing ing standards management capacity generally and the more laboratories), most of the expenditure for supporting smallholder standards compliance has gone for technical assistance, train- speci�c interventions centered on smallholder compliance ing, farm and �rm advisory services, study tours, and so forth.. with emerging standards are then analyzed. E C O N O M I C AND S E CT OR WORK 38 C H A PTER 4 FIGURE 4.1: Entry Points for Development Agencies’ Support for Compliance with Standards Initiatives enhancing industry’s external resources to comply with private standards Institutionalizing standard compliance in national policies Service provision and institutional infrastructure certification and conformity assessment infrastructure Improving/adjusting regulatory frameworks Standard diplomacy/advocacy Good practices/regulating input suppliers Promoting public-private sector dialogue Initiatives enhancing industry’s internal resources to comply with private standards Collective Strengthening Private Sector Organizations (service level provision, technical and advocacy roles) Access to information on dynamics of standards Setting industry code of practice On-Farm Off-Farm Awareness Awareness Improving knowledge/skills Improving knowledge/skills Supporting GAP implementation Supporting GMP/GHP/HACCP implementation Firm/farm Crop protocols, Records Records level Technology options to achieve compliance Improving managerial/entrepreneurial skills Improving managerial/entrepreneurial skills Species & Harvest/ varieties/ Production Postharvest Transportation/ Markets Input suppliers processing storage Source: The Authors. GAP: good agricultural practice; GMP: good manufacturing practices; HACCP: Hazard Analysis and Critical Control Point system; GHP: good hygiene practices ANTECEDENTS: NTAEs, “LEAD� FIRMS, AND development policies, mainly in the form of establishing a SUPPLY-CHAIN PARTNERSHIPS favorable enabling environment—macroeconomic stabiliza- During the 1960s and 1970s development assistance to tion and privatization. For example, during the late 1980s agricultural programs emphasized production improvements and 1990s, most World Bank (WB) work in the area of sub- through support for agricultural research and extension, ir- Saharan Africa (SSA) agricultural marketing and trade was rigation, and public-sector agriculture marketing and distribu- carried out under the rubric of structural and sector adjust- tion systems. Yet the marketing reforms undertaken during ment loans, with very little focus on investment lending. Yet, the 1980s and 1990s gave rise to a new paradigm in which some investment lending was made, with foci on agricultural the roles of the government and private operators in the pro- export rehabilitation, diversi�cation, and competitiveness. vision of services and marketing functions were being rede- For example, the Ghana Diversi�cation Project focused on �ned, with the private sector expected to ful�ll the vacuum the rehabilitation of coffee production, promoting outgrower left by the government in the provision of market and other schemes for rubber and oil palm and promoting international services. Overall, during the late 1980s and 1990s, support market penetration of Ghanaian pineapple. A series of, essen- to agriculture declined substantially.24 Donor investment tially, pilot projects were initiated during the 1990s in several for agricultural marketing collapsed, with most attention in West African countries to support nontraditional agricultural this area shifting to policy reform measures. What limited exports (NTAEs), especially for fruits and vegetables. investment support was provided in this area was in relation As illustrated in table 4.1, this promotion of NTAEs (in WB- to the diversi�cation of agricultural trade beyond traditional supported projects) involved a blend of different interven- commodities. tions, including those that tested alternative crops, provided The attention to “nontraditional agricultural exports� in farmer advisory services, strengthened exporter and pro- Africa initially placed a strong emphasis on private-sector ducer associations, and constructed “hard� infrastructure for transport and logistics (including roads, ports, etc.). In most of these projects, technical and �nancial services to private 24 According to the World Bank, bilateral and multilateral donor aid for development of African agriculture declined from $1,921 operators were primarily provided through public-sector million in 1981 to $997 million in 2001 (World Bank 2007b). entities (national research and extension, ministries of agri- MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 39 TABLE 4.1: Main Components of WB Market-Led Projects Implemented in the Mid-1990s to Early 2000s AGRICULTURAL EXPORT PROMOTION AGROPASTORAL TRADING AND NATIONAL AGRICULTURE EXPORT NATIONAL AND PROCESSING DIVERSIFICATION AGRICULTURE DIVISIFICATION PROMOTION AGRICULTURE PROMOTION PILOT PROJECT PROJECT EXPORT PROMOTION PROJECT PROJECT EXPORT PROMOTION PROJECT Country Cote D’Ivore Senegal Ghana Niger Guinea Mali a. Market focus National/local Regional techniques International Export Markets b. Facilitating Access to �nance c. Assessing agronomic viability of export crops Testing new crops Develop packing materials Production techniques Improving quality d. Assessing export market feasibility Market trials, export missions, study tours, market studies e. Collective actions Apex and professional organizations Collective action for POs f. Public institutional capacilities Public capacities for policy analysis, market- ing information, trade negotiations, SPS, etc. g. Market-oriented infrastructure Feeder roads, etc Ugrading port/airport export facilities Postharvest and other related infrastructure for overall industry Source: The Authors. culture [MOAs], ministries of trade, public export promotion programs focused on increasing high-value nontraditional agencies, etc.).25 agriculture exports. Early attempts focused on improving the institutional infrastructure for private agribusiness through During the same period, other initiatives were undertaken that assistance in policy analysis and reform and through support speci�cally sought to strengthen SSA agro-enterprises as a to industry associations, but such attempts concentrated means of generating sustained growth and reducing poverty. later on facilitating the supply-side response through sup- The U.S. Agency for International Development (USAID) was porting �rm-level investments, access to markets, and direct leading these efforts in the region. Most USAID agribusiness provision of services. The Agricultural Non-Traditional Export Promotion Project (ANEPP, 1988–95) in Uganda and the Trade 25 In the case of Guinea, for example, the government’s insistence and Investment Program (TIP, 1991–98) in Ghana are exam- on carrying out public provision of inputs, extension, and other ser- vices weakened the possibility of establishing sustainable private ples of such export diversi�cation projects. Their successor systems for services delivery (World Bank 2003a, Report 26075). projects—the Investment in Developing Export Agriculture E C O N O M I C AND S E CT OR WORK 40 C H A PTER 4 (IDEA, 1995–2004) in Uganda and the Trade and Investment export-oriented supply chains and better integrate smallhold- Reform Program (TIRP, 1998–2004) in Ghana—had a stron- ers into this process. ger focus on enhancing private enterprise performance. In the aftermath of these pioneering NTAE and agribusiness In contrast to the public-sector service delivery mecha- support projects, considerations were given to how to rep- nisms commonly found in WB-supported projects, in the licate and scale up successful experiences while improving USAID-supported projects the technical and other forms of the sustainability of the support services provided to �rms assistance were frequently channeled mainly through U.S.- and supply chains. While the ability of public agencies to based consulting �rms or consortia. One type of instrument effectively service very different types of enterprises and that was increasingly used by different donors in this type supply chains was questioned, the models based upon di- of project was matching grants—to private operators—for rect service provisioning by dedicated project (and, in some the upgrading of physical infrastructure, promotion of end- cases, international) staff often did not feature a viable exit market links, conduct of �eld and market trials, and other strategy in which the capacity for continued service provi- pilot activities.26 sioning was transferred.28, 29 As pilot initiatives, these projects were characterized by a One set of initiatives subsequently sought to promote busi- lot of experimentation and learning, but with rather mixed ness development services as a potentially more effective results in relation to their original objectives. Getting the bal- and sustainable model than direct project service provision. ancing and sequencing right between policy and institutional In these programs, support was provided for the establish- reforms, enterprise level and collective infrastructure, pro- ment or strengthening of independent or specialized entities motion of end-market links, and the creation of an effective who would provide fee-based services to �rms and indus- and reliable supply response proved to be challenging.27 tries. While applied more generally, especially in programs seeking to support African small- and medium-sized enter- Evaluations of the USAID agribusiness programs highlighted prises (SMEs), some business development programs were the importance of setting strategies to support sectors based also designed to assist exports, including NTAEs. on a rigorous analysis of the constraints and opportunities along the chain and on the dialogue among government For example, the Export Market Development Services for entities, the private sector, and other relevant stakeholders. the SME project in Tanzania (established in 1994), funded The agency then started piloting frameworks that provided by the Department for International Development (DFID), a better understanding of opportunities and constraints to provided technical assistance and advisory services as well export development, such as the “commodity-chain ap- as end-market links. It was one of the early attempts to proach,� applied, for example, by the IDEA project in Uganda develop independent fee-based services to agri-food export in the mid-1990s. Similar lessons were being learned in the sectors, targeting small �rms but also small-scale producers. WB-supported projects. The export promotion projects in In the late 1990s, business service development initiatives Senegal and Mali both applied the concept of intervening at addressing the speci�c concerns of smallholders within multiple points in the supply chain. Some experimentation in the context of high-value agri-food chains started to be pi- public- and private-sector partnerships also took place. The loted. The Zambia Agribusiness Technical Assistance Center learning that took place through the implementation of these (ZATAC), established in 1999 with USAID support, was pilot initiatives would influence the approaches applied by donors during the subsequent decade in order to expand 28 For example, agribusiness development centers were set up by USAID in the mid-1990s under several projects in Africa, gener- 26 Examples are WB-funded projects in Guinea and Niger, USAID’s ally as an independent of�ce staffed by a mix of expatriates and TIRP and IDEA projects, and the support provided by the Neth- local professionals. This model has not generally been transfer- erlands through the activities implemented by the Centre for the able once the project �nancing ends (Lamb and Brower 2005). Promotion of Imports from Developing Countries—CBI. Yet several recent USAID interventions, such as the Trade and In- 27 The Niger project had limited results as attention concentrated vestment Program for a Competitive Export Economy (TIPCEE) on developing the production capacity among smallholder farm- project in Ghana, have continued the same pattern of implemen- ers, yet the linkages between them and the exporters who had tation units providing support to enterprises. These too have the ability to access foreign markets were neglected (World faced the same problems of sustainability after the completion Bank 2006, Report 35833). In contrast, the focus in the Guinea of the project. project was on end-market linkages, with inadequate resources 29 See, for example, Diaz et al. (2009) for a description of develop- devoted to stimulating the supply response (World Bank 2003a, ment efforts to build institutional support to export development Report 26075). in Uganda during the 1990s. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 41 BOX 4.1: Expanding Focus: From Support for Private-Led Initiatives to Wider Public-Private Partnerships Several development agencies have been channeling di- to facilitate access of developing country enterprises to rect support to private actors through B2B and partner- technology and know-how. On occasion, companies ben- ship programs. Initial efforts focused mainly on creating e�t from several of these investments as a way to replicate incentives for private investments in areas perceived as successful experiences. To illustrate, Unilever’s effort to de- very risky or constrained by lack of information or other velop the Allanblackia value chain in Ghana bene�ted from barriers. Yet, more recently, these efforts have explic- support of PSOM, while in Tanzania the support came from itly included poverty reduction among their objectives. the UNEP-Growing Sustainable Business (GSB) program. Examples of programs that have been speci�cally devel- Similarly, several of the most recent agriculture and agribusi- oped to provide direct support to enterprises in high-val- ness projects supported by the WB and the International ue export chains are the Dutch Private Sector Investment Fund for Agricultural Development (IFAD) at the country (PSI) program (formerly known as the Programme for level have made use of matching grants to stimulate private Cooperation with Emerging Markets—PSOM), support- investments or to support private actors (lead �rms) in their ing Dutch companies willing to undertake an invest- role as integrators, thus facilitating the delivery of services to ment project together with a local business partner in smallholders and their participation in pro�table markets. an emerging economy. Grant amounts reached up to The partnership programs have evolved from the com- 50 percent of the investment costs, with a maximum panies being direct recipients of the grant, to wider en- contribution of 750,000. Investors are expected to ob- gagement of several actors to promote development serve a high standard of corporate social responsibility. objectives. The Global Development Alliance (GDA)- Between 1998 and 2009 the program provided grants USAID, the World Summit on Sustainable Development estimated at US$200 million (Jeune 2009), and it has (WSSD), and The Netherlands Partnership on Market recently expanded the support to non-Dutch companies Access for Food and Agricultural Products are examples pursuing investments in speci�c countries, including of these types of partnerships. The GDA alliance mobi- several SSA countries (Benin, Burkina Faso, Cape Verde, lizes the ideas, efforts, and resources of governments, Ethiopia, The Gambia, Ghana, Madagascar, Malawi, Mali, businesses, and civil society by forging public-private al- Mozambique, Rwanda, Senegal, South Africa, Sudan, liances; the program has evolved from a global focus to- Tanzania, Uganda, and Zambia). ward a decentralized structure (country level). Examples DFID has also been providing direct support through its of alliances in the agri-food sectors supported by GDA challenge funds—“matching grants� of up to 49 percent include the African Market Garden (Burkina Faso/Ghana, of the costs of commercial proposals that are selected Horticulture); the Agribusiness in Sustainable Natural on a competitive basis. Initiatives include the Business Plant Products (Ghana, Madagascar, South Africa, Linkages Challenge Fund (BLCF, 2000–2005), the Zambia), the Alliance for Economic Diversi�cation and Financial Deepening Challenge Fund (2000–2008), and a Assistance in the Zambia Copperbelt, the Alliance for number of smaller, sector-speci�c and country-speci�c Sustainable Coffee, the Alliance for the Development funds. New initiatives include the African Enterprise of the Smallholder Rubber Subsector (Liberia), the East Challenge Fund, the Financial Inclusion Challenge Africa Cashew Industry Alliance, the East African Fine Fund, and the development effects of supermarkets— Coffees Alliance, and so forth. the Food Retail Industry Challenge Fund (FRICH). The Under WSSD/Partnership, agreements have been es- agency has also started challenge funds at the country tablished with the governments of Ghana, The Gambia, level in Bangladesh and Vietnam. In Africa, examples of Zambia, Kenya, Uganda, and Tanzania to support the initiatives supported by the BLCF included support to development of speci�c sectors. The initiatives are aim- tomato processing in Ghana, citrus exports from Ghana, ing at improving market access and increased global and African honey exporters. FRICH targets speci�c in- competitiveness of farmers, food processors, retailers, vestments in Africa and has been supporting a set of fair and traders in developing countries. Examples are the trade initiatives. Partnerships and Horticulture Chain Management in The Danish International Development Agency (DANIDA), East Africa and the Development of Commercial Field the Swiss State Secretariat for Economic Affairs (SECO), Vegetable Production, Distribution and Marketing for the the United National Environmental Program (UNEP), and East African Market other development agencies also implement B2B programs Source: Compiled by the Authors. E C O N O M I C AND S E CT OR WORK 42 C H A PTER 4 designed to provide technical assistance, information, and 2001 was the lowest level recorded in the history of the insti- �nancial intermediation to smallholders and agribusinesses tution (World Bank 2003b). This pattern was more common. committed to working with small farmers, with a focus on A study examining the �rst generation of Poverty Reduction high-value products (and later also expanding to include cof- Strategy Papers noted the low and declining share given to fee). The difference between ZATAC and earlier initiatives agriculture in national budgets of low-income African coun- of agribusiness centers supported by USAID in SSA was its tries (Oxford Policy Management 2007). focus on smallholders and the attempt to make of ZATAC However, during the 2000s, the tide began to turn, with a self-dependent entity for continued provision of technical evidence of renewed interest by donors and governments in assistance.30 agriculture as a vehicle for poverty reduction and the achieve- The mixed pattern of results also led to further considerations ment of the Millennium Development Goals. In 2003, through of suitable targets for support in export-oriented programs. In the Maputo Declaration, African nations committed their sup- some cases, the greatest impact of scarce resources was port to the Comprehensive Africa Agriculture Development expected to be seen through reducing coverage and empha- Program (CAADP), under the New Partnership for Africa’s sizing the support provided to a few �rms—those with high Development (NEPAD). For many donors, the mid-2000s potential to develop the intended sector and produce spillover brought increased attention to agriculture, �rst in strategic effects on smallholders and local and national economies. For terms and later in resource allocations. Examples include the example, several of the USAID-funded projects formulated in WB’s 2003 Rural Development Strategy, the 2004 USAID the late 1990s targeted interventions through so-called lead Agriculture Strategy: Linking Producers to Markets, and the �rms—under the assumption that lead �rms would be able 2005 DFID policy paper “Growth and Poverty Reduction: to transfer knowledge and skills to their suppliers, including the Role of Agriculture.� The WB’s subsequent 2008 World smallholder farmers. Development Report on “Agriculture for Development� pro- vided further momentum for development assistance in the Combining a “lead �rm� focus and a quest for more sustain- sector. That year’s “food crisis� provided a further spur to able support models, several donors in the late 1990s and on development assistance (and foreign direct investment) in into the 2000s created business to business (B2B) or partner- agriculture. ships programs, seeking to especially link SSA exporters with European partners, facilitated by cost-sharing grants or chal- In this more recent embrace of agriculture, development lenge funds (see box 4.1 above). These programs have been agencies are devoting at least as much attention to market- seen as a suitable response to rising regulatory and market ing and supply-chain link dimensions as they are to strength- requirements and the consolidation of market structures for ening farm-level assets and primary production. Efforts to major commodities. Access to pro�table markets, transfer of link growth and poverty reduction objectives have yielded knowledge, and provision of embedded services (technical a plethora of programs centered on “linking smallholder assistance, market signals, etc.) are some of the key bene�ts farmers to markets,� or, in its variant, “making markets expected to confer upon SSA �rms from strengthening their work for the poor.� Box 4.2 illustrates how this thrust has links with international buyers. With an increasing attention been incorporated into the strategic objectives of several to poverty reduction, some of these partnership schemes organizations. have expanded their objectives beyond investment and trade This focus on “market links� has not only been taken up by promotion to also include achieving broader development major multilateral and bilateral agencies. Similarly, NGOs and objectives. nonpro�t organizations, traditionally working at the grass- roots level, late in the 1990s started to give more emphasis to market-led approaches. For example, ACDI-VOCA, with BROADER PARALLEL INITIATIVES: RENEWAL roots in the cooperative movement and with an explicit ob- OF AGRICULTURAL INVESTMENT AND LINKING FARMERS TO MARKETS jective of assisting cooperatives in developing countries, has Following upon important successes in the 1960s and 1970s, development assistance support for agriculture fell sharply 30 ZATAC saw itself as the champion of smallholder commercializa- over the subsequent two decades. According to the WB, tion using a “new� supply-chain approach that looked for mul- bilateral and multilateral donor support for African agriculture tiple intervention points. The institution evolved as a limited com- pany, ZATAC Ltd, becoming a kind of local development bank, fell from $1,921 million in 1981 to $997 million in 2001 (World provider of technical assistance, and implementer of several Bank 2007b). In real terms, the WB’s lending to agriculture in donor-funded projects. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 43 BOX 4.2: Linking Farmers to Markets as Part of Donors’ Strategic Objectives USAID. Although the overriding goal of the agency’s inter- The World Bank in its strategy for rural development ventions supporting export and agribusiness development “Reaching the Rural Poor: A Renewed Strategy for Rural has been to promote economic growth, there has been a Development� (World Bank 2003b), one of the strategic recent shift toward pro-poor growth, particularly as a result objectives is to refocus the agenda for agriculture, which of the Presidential Initiative to End Hunger in Africa (IEHA) included a shift in emphasis from local to global factors, launched in 2002, which focuses on promoting agricultural staples to high-value crops (yet, continue priority for growth, particularly in the context of small farmers. This fo- staple crops in low-income countries), primary produc- cus is clearly stated in the agency’s “Agriculture Strategy: tion to the entire food chain, and public- to private-sector Linking Producers to Markets� for the period 2004–09, partnerships. The strategy noted that the bank will fo- which focuses on increasing agriculture productivity and cus on strengthening farmer connections to markets smallholder participation in input and output markets. through supply-chain management structures, improv- Commercialization of agriculture by improving smallhold- ing product quality, establishing appropriate postharvest er links to pro�table markets is seen as fundamental to systems, and assisting clients in re�ning methods of capturing the bene�ts expected from improved productiv- product and certi�cation and improving food safety. In ity and overall competitiveness. The focus on poverty re- its Agriculture Action Plan “Implementing Agriculture duction is also stated by the USAID “Economic Growth for Development� (2010–12), the WB makes the links Strategy: Securing the Future� launched in 2008; the strat- of farmers to markets and the strengthening of value egy states the need to put in place inclusive interventions chains jointly one of the �ve critical areas of support to to truly achieve poverty reduction objectives (USAID 2008). agriculture. The instruments used to achieve these objectives include Other bilateral agencies, such as the Swedish International strengthening industry, �rm, and farmer capacities and Development Cooperation Agency (SIDA), DFID, and the improving environment and building institutions and good Swiss Agency for Development and Cooperation (SDC), governance. In 2010, the agency embraced the U.S. gov- plus NGOs such as CARE, have included in their strate- ernment initiative “Feed the Future,� which has a strong gic orientations a strong market focus for their develop- food security and poverty focus. ment assistance and the importance of smallholders ac- IFAD, an agency with a speci�c mandate of eradicat- cessing those markets, which is framed in the Markets ing poverty, de�ned the increased access of rural poor for the Poor Approach. The increasing importance of people to markets (and �nancial services) as one of the small-farmer links to markets to achieve poverty reduc- agency’s three pillars of its Strategic Framework 2002– tion objectives has not only been part of donor strategic 06 “Enabling the Poor Rural to Overcome Their Poverty.� policies and objectives, but also part of the strategies This area of emphasis was also noted in a discussion implemented by research and technical organizations. paper published by the agency in 2003—“Promoting For example, the International Center for Tropical Market Access for the Rural Poor in Order to Achieve Agriculture (CIAT) has been working on a demand-driven the Millennium Development Goals.� In its strategic research agenda called “Linking Farmers to Markets: framework, IFAD highlights the importance of market- Participatory Agro-enterprise Development Approach.� oriented production systems to enhance rural incomes, It supports collective action, diversi�cation, and added including the intensi�cation of agriculture production value as viable pathways out of poverty. Similarly, the systems, increased commercialization, and specializa- Global Forum on Agricultural Research (GFAR) launched tion in higher-value crops. The agency’s approaches to in 2003 its “Global Partnership Programme (GPP): facilitate market links focus on influencing the speed of Linking Farmers to Markets,� as a global postharvest market development, facilitating and broadening market initiative to promote sustainable economic growth, al- access to rural producers, and assisting them to partici- leviate poverty, and provide food security in developing pate in those markets more equitably. As in the case countries through market-oriented approaches. of USAID, to achieve these objectives IFAD uses both For other organizations, although not clearly explicit in public- and private-sector entry points. In the agency’s their strategies or policies, the topic appears as one of framework 2007–12, facilitating access to transparent the thematic areas of engagement, more from the per- and competitive agricultural input and produce markets spective of knowledge sharing and learning. The Food is also at the core of the strategic objectives. (Box continues on the next page) E C O N O M I C AND S E CT OR WORK 44 C H A PTER 4 BOX 4.2: Linking Farmers to Markets as Part of Donors’ Strategic Objectives (continued) and Agriculture Organization (FAO), for example, has a series of case studies illustrating emerging business been working on the development of knowledge and models. dissemination of experiences in this area through its agriculture marketing program, and it has synthesized Source: Compiled by the Authors. more recently played a critical role in the development of the economic growth and positive social change.� Before the USAID’s value chain framework and currently is one of the late 1990s, TecnoServe focused more on enterprise develop- main USAID partners in knowledge generation, dissemina- ment at the community level, but it has shifted toward work- tion, and sharing in the value chain �eld. The focus of its ing with larger businesses within value chain frameworks. work has expanded from cooperative development toward The organization has been promoting the enhancement of supporting different forms of farmer collective action re- capacities among the poor by focusing on commodities that quired to participate in markets, including vertical integration can have large outreach. TecnoServe has been leading ini- chains,31 linking lower- with higher-performing associations, tiatives related to coffee, banana, cashew, cocoa, and dairy joint ventures, and partnerships between private and public subsectors with a clear focus on quality improvements and actors.32 market links.33 CARE, from its broad experience in micro�nance, has most The emphasis on market-based interventions has also recently engaged in support to smallholders under market- pushed for some level of coordination among NGOs. One led approaches. CARE Canada launched in 2004 its strategy example is the EMPRENDA Alliance—Empowering Private “Making Markets Work for the Poor: CARE Canada’s Strategy Enterprise in the Development of Agriculture—a partnership for Helping the Poor through Enterprise,� in which the agen- between ACDI-VOCA, TecnoServe, Inc., and the Cooperative cy sees its role in the support to smallholder enterprises League of the United States of America (CLUSA), in imple- as both broker and intermediary. In the former role, CARE mentation in Mozambique. It looks to promote a wide set facilitates market links, builds trust, and provides guarantees of sustainable extension services and solutions to enhance to help establish constructive private-sector relationships the performance of horticulture, confectionary nuts, and �eld among farmers and buyers. However, the NGO also sees a crops and animal feeds to satisfy local and regional demands, role as intermediary when private-sector partners are unwill- with the strengthening of farmer organization at the core of ing or unable to meet smallholder needs. To perform its role the alliance’s activities. as intermediary, CARE operates a venture capital fund and is actively investing in establishing companies that can link Table 4.2 summarizes the shift in approaches to support smallholders to value chains, with the objective of divesting agriculture during the past two decades. Early attempts fo- once the companies are pro�table and private stakeholders cused on deregulation and reduction of government involve- are available to take over. ment to stimulate private-sector responses. Today, agricul- ture and agribusiness sectors, particularly those targeting TecnoServe, Inc., on the other hand, was created in 1968 international markets, have seen themselves operating in with a business philosophy “private business can drive an environment of increasing regulatory and private-sector demands for quality, consistency, safety, environmental, and other product and process attributes, with the consequent 31 An example is the “Ethiopia Smallholder Linkages Program,� un- der which cooperatives provided services to horticulture produc- challenges for development assistance in �nding effective ers and linked them to the exporters. The National Smallholder ways to provide support to different actors, particularly small- Farmers Association of Malawi (NASFAM) is also an example of scale farmers. vertical integration for the performance of speci�c value chain functions (e.g., aflatoxin testing of groundnuts to be exported to South Africa). Clearly, development assistance has evolved to address the 32 In Tanzania, ACDI-VOCA implemented a Smallholder Horticulture varied factors contributing to a growing sense of pessimism Outgrower Promotion (SHOP, 2007–09) that focused on enhanc- ing productivity and market linkages, the latter through expand- ing export and domestic outgrower schemes to supply export and local supermarkets. A smallholder farmer commercial hub 33 Recently, TecnoServe’s work on coffee and dairy has bene�ted was established in collaboration with an association of commer- from signi�cant grants from the Gates Foundation to increase cial producers and a Kenya-based private company (ACDI-VOCA incomes of East African smallholders through investments in ex- website, June 2009). tension, processing, and market linkages. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 45 TABLE 4.2: Evolution of the Emphasis on Support to Agriculture and Agribusiness in SSA PERIOD PUBLIC/PRIVATE SECTOR FOCUS EMPHASIS ON SUPPORT TO AGRICULTURE Immediate post-independence era Focus on expansion of production. Critical role of Agriculture primarily as a source of industrialization. the government Production of cash crops was encouraged as a source of Agriculture as a source of foreign exchange foreign exchange for development 1980-mid 1990s Focus on privatization and enabling environment Structural adjustment reforms aimed at increasing (macroaspects) to facilitate private sector invest- production by reducing domestic market distortions and Structural reforms ments and stimulate agriculture performance. by encouraging private traders to replace state marketing Declining support to the sector Government as the entry point companies. Emphasis on exports and income expansion rather than on imports and demand contraction was ex- pected to stimulate strong agriculture sector performance. mid 1990s-early 2000s Increasing importance of PSD approaches. Market interventions emphasized agriculture export Increasing support to private sector growth and export diversi�cation to supply higher-end Government/donor support for developing NTAE value markets. Strong emphasis on approaches to PSD, sectors including direct support to private actors, particularly lead �rms. early 2000s-to date Private sector as partner for development. Threat of smallholder exclusion from dynamic high-value Increasing importance of PPP markets. Support to compliance with market require- Increasing attention to pro-poor growth and agricul- ments. Attention to growth with equity and market ture procutivity inclusion. Renewed interest in agriculture as a vehicle for poverty reduction. Pro-poor focus and value chain-based interventions. Increasing importance of the potential of PPP to achieve poverty reduction objectives Note: NTAE: nontraditional agricultural exports. PSD: private sector development. PPP: public private partnerships. Source: The Authors. about the future of SSA smallholders (see �gure 4.2), and Thus, the portfolio of recent development assistance projects it has included increased interventions speci�cally geared is a clear reflection of the learning that has taken place over toward ensuring smallholder inclusion in more dynamic agro- the past quarter century. Key features of the recent invest- food markets. These interventions have included efforts to ments include a strong market orientation, a focus on select- innovate support for input and output market integration, ing the most promising value chains to achieve growth and wider compliance with market requirements, and strength- poverty reduction outcomes, hybrid approaches to improve ened vertical and horizontal coordination. Some of this work the enabling environment and stimulate the supply-side re- has involved a distinct poverty reduction orientation; other sponse, interventions using different entry points to enhance work has had a greater focus on realizing the potential for the capacities of different actors to leverage impacts (lead subsector or trade growth. FIGURE 4.2: Associated Factors Influencing Pessimistic Views on the “Future of Small-Scale Farmers� in SSA Commodity Market Pessimism Paradigm Privileging support to high-value export Limited private sector outreach– sectors: high entry barriers less privileged farmers excluded for smallholders from input/output markets Cash/staples receiving little support Smallholder exclusion Standards Market Compliance Restructuring Technical inability to meet at Global and Local Levels required volumes and emerging Increased coordination: smallholder regulatory and private standards advantages eroded, firms more able or the high compliance costs to source from larger suppliers involved Source: The Authors. E C O N O M I C AND S E CT OR WORK 46 C H A PTER 4 �rms, traders, smallholders, and different service providers), emerging standards. The set of development responses to a growing importance of public-private partnerships, and so the challenges of compliance and the attempts to facilitate forth. smallholder compliance are analyzed in the following section. Box 4.3 presents practitioners’ perceptions of the challenges In the context of high-value agri-food chains, approaches to associated with smallholder integration to higher-value or dif- support smallholder integration have included a lot of experi- ferentiated agricultural and food (HVAF) markets. mentation with promising models that can be inclusive and sustainable. A critical factor in the search for these “models� has been the process of market restructuring and the associ- DEVELOPMENT ASSISTANCE AND SUPPORT ated stricter private and public standards with potential to FOR AGRI-FOOD STANDARDS MANAGEMENT further marginalize small players. Consequently, the present IN AFRICA decade has witnessed the emergence of a wider set of donor Within the development community, as well as among or government and practitioner organization initiatives speci�- African policy makers and business leaders, there has been cally addressing the challenge of linking farmers, particularly growing recognition of the challenges posed by standards for small-scale producers, to high-value markets by removing continued market access, yet also the opportunities present- entry barriers and enhancing their capacities to comply with ed by standards to differentiate African products—and thus BOX 4.3: Perceptions of “Practitioners�: Survey Findings As part of this research program, a survey was under- about market opportunities and requirements and about taken of development practitioners known to be active effective and market-accepted production techniques, in the support of African agriculture and the develop- and weaknesses of support services and infrastructure. ment of higher-value agri-food value chains. Such prac- Secondary constraints were seen to be access to �nance, titioners included representatives from donor agencies, risk management, and prevailing farming structure. consultancy �rms, technical and research institutes, NGOs, and others. Some 160 persons (50 percent of Ef�cient transaction-related factors were also critical for whom were then based in SSA) responded to the web- procurement from smallholders with logistics and sup- based questionnaire, providing rankings or elaborations ply-chain management, including speci�c constraints of on themes related to (1) the constraints inhibiting the weak or inadequate transport infrastructure, dif�culty or participation of smallholders in HVAF supply chains; (2) high costs of product traceability, lack of scale among the expected impacts from their participation in these small-scale farmers, inability to enforce commercial markets; (3) the indicators used to measure the success contracts, and high transport cost for raw materials. of interventions aimed at linking small-scale producers When those factors are grouped, access and costs of to HVAF supply chains; (4) the factors affecting the suc- infrastructure became the leading factor, followed by cess of project and policy interventions in this area; and supply-chain management and food safety and quality (5) the appropriate roles for national governments, the control. Relatively downplayed factors included lack of private sector, and development assistance entities in irrigation capacity, lack of trust in market intermediaries, facilitating smallholder gains in this area. Major �ndings and weak farmer organizations. from the survey included the following perspectives. 2. Impacts of smallholder participation in HVAF 1. Constraints: balancing the “old� and the “new�— markets—The respondents were most positive about Constraints were explored from two perspectives: the the “learning� bene�ts (e.g., acquisition of technical and ability of smallholders to participate in HVAF markets, business skills) arising from smallholder participation in and the willingness of buyers to procure from smallhold- HVAF markets. They were also positively inclined re- ers. With the former, the emphasis was given to those garding income gains and other economic impacts. With factors related to ef�cient transaction making, with less regard to environmental and health impacts, there was relevance given to production-related constraints. When greater ambivalence, with the sample as a whole having those factors are grouped—through principal com- a neutral position, while a considerable minority noted ponents analysis—the most critical constraints were potential adverse impacts. Relatively downplayed were deemed to be lack of producer knowledge, particularly the level of �nancial risks, health risks to farm workers, (Box continues on the next page) MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 47 environmental sustainability of the wider community, of pertinent industry organizations. The sample, as a and environmental sustainability of the farm enterprise. whole, substantially discounted the importance of a col- laborative and effective direct role for local or national 3. Measuring the “success� of interventions—The government agencies. responses highlighted the clear predicament faced by practitioners to demonstrate the results or impacts of 5. Roles of stakeholders, including the development their work within the context of sometimes unrealistic practitioners as “honest brokers�—The responses expectations, tight time frames, short budgets, and mul- outlined a division of public- and private-sector respon- tiple priorities. As demonstrated above, interventions in sibilities consistent with the current “linking farmers to support of smallholder participation into HVFA chains markets� paradigm. Thus, the roles of government are are typically implemented with a view to providing sev- cast as providing the economic, political, and infrastruc- eral tangible or intangible bene�ts to some or all sup- tural conditions necessary for private investment. The ply-chain stakeholders. In both instances, however, the private sector, in turn, is tasked with the responsibility actual impacts of such initiatives on developing country for driving the integration of producers into higher-value stakeholders remains poorly understood, as demon- markets via commercial relationships and associated strated by the practitioner’s responses. provision of market information, technical advice, and lo- gistical and other services. External development agen- The measures currently used to assess the success of cies and project implementers are tasked with support- an intervention usually focus predominantly on “inputs,� ing the efforts of governments and the private sector, less on economic, social, and environmental outcomes, while playing the potentially multifaceted role of “honest and even less on indicators of the long-term capacity broker� between and among supply-chain participants created and overall long-term impacts. That is, nearly all and government entities. In the “emerging new agricul- projects record the numbers of farmers involved, groups ture,� intra supply-chain trust is critical, certain suppliers formed, people trained, farmers certi�ed, and so forth. are deemed “preferred,� public-private partnerships are Some attempt to gauge changes in production volumes, sought, and economizing on transaction costs is para- productivity, farmer incomes, and so forth, asserting an mount. In such an environment, an effective “honest attribution to the project intervention. broker� can be a valuable player. In contrast, indicators related to risk management (for In conclusion, the results con�rm a growing “consen- example, “farm worker health,� “interannual variability sus� about institutional roles, yet they suggest some of farmer incomes,� and “improved natural resource vagueness regarding the impacts of smallholder par- management�) are much less commonly considered. ticipation in higher-value supply chains and the appro- It is, therefore, not surprising that respondents remain priateness of the indicators most commonly used to ambiguous on matters of farmer or community risk ex- gauge such impacts. The results also suggest a need to posure. Also, much less commonly measured are indi- strengthen knowledge about both the “old� and “new� cators of local capacity building, whether among public- sets of constraints (and solutions) related to remunera- sector organizations or private suppliers of technical and tive smallholder inclusion, in the form of the rising role business advisory services. Given that the respondents of standards alongside more long-standing concerns also indicated that weak support services are among the about infrastructure and logistical links to markets. With leading constraints on the ability of smallholders to meet increasing concerns about the capacity of interventions the requirements of higher value supply chains, the rela- in this �eld to demonstrate a “return on the investment� tive lack of attention to the impact of interventions on from a poverty reduction perspective, looking at devel- service capacities is somewhat surprising. opment assistance to high-value supply-chain develop- 4. Factors affecting the “success� of interventions— ment strictly through the lens of bene�ts recurring to Survey respondents asserted that project design and smallholders might offer a very narrow perspective on management features are the lead determinants of the the potential welfare contributions of stakeholder en- success or failure of interventions in this �eld. They gagement in these types of markets. downplayed other factors, including prevailing com- modity market and macroeconomic conditions, the prior experience of farmers, and the preexisting strength Source: Based on Henson et al., 2008. E C O N O M I C AND S E CT OR WORK 48 C H A PTER 4 potentially escape from the effects of volatile international with SPS requirements within a regional context is expected prices for traditional agricultural commodities. On a general to grow in SSA as a result of growing donor emphasis on basis, interventions have sought to prevent of�cial regula- regional integration and the EU bilateral agreements. For tory (sanitary and phytosanitary) requirements from becom- example, processes of harmonization of standards are under ing a barrier to trade, and to utilize so-called private voluntary way in the Common Market for Eastern and Southern Africa standards as a vehicle to improve competitiveness and dif- (COMESA) region (e.g., dairy and maize)—supported by ferentiate products. We turn to these broad approaches now USAID through its Regional Agriculture and Trade Expansion before looking speci�cally at initiatives centered on ensuring (RATES) program, as well as by several other donors. African smallholder compliance with such standards. In terms of the content of the assistance, clearly the em- phasis has been on “soft� infrastructure development. For Regulatory Compliance example, during the period 2001–06, SPS-related develop- Development agencies are supporting emerging country ef- ment assistance in East Africa focused on addressing gaps forts to comply with their World Trade Organization (WTO) in legal frameworks, technical skills for inspection, diagnosis, obligations by strengthening capacities to manage sanitary and surveillance for food safety, and plant and animal health. and phytosanitary risks. This has been done through a com- Soft infrastructure projects accounted for 90 percent or more bination of global, regional, and bilateral programs. Following of the total number of projects in the period (Brattiga 2007). the hierarchy of functions proposed by the WB in 2005 (�g- In the case of USAID, a large proportion of its SPS capacity- ure 4.3), many initial donor efforts in this area concentrated building activities—tied to efforts to implement the African at the top of pyramid—essentially supporting country capaci- Growth and Opportunity Act (AGOA)—have likewise been ties to participate in the international standard-setting arena. for “soft� infrastructure. UNIDO, with funds from European However, the need for concrete assistance to industries and donors, has been one of the agencies supporting “hard� national agencies, to, respectively, comply with and verify infrastructure. An example is the United Nations Industrial compliance with Sanitary and Phytosanitary (SPS) require- Development Organization (UNIDO)/European Union(EU)/ ments led to a shift in technical assistance and investment. Union Économique et Monétaire Ouest-Africaine (UEMOA) A signi�cant part of donor assistance has been targeted at Program (€14 million, funded by the EU, 2001–05), which the organizational level—to create awareness and enhance included a component to upgrade some 50 laboratories and staff and overall institutional capacities of government agen- implement a regional accreditation scheme. Activities imple- cies, food inspectorates, food control laboratories, and so mented with support of SECO and the Norwegian Agency forth. In SSA, the European Union (EU) and the United States for Development Cooperation (NORAD) in East Africa have have been the main bilateral donors supporting initiatives at also had a strong component of “hard� infrastructure. this level.34 Among multilateral agencies, FAO and the United There is concern that the training and capacity-building activi- National Industrial Development Organization (UNIDO) ties to address SPS gaps in Africa have lacked an overarching have been heavily involved in supporting activities at the strategic framework and have been implemented in a largely organizational and system level by strengthening national ad hoc and uncoordinated way. Some recent initiatives have food control systems, enhancing laboratory and analysis sought a more structured and integrated approach. For capacities, and improving the ability of member countries to example, the EU-supported “Strengthening Food Safety comply with new trade regulations. Support for compliance Systems through SPS Measures in ACP Member Countries� program, starting in 2007, has sought to raise stakeholder awareness, address identi�ed system and institutional gaps, 34 An inventory of the SPS-related assistance for the period (2001– and support the strengthening of food safety inspection and 06) carried out by Brattinga (2007) in Kenya, Tanzania, and Ugan- conformity assessment systems. An interesting component da, highlighted the importance of regional assistance, which was estimated to be considerably higher than the direct assistance relates to strengthening local capacity and expertise to pro- provided to each country (US$36 million vs. over US$383 million vide training and advisory services in food safety and con- on regional assistance). Of the total assistance at the regional level, the European Commission (EC) accounts for 74 percent. trol systems, with an emphasis on services to small-scale Taken together, the EC and its member states provided 97 per- producers, processors, and exporters. Similarly, the UNIDO cent of regional SPS-related assistance by value. For direct as- program on “Industrial Upgrading for Trade Capacity Building sistance to Kenya, Tanzania, and Uganda, the EC and its member states were also the most important assistance providers, ac- for Regional Economic Communities (RECs)� is focusing on counting for 95 percent of all. enterprise upgrading and service provision, along with the MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 49 FIGURE 4.3: Hierarchy of Trade-Related SPS Management Functions The foundation of any SPS management system is broad awareness among participating stakeholders about the relevance and importance of food safety and agricultural health to the competitiveness of their country, sector, or �rm and recognition of their own role in this system. Another core set of building blocks that proceed from broad awareness is the application of basic and recognized risk and quality management practices at the farm and processing levels of supply chains, including good agricultural practices (GAP), good manufactur- ing practices (GMP), and the Hazard Analysis and Critical Control Points (HACCP) system and other SPS management systems. Similarly, some agriculture Diplomacy and health risks are more systematic, thus requiring Technically Demanding broader oversight or collective action, requiring basic Risk Management Functions research, risk analysis surveillance systems, and quarantine and emergency management systems Institutional Structures and Role Clarity and associated scienti�c testing and veri�ca- Suitable and Applied Regulation tion systems. Some of these functions need to be mandated by law in order to ensure that they are Application of Basic “Good Practices� for implemented appropriately. An effective regula- Hygiene and Safety tory framework and transparent institutional structures are therefore placed in the middle of the Awareness and Recognition pyramid. At the top of the pyramid is so-called SPS diplomacy, which includes the international obligations of individual WTO members but also relates to engagement in the technical and political realm of of�cial and private international standard setting and negotiations with bilateral trade partners and with regional integration partners. Source: World Bank 2005. strengthening of quality infrastructure and upgrading. Thus, tinued evolution of the standards landscape, changes have while many of the activities in the SPS area have mainly been been made over time in the foci of these programs.35 concerned with the creation of public capacities, an increas- ing area of engagement has been the support to awareness Although the SFP, PIP, and the RSP initiatives have addressed creation and implementation of food safety and quality as- capacities of both public and private actors, the emphasis surance schemes among private actors, particularly in the given to each component has varied, reflecting the differ- context of SME and small farmers. ences in the set of commercial and of�cial requirements faced by different sectors. For example, in the case of the In a number of sectors, support for compliance with regula- SFP, the national competent authorities are the key target tory requirements in high-value export markets has featured a hybrid approach, combining support to enhance the insti- tutional and supportive environment for compliance with 35 For example, PIP was established in 2001 to address the chal- supply-side interventions aimed at enhancing the capaci- lenges faced by the horticulture industry in ACP countries as a ties of �rms and farmers to make necessary investments result of developments in EU pesticide regulations. The initial or undertake necessary adjustments in their production and problem evolved because of enactment of new of�cial require- ments, including new regulations dealing with food safety and management systems. Examples of SSA regional initiatives traceability issues, and most importantly perhaps—from the that have employed this hybrid support have included the EU perspective of the project implementers—the increasing promi- sector-based programs targeting African Caribbean Paci�c nence of commercial standards, imposing stricter standards with signi�cant additional costs to exporters and producers. As a re- (ACP) �sheries and horticulture sectors—the Safe Fishery sult of these developments, the project’s approach shifted from Program (SFP) and the Pesticide Initiatives Programme an emphasis on national quality control systems toward sup- (PIP)—and the DFID-funded Regional Standards Programme porting the compliance of individual �rms, which was believed to better respond to the regulatory requirements (based on the (RSP) for southern Africa (table 4.3). These programs have concept of due diligence of the operators) and to commercial had a combined cost of nearly US$100 million. With the con- requirements for certi�cations (PIP 2008). E C O N O M I C AND S E CT OR WORK 50 C H A PTER 4 TABLE 4.3: Donor-Funded Programs Using Hybrid Approaches to Support Compliance with Regulatory Requirements TIME FRAME/ AUGMENTING/ENHANCING INDUSTRY EXTERNAL AUGMENTING/EHANCING INDUSTRY/FIRM INTERNAL BUDGET CAPACITIES (ENABLING FACTORS) CAPACITIES 2001–2007 Setting/ Setting up of legislation, environment monitor- Assistance to ex- Training in international requirements, HACCP system, PROGRAM SAFE FISH (US$58.3 million) Strengthening ing plan porting companies preparing a budget and conducting feasibility studies regulatory for the investments related to sanitary matters, etc. framework Strengthening Inspection manual for �shery products, code of Assistance to small- Support to professional organizations; equipment, inspection system practice, provision of equipment for inspectors scale �shing infrastructure for small-scale �shing relevant to health conditions for �shery products, training, credit Strenghthening test- Assistance to analytical laboratories, provision ing capabilities of equipment and services, assistance to technical institutes 2001–2008 Regulatory i) Preparation of the Crop Protocols and Good Company Establishing traceability, training/TA to support good INITIATIVE PESTICIDE PROGRAM (€33.8 million) component import tolerance applications, ii) Support Component agricultural practice/HACCP implementation, and pre- harmonization of authorization procedures for audits and certi�cation with private standards phytosanitary products Capacity-building Training to service providers, lab staff, component professional associations, establishing of task forces, etc. Information/ Communication tools to facilitate flow of infor- Communication mation among SSA Industries and EU buyers, component standards, settles, etc. 2006–2010 The Low Income Support countries to improve their environment The Private Financial support to producer associations, �rms, STANDARD PROGRAM COMMARK-REGIONAL (US$8.3 million) Pilot: Supporting for compliance with standards (training of Standards agencies, industry associations, to provide support to SADC Governments public staff, labs, etc.) Innovation Fund �rms to achieve compliance with private standards to Better Service Stakeholders Improving the Advocacy participation in International Standard Setting Bodies Source: Compiled by the Authors. of assistance, reflecting the critical role of such entities in in the promotion of sustainable or ethical business practices. meeting EU requirements for �sh and �sh products being At present, however, the commercial scenario is marked by exported to the community; in horticulture, the EU sup- a wide set of ethical and sustainability initiatives that seek port through PIP has had a stronger focus on enterprise to meet different or similar sets of social and environmental performance—nearly 50 percent of total support provided criteria set by NGOs and increasingly also by private busi- by the program went to enhance capacities of individual nesses and companies. enterprises. Some donors have incorporated work on private voluntary standards, especially those addressing social and environ- Private Voluntary Standards and Market Access mental concerns, as a core line of activity and as part of their Private voluntary standards have been developed and pro- strategy to promote sustainable development. Examples of moted by businesses and not-for-pro�t nongovernmental some of the most prominent stand-alone initiatives in the organizations (NGOs), and by coalitions of both, with the support of compliance with private voluntary initiatives un- objective of regulating supply or differentiating products (Liu dertaken by donors in SSA are highlighted in table 4.4. 2009). In agri-food chains, initiatives aimed at providing high levels of assurance with respect to regulatory compliance The foci of development efforts in this �eld have been have basically been led by private companies individually quite diverse. For example, for German Cooperation, the or collectively (e.g., GLOBALG.A.P standard; Tesco Natural promotion of voluntary social and ecological standards has Choice), while NGOs had traditionally been the leading actors been seen as a key instrument for the implementation of MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 51 TABLE 4.4: Recent SSA Stand-Alone Initiatives Related to Private Voluntary Standards or Labels DEVELOPMENT AGENCY PROGRAM/PROJECT PRODUCTS DFID-Regional/Sub-regional Regional Standards Program Several high-value chains Retail Challenge Funds Several high-value chains Ethical Trading Initiative Several high-value chains GTZ Programme on Social and Ecological Standards Several high-value chains EU Pesticide Initiative Programme Horticulture UNCTAD/UNEP International Task Force on Harmonization and Equivalence in Organic Several high-value chains Agriculture UNCTAD/FAO Consultative Task Force on Environmental Requirements and Market Access for Several high-value chains Developing Countries UNEP African Ecolabelling Mechanism Several high-value chains SIDA Export Promotion of Organic Products from Africa-EPOPA Several high-value chains USAID- Regional Alliance between USAID-Rainforest Alliance Nontraditional commodities (coffee, cocoa) East African Fine Coffees Alliance Coffee Sustainable Tree Crops Alliance Coffee, cocoa, cashews Sustainable Forest Products Global Alliance Forest (non agri-food) USAID-Country-speci�c Starbucks Alliance-Supply Chain Access for Farmers in Rwanda Coffee Developing the Organic Cotton Industry in Uganda Cotton (non agri-food) Cocoa Sustainability Alliance Cocoa SECO- In Country Export Development of Specialty Coffee and Cashew Nuts (Mozambique) Coffee, cashew nuts DFID-In Country Business Market Service Development Programme (Kenya) Horticulture compliance with GLOBALG.A.P/Dairy quality improvements GTZ: Deutsche Gesellschaft für Technische Zusammenarbeit (Currently Known as GIZ); UNCTAD: United Nations Conference on Trade & Development. Source: Compiled by the Authors. international agreements on human rights, environment, and dialogue and consensus building around private voluntary sustainability. The agency has been implementing, for nearly standard initiatives. USAID has been particularly engaged in a decade, a social and ecological standards program and has the promotion of sustainability schemes in tree crops (cof- been championing initiatives aimed at mainstreaming social fee, cocoa, tea) and other commodities through the Global and environmental compliance along developing country Alliance mechanism as well as through bilateral projects. value chains through multistakeholder initiatives and public- For many other development agencies, activities focusing private partnerships. on compliance with private standards are included in their broader portfolio of interventions related to the agri-food DFID has been promoting social compliance through the sector. Ethical Trading Initiative (ETI)36 and has used its challenge funds as a key instrument to support compliance. Other de- velopment organizations have engaged in this �eld, with a DEVELOPMENT PROGRAM INTERVENTIONS focus on expanding opportunities in organic and other differ- FOCUSED ON FACILITATING SMALLHOLDER entiated markets. SIDA, the United Nations Conference on COMPLIANCE WITH STANDARDS Trade & Development/International Trade Center (UNCTAD/ A growing subset of initiatives has explicitly focused on ITC), the Humanistic Institute for Development Cooperation facilitating (and certifying) African smallholder compliance (HIVOS), UNEP, and FAO have been strong supporters of or- with food safety, environmental, or other standards, thereby ganic production and have played a critical role in promoting increasing their “inclusion� in some standards-based mar- kets and preventing their “exclusion� from others. Here, we highlight some of the main domains of action, characterize 36 ETI was launched in 1998 seeking to identify and promote good practice in the implementation of International Labor Organiza- the approaches being used, and highlight some lessons that tion (ILO) core labor standards. have been emerging from this work. E C O N O M I C AND S E CT OR WORK 52 C H A PTER 4 Preventing “Exclusion�: The Case of GLOBALG.A.P national/industry level and, conceivably, be certi�ed through 37 In 2000, GLOBALG.A.P conducted the �rst trials with a annual audits. The Harmonized Framework was not intended fresh fruit and vegetable (F&V) protocol (being developed to involve certi�cation against any speci�c labeling scheme. since 1997), and in 2001 the �rst International Standardization In 2001, COLEACP was charged by the EU with the imple- Organization (ISO) 65 accreditation for the F&V standard mentation of its Pesticide Initiatives Programme (PIP). The took place.38 By February 2009, GLOBALG.A.P reported that organization’s initial approach to implementation of the pro- there were 94,000 certi�ed producers worldwide.39 In SSA, gram followed a national focus, based on the establishment by April 2007, according to data reported by UNCTAD, there of a national quality control system, supported by national were 2,871 producers or producer groups holding the certi�- task forces—the task forces were expected to play an inter- cation, of which 68 percent were located in South Africa and mediation role between the PIP and the program bene�cia- 26 percent in Kenya. ries. Soon after the start of the program, there was a shift in At the time of its introduction, GLOBALG.A.P was seen approach, from an emphasis on national institutional capacity by many as a top-down approach, with little consideration building to a focus on individual enterprise compliance. Under of developing country perspectives. It was therefore per- the new approach the role of the task forces was to serve as ceived to be dif�cult to implement locally, inflexible, and platforms for consensus building between public and private often extremely costly (Busch and Sterns 2002). In contrast actors. Several of such national task forces were formed in with other sustainable standard initiatives that promote a Africa. For example, UNCTAD and FAO have worked with market opportunity, the adoption of GLOBALG.A.P among task forces to support national GAP programs as part of a SSA horticulture export industries was encouraged out of stepwise strategy to yield continuous industry improve- concern about “exclusion� from higher-end markets, as ments. Experiences of national GAP schemes benchmarked deadlines for implementation of the protocol were set up to GLOBALG.A.P in other countries (ChileGAP, MexicoGAP, by major retailers in Europe. The possibility of exclusion was ChinaGAP, etc.) have provided the basis for exploring the po- linked to entire industries and, more speci�cally, to one set tential opportunities of national GAP schemes in supporting of stakeholders—smallholder farmers. Various approaches compliance with market requirements while achieving public have been taken to facilitate industry or smallholder compli- domestic objectives. In Africa, however, Kenya is presently ance with GLOBALG.A.P. These are highlighted below. the only country in which a national GAP program has gained any traction. Despite much consultation and dialogue, incipi- National Good Agricultural Practice (GAP) Programs ent efforts to create and promote SeneGAP, GhanaGAP, and Since the late 1990s, export-oriented horticultural industries UgandaGAP have had little tangible impact. throughout the developing world have, in either a proactive Negotiating with GLOBALG.A.P or reactive mode, sought to align prevailing practices with the requirements of their overseas clients by establishing Over the years, GLOBALG.A.P requirements have continued and implementing distinct industry protocols. The Liaison to evolve, shifting from a “protocol� structure—having a list Committee Europe-Africa-Caribbean-Paci�c (COLEACP) of speci�c control points and compliance criteria—toward worked with several industry groups to develop (by 2000) becoming a broader quality management system. More a Harmonized Framework for Horticultural Exporters, laying recently, attention has shifted from compliance for individ- out a set of minimum requirements that could be applied at a ual crops (or livestock products) to the implementation of a more integrated agriculture assurance system. This process has raised the complexity of compliance and certi�cation to the standard. The basic driving forces behind the evolution 37 GLOBALG.A.P was formerly known as EurepGAP. of GLOBALG.A.P have largely come from concerns about 38 The EurepGAP F&V standard was developed by the EurepGAP Technical Committee—Fruits and Vegetables, consisting of six practices in developed country agriculture. The applicability, retailers and �ve suppliers (from the EU and United States). A or otherwise, of the evolving standard for developing coun- critical element of the response to the challenge of compliance by the affected industries was to enhance their participation in try agriculture—and speci�cally smallholder agriculture—has the standard-setting process; a Chilean representative from the been a tangential topic for GLOBALG.A.P, yet one increas- industry joined the EurepGAP FV Technical Committee in 2004, ingly raised by development agencies. and Kenya did so in 2005. In 2007 the Technical Committees were renamed as Sector Committees. Recognizing the growing importance of the GLOBALG.A.P 39 In February 2010, GLOBALG.A.P reported that the number reaches almost 100,000 producers in 100 countries (GLOBALG.A.P web- standard, some development agencies have sought to site). supplement the evolving developing country representation MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 53 in GLOBALG.A.P internal discussions with additional inputs partnerships with lead �rms who are engaged with small- into the standard-setting and implementing deliberations. holders through outgrower schemes or contractual relations. For example, DFID and the Deutsche Gesellschaft für Thus, support has been provided either through grants or Technische Zusammenarbeit (GTZ) have been supporting technical assistance to support the certi�cation (and as- the “GLOBALG.A.P Smallholder Diplomacy� by setting an sociated �eld upgrades) of smallholder groups. Examples Ambassador and Observer for Africa at GLOBALG.A.P since of programs or projects applying this approach include the 2007, as a way to provide more opportunities for smallholder COLEACP’s Pesticides Initiative Programme, investments representation in the standard-setting process. Other ac- by Deutsche Investitions (DEG) in Kenya, the USAID Kenya tivities supported by the agencies under the “Smallholder Horticultural Development Project (KHDP), and the efforts of GLOBALG.A.P Support Project in Developing Countries� in- several other donors elsewhere. clude the establishment of the Smallholder Task Force aimed at incorporating different stakeholder views and concerns Grants and technical support have been provided to de- related to GLOBALG.A.P implementation in smallholder fray costs of training and other upgrades required, as well agriculture worldwide and to consider options for the next as certi�cation costs. In the case of PIP, for example, the revision of the standard in 2011.40 program mainly supported �rms with the costs of technical assistance and training, as well as the establishment of a Development agencies’ engagement at the level of the traceability system. The upgrade of physical infrastructure so-called “GLOBALG.A.P Smallholder Diplomacy� has and other type of investments required were not part of the been the result of the learning that has taken place in the assistance provided by the program. Other development �eld, quite often highlighting the need to reduce costs of partners provided a more integrated package of services, certi�cation resulting from both lack of affordable service including support to investments in on-farm standard-related provision and, particularly, from the inflexible requirements infrastructure. of the standard when applied to smallholder horticulture. Clearly, in most recent years GLOBALG.A.P has highlighted In the case of PIP, support to smallholder producers was its commitment to understanding the differences in small- mainly indirect and channeled via the exporting companies. holder agriculture and in reflecting these understandings in Export company staff were trained, and they, in turn, were the interpretation and application of the standard. This rec- supposed to train crop suppliers, including smallholders. A ognition is certainly a signi�cant contribution of development set of companies were assisted speci�cally to support their efforts in this �eld.41 outgrowers in the achievement of certi�cation GLOBALG.A.P option 2. By April 2008, there were about 1,312 farmers un- Embedded Services through Outgrower Schemes der certi�cation option 2, with the help of the PIP program. Recognizing the key role played by leading exporters in in- The number of producers estimated by the program that tegrating smallholders into horticulture export chains, some were certi�ed under option 2 was 5,016—this is for the com- development efforts have concentrated on establishing panies that obtained certi�cation for part of their own pro- duction with the help of the program but that later extended support to their outgrowers (either alone or with support of 40 Early in 2008, the Smallholder Task Force opened a call for pro- posals to improve certi�cation for smallholders, and the set of other donors). It is dif�cult, however, to estimate the number suggestions were presented as discussed at the GLOBALG.A.P of smallholders that were reached through training and as- annual conference in October 2008. Critical issues arising from sistance provided by the exporting companies, as records of the early discussions included the importance of reaching a con- sensus on the de�nition of the term smallholder based perhaps these activities were not kept or monitored. on the managerial structure of the farm rather than on average farm size, and also the importance of identifying solutions that Other programs concentrated on supporting partnership reflect both the needs of smallholders and legitimate concerns programs, with the speci�c target of reaching smallholders with the credibility of certi�cation of farmers in groups (i.e., op- tion 2 under the GLOBALG.A.P scheme) (GTZ et al. 2008). through group certi�cation. For example, in Kenya, German- 41 Donors have also contributed to improving the contents of DEG established a partnership with a Kenyan company that the GLOBALG.A.P standard from the perspective of social cri- was initially working with the USAID-Kenya Business Service teria. GTZ in collaboration with FoodPlus and Swiss partners Development Project (KBSDP) in developing an outgrower implemented the Good, Risk-Based Agricultural Social Practice (GRASP) project, with two objectives: enhancing social compli- scheme for avocado through the provision of spraying ser- ance criteria in the GLOBALG.A.P—Integrated Farm Assurance vices. This experience did not succeed. In the case of French Scheme and developing basic criteria of good social practice as the International Labor Organization (ILO) Core Labour Standards beans, the company was more successful in promoting up- at farm level. grades for the achievement of GLOBALG.A.P certi�cation. E C O N O M I C AND S E CT OR WORK 54 C H A PTER 4 The donor provided support for risk assessment, training of key areas promoted by the program. In the case of small- farmers and farm staff, soil and water analysis, facility devel- holders, the efforts concentrated on the support for the opment, pre-audit costs, certi�cation costs, and the training establishment and strengthening of Product marketing orga- of trainers. The company’s contributions mainly targeted nizations (PMOs),43 with several of the PMOs supported by farmer group development and also training. the program, working around a single commodity—generally French beans or avocadoes. The roles expected to be played While PIP and several other programs were implemented in by these PMOs were basically market link and provision of multiple countries, the ef�cacy of impact, at least in terms of services (including technical services, inputs and training, GLOBALG.A.P certi�cation, has been concentrated in only and support for certi�cation) for which a fee (or commis- a few countries. For example, in April 2007, of the 730 pro- sion) would be charged to the producers or the buyer. The ducer groups certi�ed under GLOBALG.A.P option 2, 80 per- project facilitated the development of PMOs by providing cent were located in Kenya, 13 percent in South Africa, and grants for developing training materials, training PMO staff, 5 percent in Côte d’Ivoire. In several other industries—for and generally enhancing their capacities to link producers to example, those of Uganda, Ghana, and Senegal—much of exporters. the horticultural trade has been oriented toward either spe- cialty ethnic markets and products or other segments in the Overall, the experiences in business service development, European market for which certi�cation under GLOBALG.A.P either through PMOs or market link �rms,44 have proven to has not been required by buyers or the production is concen- be dif�cult. For the initiatives that have shown better results, trated on large producers, which are certi�ed under option 1 sustainability and contract compliance have been serious is- (see chapter 7). sues. As the experience of one PMO, FreshLink, illustrates (see box 4.4), many challenges are faced in maintaining the Embedded Services for GLOBALG.A.P Compliance loyalties of both farmer groups and exporters and in sustain- through Intermediary Organizations ing operations beyond the period of donor support. An alternative approach to reaching smallholders via “lead� Reducing the Costs of Certi�cation �rm extension and procurement systems has been to The costs of certi�cation have been considered a persistent strengthen the capacities and roles of selected intermediary constraint on the recognition of smallholder compliance with brokers or service providers to support production upgrades GLOBALG.A.P. In Kenya and Ghana, one approach taken and market links by smallholder farmers. For example, in was the elaboration of a generic quality management system Kenya, the Business Service Market Development Program (QMS)—developed by GTZ/FoodPlus45—with applications (BSMDP) funded by DFID was formulated with a clear focus then made in the mango, pineapple, Asian vegetable, and on service provision. In horticulture the approach was the other subsectors. The Kenyan experience is summarized in development of GLOBALG.A.P-related services.42 In the box 4.5. In Ghana, the basic material was adapted to the view of the project implementers, the availability of services conditions of small producers in pineapple and was used in to industry stakeholders, including smallholders, would im- the implementation of a pilot project for GLOBALG.A.P certi- prove the enabling environment for compliance. Enhancing �cation. As discussed in chapter 7, the quest for smallholder the capacities of an industry association, facilitating access GLOBALG.A.P certi�cation in Ghana has been overtaken by a to information through radio and other media, and strength- different, more dif�cult challenge. In some countries, donors ening training services and local certi�cation capacity were have explored the scope for reducing smallholder certi�ca- tion costs by applying GLOBALG.A.P option 1 to established 42 In dairy the program also adopted an approach to implementa- tion based on business service development (BSD). 44 Service provision through “producer marketing links� was the ap- 43 PMO (Product Marketing Organization or Produce Marketing proach tested by two USAID-funded interventions in Kenya: the Organization—as referred by Humphrey, 2009) is a commercial Kenya Business Service Development Project (KBSDP, 2003–08) service provider that focuses on helping producers to intermedi- and the Kenya Horticultural Development Project (KHDP, 2003– ate the sale of their product to an exporter or other major con- 08). From the perspective of service provision, there was a per- sumer by guaranteeing the quality of their product to the buyer. ception of a limited supply and a nascent demand for services in The PMO generally assists the producers to increase the quality this sector (tree fruits). of their product, as well as to help the producers get a better 45 FoodPlus acts as the Secretariat for GLOBALG.A.P. GTZ and the price from the buyer. While never actually taking ownership of FoodPlus collaborated in the elaboration of a manual providing the product, the PMO receives payment in the form of commis- guidance on the establishment of QMSs. The manual was pi- sion from either the producers or the buyers (Grant 2008). loted in �ve countries. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 55 BOX 4.4: Working through PMOs to Supply Certi�ed French Beans—Opportunities and Limitations FreshLink VMO (FVMO) Ltd’s main activity, since its setbacks (Grant 2008). Kyengo (2008) reported that establishment in the late 1980s, was the provision of “drought and bad weather made contractual farming ar- extension services and the marketing of farmers’ output rangements untenable. Virtually, all exporters turned to at an agreed fee per kilogram sold, through a relatively purchasing product by cash. . . . the prices offered un- very loose agreement with an exporter (broker relation). der the contract could not match those being offered by As a result of the increasing demands for GLOBALG.A.P ‘other exporters,’ making contractual farming arrange- compliance, the intermediary organization decided to ment impossible with most inputs already advanced fail- adjust its practices (at the company and farmer levels) ing to be repaid. It also became impossible to follow the to support compliance with the standard. With donor quality management systems laid down by the proce- support, a project was established aimed at developing dures.� This situation highlighted the weakness of the and implementing a business approach—an area-based model, as it is subject to transaction and �nancial risks service provision model—to facilitate smallholder com- (Humphrey 2008): individual farmers were able to sell pliance with the GLOBALG.A.P standard. This model in- to various exporters, while the exporters were not tied volved more intensive oversight of production practices speci�cally to the groups and therefore their commit- than would be possible by many (especially smaller) ment was very much depending of the supply-demand exporters. Therefore, FreshLink embarked on a mo- conditions. Similarly, the success of the model is very bilization campaign to formalize farmer groups in April much dependent on the capacities of the service provid- 2004. The donor provided support (of about €100,000) er to monitor and control farmer groups and the capacity to establish a centralized quality management system of the groups to exercise control over their members. (QMS) to provide credit for building collective centers Thus, weak commercial contracts, the failure to recog- and shades and to develop FVMO’s capacities for provi- nize effective management through price incentives, sion of required services to farmers, including market and low growth of market size were seen by the FVMO sourcing, establishing contracts with exporters, support- management team as the main challenges faced by the ing farmer group formation and organization, communi- service provider (Waweru 2007). Similarly, the buyer bias cating market requirement and information to farmers, created by the standard has also contributed to weak arranging farm input supply at lower costs, and provid- contractual arrangements—buyers flock the scheme ing extension and spraying services. during periods of product shortage since some form of The service provider worked with nine farmer groups, product quality and safety is assumed by the presence six of which became GLOBALG.A.P-certi�ed in 2006 of the GLOBALG.A.P certi�cate. (with 182 farmers), thus having a multiplier effect, with According to the evaluation of the BSMDP undertaken over 300 farmers subsequently joining the groups linked in 2008, it is dif�cult to know how long it would take the to FreshLink. The service provider managed to establish market actors to recover from the problems encountered contact with three leading exporters, and the experi- in 2007 and whether the gains made during the program ence was slowly making its way to be recognized as would be recaptured. Some observers suggested that an additional model that could successfully integrate donor support was cut prematurely and that the model smallholder producers to exporters within the context of was not properly tested. An independent impact assess- GLOBALG.A.P requirements. Under the model, the in- ment of the FVMO experience was undertaken in 2008, termediary organization establishes contracts with pro- providing some reflections on the type of issues that ducer groups, yet the relation with exporters was flexi- limited FVMO success: (a) “islands� of certi�ed farm- ble—no contractual relationships established. Similarly, ers among thousands of noncerti�ed farmers make the FVMO did not take ownership of the product. efforts of the service providers an almost impossible This type of relatively loose relationship is seen by some mission; and (b) the aim should be to improve practices, as the main cause of the drawback experienced by product quality, and relations rather than focusing on the service provider in 2007. In that year, drought and compliance to a speci�c standard. floods disrupted vegetable operations, with the efforts undertaken by FVMO losing momentum and suffering Source: Ouma (2007). GTZ et al (2008). E C O N O M I C AND S E CT OR WORK 56 C H A PTER 4 BOX 4.5: Reducing the Costs of Certi�cation for Small-Scale Producers GLOBALG.A.P option 1 for small producers: is it in addition, legal ownership of the product has to be feasible? held by the central management unit. The speci�cations of option 1 were seen as a gain in scope for maneu- NAK AGRO was a three-year project funded by the vering for smallholder producers regarding certi�cation Netherland government. It started in March 2005 with options (GTZ et al. 2008). However, the approach was a budget of €0.9 million. NAK AGRO was motivated by not further pursued due to concerns about integrity issues. the need to introduce a cost-effective model for certi- �cation of smallholder farmers given the complexities Elaboration of a generic QMS for smallholder certi- associated with GLOBALG.A.P certi�cation option 2. In �cation option 2 Kenya, the project worked with three exporters and sup- GTZ/Public Private Partnerships (PPP) and BSMDP ported nine farmer groups, with a total of 582 farmers joined efforts to pilot a generic QMS manual that GTZ trained, audited, and GLOBALG.A.P-certi�ed between had prepared in collaboration with FoodPlus, with the August 2005 and May 2007. In Senegal, the company main objective of reducing the costs of certi�cation and worked with one self-help group comprising about 200 enabling standard training packages to be developed for smallholders. Apart from paying the training, audit, and �eld staff of exporters and for the groups themselves. certi�cation costs, the project also paid for infrastructure Stakeholders were nine farmer groups in four districts costs on the basis of farmers’ needs. The infrastructure in Kenya (a cooperative society, three self-help groups, paid for under the NAK AGRO project included personal and four groups working with a PMO). At the end of the protective equipment (overcoat, gloves, mask, and gog- project six of the groups achieved certi�cation. Although gles), grading shed, pesticide storage unit, and fertilizer the farmers’ groups were certi�ed, the lack of strong storage unit. involvement of the exporters resulted in lack of owner- NAK AGRO developed an approach whereby the entire ship of the QMS among participating exporters since all self-help group is registered as a farm. Thus, the need for of them had already developed their own QMS (Ouma a QMS is omitted and all members of the self-help group 2007). are stakeholders rather than individual farmers. However, for these farmers to be considered as a single farm, the Source: Grant (2008). Kyengo (2008). Waweru (2007). Humphrey whole unit has to be under a centralized management; (2008). outgrower schemes. Early experiences by NAK AGRO in Bottom-up approaches (producer models) have sometimes Senegal and Kenya showed some promising results.46 lacked attention to sustained buyer relationships, thereby (further) exposing farmers who make certain upgrades to continued market risks. Various training materials and guide- Ef�cacy of These Programs lines have proven useful for numerous farmer groups, yet the After several years of experimentation, development agen- revision of these materials and their reinforcement by buyers cies have come to realize that, although their efforts to facili- have often waned at the closure of projects. Some producer tate inclusion of smallholders in higher-value horticulture ex- groups can, in fact, be well prepared for GLOBALG.A.P cer- port chains through bottom-up, top-down, and intermediary ti�cation, but this is not an end in itself, especially where models have facilitated compliance for a nontrivial number these groups are not well aligned with competitive exporters. of small-scale producers, the number of direct bene�ciaries And how sustainable is this approach in the face of recurrent has still been small in relation to the much larger number costs—both for certi�cation and for maintaining improved of African smallholders engaged in horticultural crop produc- farmer group systems and infrastructure? A critical lesson tion. There is a palpable sense of frustration within the devel- learned has been the need to identify the “readiness� of a opment community regarding the impacts achieved and the group to move toward certi�cation. Weak group cohesion is sustainability of these gains in an ever-changing commercial a key determinant of the future sustainability of the efforts environment. undertaken. Building strong links between farmers around common needs and opportunities takes time and requires 46 However, this approach was not further pursued by GlobalG.A.P signi�cant development efforts. Yet many projects simply due to concerns about integrity issues. don’t have an extended period of time. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 57 Top-down approaches, using lead �rms as the entry point to development assistance, the number of smallholders certi- integrate smallholders, have been seen by several develop- �ed (and later recerti�ed) remains small, while others have ment organizations as more promising—at least in terms of presumably been “excluded� from the market (IIED and obtaining relatively quick and effective implementation of NRI 2008). In fact, certi�cation numbers may be a very poor GLOBALG.A.P. Yet issues of smallholder dependence on the indicator of what is happening, as large numbers of small- exporter (who generally owns the certi�cation) arise, putting holders remain participating in export-oriented supply chains, at risk the certi�cation if the relationship between the ex- despite either never being certi�ed or their group not getting porter and the group ends. Additionally, an approach based recerti�ed. GLOBALG.A.P supermarket chains seem to real- on the capacities of �rms to serve as integrators has also ize that “certi�cation isn’t everything� and that the strength shown its limitations. In Uganda, for example, the experi- and integrity of the underlying risk management measures ence of the PIP program demonstrated the limitation of the used by their suppliers are more important. Where there is approach in industries composed largely of small exporting high con�dence in these measures—and where they are companies facing multiple constraints, including shortages periodically “tested� through buyer requests for this or that of staff and lack of specialization in supply-chain functions.47 documented evidence—the absence of up-to-date certi�ca- Intermediary models, on the other hand, seem to face tions does not seem to be a barrier. Empirical con�rmation persistent sustainability challenges, particularly in environ- of smallholder “exclusion� due to unmet GLOBALG.A.P re- ments characterized by poor trust and unreliable buyer-seller quirements would require both historical or baseline informa- transactions. tion and an ability to separate out other contributing factors to smallholder participation or lack thereof. Research carried Despite the mixed experiences, there exists a generalized out under this study highlights very complex patterns, with perception about the positive outcomes of GLOBALG.A.P relatively high rates of smallholder entry, exit, expansion, and adoption,48 with the associated “costs�—particularly the contraction of export-oriented horticultural production during costs of certi�cation and recurrent costs associated with the era of GLOBALG.A.P. maintaining certi�cation—as the main barrier for smallholder integration. In this regard, some have pointed out that one of While the numbers of “excluded� producers may go up or the most valuable contributions of development assistance down with each new academic study, the development com- in this �eld has been to demonstrate that compliance with munity seems to have moved on, recognizing that the scope GLOBALG.A.P is not a technical issue, but rather an eco- for sustainable smallholder participation in certain markets nomic one. The experiences have proven that smallholders, relates to many factors, and also recognizing that there is in spite of the dif�culties faced in relation to some technical little prospect for large numbers of African smallholders to aspects of the standard, have been able to overcome these participate in GLOBALG.A.P-certi�ed markets. These realiza- aspects to achieve and demonstrate compliance through tions have led to several shifts in the direction and emphases certi�cation. The main bottleneck remains the capacity of of development assistance in this area. One is from a strong smallholders to overcome the costs associated with upgrad- emphasis on supply-side constraints (working at the �rm or ing operations and particularly maintaining certi�cation in a farmer level) toward more emphasis on standards-related sustained manner.49 enabling factors (e.g., providing generic training and training materials, improving associated services to reduce costs Efforts to understand the implications of GLOBALG.A.P on and improve outreach, enhancing policy frameworks, etc.). smallholder exclusion from markets have also been made, A second shift is in devoting more attention to standards- yet with little consensus achieved among development prac- based markets that appear to be more accommodating and titioners. Some authors argue that in spite of the increasing suitable for smallholder farmers—thus ful�lling a vision of large numbers of African smallholders actually bene�ting from improved standards. These latter initiatives are dis- 47 The approach applied by the PIP program in SSA implied the training of company staff on the assumption that trained staff cussed below. would later train the smallholders supplying product to the com- pany. Yet, even in industries with the presence of strong lead �rms, it is dif�cult to know how many smallholders were reached 49 Efforts to quantify the “size� of the costs and bene�ts of through the training provided by lead �rms, as this indicator was GLOBALG.A.P adoption in the context of smallholders have not part of the direct activities undertaken by the program. been undermined by lack of methodological consensus, as well 48 Perceived bene�ts include improved health bene�ts from re- as the fact that the costs are very much influenced by the prod- duced use of pesticides and greater awareness of production uct, the starting point of the �rm or farmer, and the prevailing set costs and farm pro�tability. of support services. E C O N O M I C AND S E CT OR WORK 58 C H A PTER 4 PRIVATE VOLUNTARY STANDARDS AS AN national markets. Consumer campaigns and public procure- OPPORTUNITY FOR SUSTAINABILITY AND ment policies have been critical in the increasing demands POVERTY REDUCTION for FT products, particularly in Europe.51 The set of private sustainability standards in agricultural sec- Much of donor support to SSA smallholder participation in tors is increasing, driven by pressures for corporate social re- FT markets has been done through strengthening the work sponsibility and branding strategies, international agreements of the FT organizations, and generally on a demand-driven to pursue sustainable development, and the demands of civil basis. Examples are the DFID’s support for the work led by society. Sustainability initiatives comprise, for example, Fair the FT company Twin Trading on cocoa in Ghana and nuts in Trade (FT); certi�cations targeting consumers’ awareness Malawi and Mozambique—initiatives that led to the creation of sustainability issues (e.g., Rainforest Alliance [RA], UTZ of the Day Chocolate Company in 1999 and the nut FT com- Certi�ed); industry-wise baseline sustainability standards and pany Liberation Foods CIC in 2007. The IFAD “Smallholders initiatives (e.g., Code for the Coffee Community, Commodity Cash and Export Crops Development Project� (2003–11) in Round Tables—the Ethical Tea Partnership, Better Sugarcane Rwanda supports nearly 28,000 producers to participate in Initiative Ltd., Cotton Made in Africa CmiA); global initiatives FT coffee and tea markets; and the work of FAO in West (e.g., Global Water Roundtable); and speci�c company label- Africa supports FT and organic-certi�ed mango. DFID has ing schemes supporting sustainability claims. Some of the also channeled support to private-led FT initiatives through approaches to support the differentiation of products through the Business Links Challenge Fund (BLCF), and more re- sustainability initiatives, in the context of smallholder produc- cently through the Retail Industry Challenge Fund and the ers, are discussed below. Private Standards Innovation Fund (under the Regional Standard Programme). Fair Trade: Using Consumer Demands to Restructure Global Trading Relationships There have been, however, concerns about FT as a sustain- Within the range of sustainability initiatives, FT50 has been able strategy for poverty reduction, with critics questioning developed with a speci�c poverty focus and has emerged the lack of price-competitiveness, the long-term effects of as a market-based approach to smallholder development this type of approach on investments and productivity, the that attempts to use consumer demand as an incentive to ef�ciency of FT channels, and the real bene�ts to small- restructure global trading relationships, with several donors scale farmers derived from the price premium—although recognizing FT as a tool for poverty reduction and sustain- few evaluations in this regard have been carried out (World able development. Development assistance has contributed Bank 2007a). Others argue that FT has a very limited market, to the achievements of the FT movement, particularly by as highlighted by the low capability of the market channels supporting the work of national FT organizations aimed at to accept the full production of their members. Arguments increasing local demand, introducing new FT products, in favor of FT, on the other hand, highlight the tremendous and overall, enhancing the market share of FT products in growth in FT sales in recent years, with the main constraint to the expansion of FT being the limited capacity of the FT movement to scale up activities to meet growing demand 50 “Fair trade is a trading partnership, based on dialogue, transpar- and engage larger numbers of small-scale disadvantaged ency and respect, that seeks greater equity in international trade. producers. It contributes to sustainable development by offering better trad- ing conditions to, and securing the rights of, marginalized pro- Some critics contend that although development assis- ducers and workers, especially in the South. Fair trade organiza- tions (backed by consumers) are engaged actively in supporting tance has provided funding for speci�c FT projects and ini- producers, awareness raising and in campaigning for changes in tiatives, overall this support has been ad hoc and has lacked the rules and practice of international trade.� While Fair Trade fo- a long-term strategy, particularly for engaging the private cuses on the trading terms for producers, the emphasis of Ethi- cal Trade is on the conditions of production. sector. There have been questions about the numbers of 51 Examples of EU bilateral support to the FT movement are a grant smallholder farmers actually reached through these initia- for €3.8 million from the French Ministry of Foreign Affairs in tives and whether the gains are reaching poorer farmers 2001 to support FT activities and €3.3 million provided by the German government in 2003 to support a marketing campaign. (International Development Committee 2006).52 Bananas In the case of the EU, between 2007 and 2008, €19.466 million were allocated for various NGO-implemented and -co�nanced actions on FT and other sustainable trade-related activities. The 52 Recommendations of the International Development Committee majority of these actions were in the �eld of awareness rising to the U.K. government in 2007 highlighted the need to include a within the EU (European Commission 2009). pro-poor focus in future government funding for FT. MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 59 and sugar account for a signi�cant share of FT product to organic standards (data as at the end of 2008), involving sales, the exports of which involve few smallholder farm- about 1.4 million producers (IFOAM and FiBL 2010). ers in Africa. According to Fair Labelling Organizations International (FLO), in 2008, there were 746 certi�ed In SSA, development partners have been supporting or- FT producer groups worldwide. In Africa, the number of ganic initiatives since the late 1980s and early 1990s within certi�ed FT groups increased from 42 in 2002 to 184 in the framework of individual company business strategies. 2007—yet 25 percent were located in South Africa and 19 International donor support has played a catalytic role in the percent in Kenya. There are very few certi�ed producers in consolidation of the sector, particularly in East Africa. Donors the poorest SSA countries. that have incorporated support to organic agriculture as a core activity include SIDA, UNCTAD, and UNEP. The work of Recent developments seem to suggest a higher commit- UNCTAD/ITC and UNEP has focused on augmenting �rm or ment of some development partners in support of FT, yet farmer external resources (enabling environment), playing a with a clear pro-poor focus.53 Additionally, the recent interest critical advocacy role, supporting market expansion, ful�lling of some major retailers to use FT as a branding strategy for knowledge and information gaps, pushing for harmonization some product lines has opened opportunities for expansion of standards, and creating platforms for consensus build- of FT, and perhaps for stronger collaboration between leading ing and policy dialogue.54 To illustrate, the development of private-sector players and development assistance partners. a regional East African Organics Standard—EAOS (the �rst Still, FT commodity initiatives are hardly a magic bullet for standard in the world developed in cooperation between African agricultural trade and rural development. voluntary organic movements and governmental national standards bodies) represents a signi�cant achievement in terms of regional cooperation between several interested Organic Certi�cation as a Strategy for stakeholders.55 UNCTAD and UNEP had advocated for Poverty Reduction the integrating of organic agriculture within national policy Within the set of “sustainability� certi�cations, organic cer- frameworks in East Africa, with several national initiatives ti�cation has been sought by some donors as a key strategy in progress.56 to move forward the sustainability agenda while providing social, environmental, and economic bene�ts, trading op- While these recent efforts have concentrated on building portunities, and opportunities for local development; most institutional capacities,57 donors with a longer trajectory in recently it is also seen as a mechanism to address climate support of organic agriculture in the region have applied a change concerns. Organic agriculture and FT increasingly supply-side-oriented focus. SIDA engaged in support for or- overlap with one another—organic agriculture certi�cation ganic agriculture in East Africa, since the mid-1990s, through programs are beginning to incorporate social criteria, while the Export Promotion of Organic Products from Africa FT programs are placing stronger emphasis on the environ- ment. According to the latest statistics on organic agriculture, 35 million hectares of agricultural land are certi�ed according 54 The International Task Force on Harmonization and Equivalence in Organic Agriculture and the UNCTAD-UNEP Capacity Build- ing Task Force on Trade, Environment and Development (CBTF) are key instruments used by the agencies to provide support to 53 DFID’s White Paper, published in 2009, highlights that “fair and organic agriculture, with a focus on East Africa. ethical trade is a powerful way to boost business standards, to ensure working conditions are decent [and] producers and work- 55 For the development of the regional standard, a Regional Stan- ers are paid a fair price for their products and to allow millions of dards Technical Working Group was established in 2005—as a individual consumers in the UK and worldwide to make a daily multistakeholder public-private sector group charged with draft- contribution to development.� Through the White Paper, the U.K. ing the EAOS. The group was cochaired by IFOAM and the government also commits to supporting FT through public pro- UNEP-UNCTAD CBTF and was supported with funds from the curement (DFID 2009). In February 2008, DFID committed a £1.2 European Commission and the SIDA. The agencies have argued million grant over two years to support the strategic development that this initiative has been able to influence national policy mak- of FT through the international Fair Trade Labelling Organization ing in favor of organic agriculture in Tanzania, Uganda, Kenya, (FTF 2008); in October 2009, the U.K. government announced the and Rwanda (UNCTAD 2009). expansion of this support to £12 million over a four-year period in 56 For example, UNCTAD reported that Uganda was engaging in order to scale up its work supporting farmers in developing coun- �nal consultations on its draft organic policy and Tanzania has de- tries to access better terms of trade in global markets (FTF 2009). veloped a National Organic Agriculture Development Programme Other partners supporting the engagement of smallholders in FT and mentioned organic agriculture for the �rst time in its overall markers included the Swiss State Secretariat for Economic Af- agricultural policy. Both of these changes are very much in line fairs (SECO), the U.K. Inter-Church Organization for Development with the recommendations in the Best Practices study coming Cooperation (ICCO) and Irish Aid, and HIVOS. from CBTF (UNCTAD 2009). E C O N O M I C AND S E CT OR WORK 60 C H A PTER 4 Program (EPOPA—1995–2008). The program was conceived Overall, in the SSA region, support for private-sector-led ini- as a Private Sector Development (PSD) intervention, with tiatives has played a critical role in scaling up organic agricul- the lead �rms or exporters as the entry point to capture the ture and providing opportunities for smallholders. Estimates opportunities envisaged by organic agriculture. During the indicate that in Africa there are almost 100,000 farmers in second phase of the project (2004–06), there was a shift in third-party certi�cation systems for organic production, the project approach, from a supply-side intervention toward almost all of them in group certi�cation managed by an ex- a hybrid approach encompassing both supply-chain sup- porter (Rundgren 2007). UNCTAD (2008) has also highlighted port through lead �rms and institutional capacity building. that, for individual farmers or farmers’ groups, the achieve- The latter was done through supporting the establishment ment of organic certi�cation without external support is very of standard-related services, speci�cally local certi�cation unlikely.58 capacities, as a strategy to reduce costs and ensure the Some donors and civil society organizations have been strong long-term viability of the sector. In spite of the change in the advocates of mainstreaming organic agriculture as a solution focus of the approach, the EPOPA program remained very for poverty reduction, with the case of Uganda highlighted as a much a supply-side intervention (66 percent of the total proj- success story given the number of participating farmers there. ect budget supported export-led initiatives, and 23 percent Yet even that experience suggests caution about the scope institutional strengthening). Although the project implemen- for commercializing organic agriculture as well as the need for tation team considered that the use of lead �rms to channel getting all the other “basics� right—as would apply in achiev- support was the most appropriate approach, given the early ing competitiveness in conventional agriculture (see chapter stages in the development of the industry, the program also 7 for more details). It would necessitate making the right reported some drawbacks of this approach. choices and making the needed investments in research, advi- The experience of the EPOPA program also highlights the sory services, logistics, product quality, supply-chain manage- kind of strategic decisions that development partners are ment, risk management, and so forth. While there may be some confronted with: whether to support investments in sectors quick gains available by pursuing “organics by default� (i.e., that will generate low-income gains for many or to direct taking advantage of a situation where smallholders traditionally support to those sectors that will provide substantially higher have used few synthetic purchased inputs), these gains are incomes for fewer bene�ciaries. The initial approach of the not sustainable without achieving productivity improvements program was to support commodities with scope to engage and otherwise taking on existing and future competitors. a large number of small-scale producers (coffee, cotton). Yet the program reports that while increases in income occurred, Promoting Other “Sustainability� Claims at the Farm Level these increases were not suf�cient to achieve signi�cant Although fair and organic trade has grown tremendously during poverty reduction outcomes. Therefore, in the second phase recent years, the market for other “sustainability� schemes, of the program, EPOPA extended its activities to cover other which may or may not include a price incentive, is also expand- crops, particularly high-value crops, on which the gains from ing. In contrast with FT, these ethical or sustainability initiatives price premia were higher but had limitations in terms of out- are not designed with a strong poverty reduction focus. Yet reach, with only hundreds (rather than thousands) of farmers there is an underlying assumption that applying the criteria of able to bene�t. A combination of systems was seen as an these schemes will provide a supportive basis for sustainable option to spread risks and certi�cation costs, however, with development. In agriculture, sustainability initiatives imple- the bottleneck being that building these systems takes time mented in some subsectors (i.e., coffee and horticulture) have and needs signi�cant external support. provided some experiences and lessons learned that have sub- sequently been applied in other supply chains.59 57 Other initiatives targeting institutional strengthening include HIVOS and other NGO support for the consolidation of national organic movements in Kenya, Tanzania, and Uganda. In Uganda, contributions of HIVOS have been crucial for the consolidation 58 Some attempts have been made to support smallholder engage- of the National Organic Agriculture Movement of Uganda (NOG- ment in organic-certi�ed markets through bottom-up approaches. AMU), established in 2001 through the initiative of a few com- To illustrate, ITC and NOGAMU are implementing the Uganda Or- panies as an umbrella organization to promote and coordinate ganic Export Initiative (UOEXI) (2008–10). The project’s approach organic agricultural development, networking, and marketing. is to support emerging companies, particularly producer-organized Today members include private �rms, processors, farmers, and groups, to obtain organic certi�cation, gain export expertise, and NGOs promoting organic agriculture. Yet the organization still re- establish end-market links. The sustainability of these initiatives, lies heavily on external support to carry out its activities. outside donor support, remains to be seen. \ MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 61 Many development partners have been providing support for and private foundations established by coffee roasters, the promotion and implementation of voluntary social and en- which are aimed at enhancing capacities of small-scale vironmental standards, with some of them directly engaged producers to comply with the required criteria. In the case in the establishment of speci�c schemes and in supporting of the Rainforest Alliance (RA), training and capacity build- their consolidation and implementation. For example, GTZ ing are provided by NGO partners (Sustainable Agriculture has been pushing for mainstreaming social and environmen- Network), advisers trained by the program, often within the tal compliance in developing country agri-food supply chains frame of partnerships with development partners or private through strategic alliances—multistakeholder platforms and enterprises (e.g., Unilever/RA in Kenya, and RA/USAID/GTZ partnerships. Some of the most prominent efforts supported and others in Côte d’Ivoire). In several of the sustainability by German cooperation include the Common Code for the initiatives (and PVS in general), the scheme includes the de- Coffee Community, the Good, Risk-Based Agricultural Social velopment and ownership of the code or standard, as well as Practice (GRASP) project, and the support to sustainable of the system for auditing and certi�cation, and quite often round tables for speci�c commodities. In non-agri-food including responsibilities in training and advice.61 products, initiatives include, for example, the cotton made in Efforts to scale up sustainability initiatives have faced tre- Africa (CmiA) initiative (see box 4.6). mendous challenges, particularly relating to the provision of Most of the industry-wide initiatives are driven by social corpo- standards-related services, to reduce costs and increase out- rate pressures or social and environmental agendas and have reach. For example, the evaluation of the German support for a more multistakeholder focus; for others, quality and market private standards initiatives carried out in 2007 highlighted drivers are more evident. It is apparent, however, that some that the majority of the positive effects identi�ed accrued multistakeholder initiatives are also following a more market- to relatively small numbers of pilot groups.62 Initiatives such driven agenda. For example, the Ethical Tea Partnership (ETP) as 4C and UTZ Certi�ed coffee are reaching mainly large has recently partnered with UTZ Certi�ed to promote the UTZ producers, with huge efforts required to set local structures Tea Code of Practice. In contrast to other voluntary standard to provide training to several stakeholders (auditors, trainers, initiatives, GTZ-supported multistakeholder initiatives are de- producers, etc.), but also local auditing and certi�cation ser- signed to integrate compliance criteria with training and sup- vices. Therefore, the development of local standards-related port for implementation and the achievement of continuous infrastructure to allow self-suf�cient provision of services improvements.60 For example, under the 4C, veri�cation is seems to be the focus of future development efforts—as an free, and farmers bene�t from training provided through trainer exit strategy to ensure sustainability of the activities currently workshops and other activities implemented with the support undertaken by donors and as a way to increase outreach. of national and international organizations and members of the Some of the latest recommendations of development agen- 4C Association. Yet all members must be registered and pay a cies working in this �eld are pointing to the critical role that fee in proportion to their size and position in the chain. the government can play in enhancing infrastructure for In the case of UTZ Certi�ed, the scheme works in collabora- conformity assessment and, overall, in enhancing the pro�le tion with the Coffee Support Network (CSN)—founded and of sustainability initiatives in national policies. Thus, from a supported by Dutch NGOs—to provide training to produc- focus on “deregulation� in the late 1980s, what is begin- ers. Options have also included partnerships between CSN ning to emerge now is a growing recognition of the role of the government in catalyzing and facilitating the uptake of private standards initiatives. Lists of recommendations for 59 Other initiatives targeting institutional strengthening include what governments (and other actors) can do to promote HIVOS and other NGO support for the consolidation of national organic movements in Kenya, Tanzania, and Uganda. In Uganda, contributions of HIVOS have been crucial for the consolidation of the National Organic Agriculture Movement of Uganda (NOG- 61 Under these types of management structures, conflicts of inter- AMU), established in 2001 through the initiative of a few com- est can arise due, for example, to the desire to get more cli- panies as an umbrella organization to promote and coordinate ents certi�ed—either for �nancial reasons or in order to achieve organic agricultural development, networking, and marketing. speci�c objectives—and this may lead to pressures to lower the Today members include private �rms, processors, farmers, and standard or lower the interpretation used for certi�cation. The NGOs promoting organic agriculture. Yet the organization still re- International Social and Environmental Accreditation and Label- lies heavily on external support to carry out its activities. ling (ISEAL) Alliance has developed guidance for its members to 60 GTZ has been supporting the implementation of the 4C code manage several types of possible conflicts of interest. through in-country activities in Zambia, Uganda, Ethiopia, and 62 One exception is the CmiA in Zambia, with 80,000 farmers par- Kenya. In Africa, 4C undertook pilot projects in Zambia and Kenya. ticipating in the pilot phase. E C O N O M I C AND S E CT OR WORK 62 C H A PTER 4 BOX 4.6: GTZ—Mainstreaming Social and Environmental Compliance at the Farm Level 1. The Common Code for the Coffee Community and the local veri�cation. The latter refers to third-party (4C)—4C aims at achieving sustainability along the auditors verifying the results of the self-assessment of entire coffee value chain, from production and pro- the respective 4C unit. The task of the system veri�- cessing through to the trade of green mainstream cof- cation is to make sure that the system as a whole is fee. 4C considers itself to be an introductory standard ef�cient. If they so wish, 4C members may also have and thus a supplement to existing standards such as a Member Statement printed on their packaging. The Rainforest Alliance, UTZ Certi�cation, and so forth. The costs of veri�cation of conformity are borne by the 4C initiative emerged through a partnership between the Association, which is expected to be �nanced by mem- German Development Cooperation (GTZ), on behalf bership fees. of the German government, and the German Coffee Association in 2002. Today, 4C is seen as an interna- Sustainability tional strategic alliance for the sector involving trade and Financial support to the initiative came initially from the industry representatives, producer organizations, and in- German Coffee association and later from the European ternational civil society organizations. Outcomes of the Coffee Federation, reaching 1 million during the peri- alliance include the formulation of a code for the sec- od 2002–06. Contributions of the German government tor, in compliance with International Labor Organization through GTZ reached 1 million for the same period, (ILO) regulations and good environmental practices and and contributions from SECO were about 500,000. In with multistakeholder participation, as well as the estab- December 2006 the alliance established an independent lishment of the 4C Association. non-pro�t membership association—the Common Code How do coffee producers bene�t from compliance for the Coffee Community (4C) Association. As of 2007, with the 4C standard? 4C still relied on subsidies from the German develop- ment cooperation. However, the plan is for this intense The code aims to strengthen producer organizations, re- support to gradually be reduced, so that the association duce the cost of coffee growing, improve product qual- would be �nancially independent. ity, and optimize operational flows along the value chain, thus enabling producers to increase their incomes. The 2. The Good, Risk-Based Agricultural Social 4C standard does not intend to integrate a price pre- Practices—GRASP—In an effort to bridge the gap be- mium; instead producers are supposed to bene�t from tween full social audits for a limited market and the agri- the standard implementation through ef�ciencies, qual- cultural mainstream production, GTZ, in cooperation with ity improvements, and sustained access to mainstream FoodPlus and Coop Swiss, implemented the GRASP world coffee markets. The 4C also offers support ser- project (2006–07) with two objectives: to enhance so- vices through training and workshops for producers. In cial compliance criteria in the GLOBALG.A.P Integrated order to enter the 4C system, producers need to either Farm Assurance Scheme and to develop basic criteria of establish a “4C unit� or join an existing one. A 4C unit good social practice, as the ILO Core Labour Standards can consist of any coffee-producing entity (farm, small- at farm level. The GRASP module presents a set of doc- scale producer group, cooperative, plantation, mill, ex- umentary requirements guiding the farmer and facilitat- porter, etc.) that is capable of producing at least one ing the implementation of a social management system container of green coffee. Currently, many small-scale on the farm. farmers are not yet suf�ciently organized to comply with the quantity requirements. Therefore, one of the aims of 3. Cotton Made in Africa Initiative (CmiA)—This is the 4C is to support the formation of small-scale produc- another initiative in which the German government has er groups and to establish the support services required been heavily involved to further mainstream social and to achieve standard conformity, information, and advice. environmental compliance at the farm level, yet with 4C does not use a consumer seal, and therefore compli- a speci�c focus on poverty reduction. In contrast with ance with the standard is not visible for consumers. The the 4C and the GRASP initiative, CmiA has a clear ob- implementation of the code is based on a veri�cation jective of improving the living conditions of very small- system relying on two pillars—the system veri�cation scale and small-scale cotton producers by means of (Box continues on the next page) MA K ING TH E GR A D E D E V E L O P M E NT AS SISTANCE , STANDARDS CO MPLI A NCE, A ND A FR ICA N S MA LLH OLD ER FA RMER S 63 capacity building. Expected bene�ts for farmers are demand alliance of international brands and retailers. derived from higher income and higher quality. CmiA Compliance with high social and environmental stan- has three main aims: the development of an attractive dards is ensured through a veri�cation process that is brand that stands for cotton production by African small currently being developed. farmers; the development of high standards for sus- tainable cotton cultivation; and the creation of a broad Source. Kuenkel et al. 2008; 4C Facts News, Edition 2, July 2009. private voluntary initiatives have been prepared. Yet little supply. USAID has been supporting, since the late 1990s, the analysis has been done to understand the incentives and Sustainable Tree Program and a set of subsequent initiatives mechanisms needed to support governments and other ac- to improve production practices. Thus in cocoa, sustainable tors in playing a critical role in the promotion and adoption of certi�cations have come to play a role to complement under- private standards and in determining criteria for prioritization going efforts to improve overall management practices. of the most suitable options to support compliance and on the type of standards and standards-related initiatives to be For coffee, on the other hand, competitiveness pressures supported. are the main driving forces, with the main strategies to re- main competitive being to brand coffees under “specialty�64 designations or to target speci�c certi�ed markets under Providing Tools for Long-Term Competitiveness via sustainability schemes. Overall, attempts to serve specialty “Certi�cation� Programs markets have relied more on industry-wise approaches to Multistakeholder initiatives or the establishment of partner- promote quality upgrading, such as the investments initiated ships with private actors to promote certi�ed production has by USAID in Ethiopia and Rwanda (the latter most recently emerged as a promising instrument to promote sustainability bene�ting also from investments made by several other do- of production by development partners. USAID, for example, nors). Support to individual private-led initiatives to achieve through the Global Alliance mechanism, has been support- certi�cation under speci�c schemes has been more ad hoc ing initiatives aimed at achieving sustainability outcomes and generally within the context of agriculture or agribusiness through certi�cations. In agri-food products, examples are projects and matching grants or partnerships programs.65 the Certi�ed Sustainable Products Alliance (CSPA) to certify agri-food products but also timber against RA certi�cation, and the Conservation Coffee Alliance with Starbucks and 63 The Sustainable Cocoa Enterprise Solutions for Smallholders Conservation International (CI) to support best practices (SUCCESS) Alliance aims to improve the livelihoods of smallholder farmers by promoting cocoa production and marketing in a way under the Starbucks preferred supplier program. Although that is economically, environmentally, socially, and culturally sus- initially established with a focus on Latin America, alliances tainable. It does not focus on certi�cations but rather on improve- ments along the chain. It works as a partnership between USAID, promoting sustainable outcomes are also emerging in SSA. the World Cocoa Foundation (WCF) and Mars Inc.; with Agricultur- For example, donor support to RA certi�cation in Africa al Cooperative Development International and Volunteers in Over- has included the Cocoa Sustainability Alliance, a partner- seas Cooperative Assistance (ACDI/VOCA) as the implementing agency. In Africa the alliance is only active in Liberia. ship established between USAID, GTZ, Kraft, Armajaro, 64 “Specialty� coffee has become a generic label covering a range the Sustainable Tree Crop Program, and the government to of different coffees that either command a premium price over promote sustainable certi�ed cocoa in Côte d’Ivoire; and the other coffees or are perceived by consumers as being different USAID, Starbucks, and Rwandan government alliance to pro- from the widely available mainstream brands of coffee. The term has become so broad that there is no universally accepted de�- duce high-quality coffee to be sold under speci�c trademarks nition of what constitutes “specialty coffee,� and it frequently and sustainable labels.63 means different things to different people (ITC—The Coffee Guide www.thecoffeeguide.org). The drivers of sustainable agendas at the farm level vary 65 Examples of the latter include: the USAID/IBERO alliance in Uganda for organic and UTZ Certi�ed coffee production, and the according to the product. In West Africa, low productivity USAID/Dunavant Uganda Ltd. alliance to promote certi�cation of of cocoa plantations and fears of signi�cant reduction of organic cotton; the WB’s support to coffee certi�cation through production in the main countries supplying raw materials to matching grants in Kenya; the partnerships established by GTZ with different private companies in Ethiopia, Uganda, and Kenya the global industry have pushed for collaborative efforts to to support the implementation of 4C Common Code and other rehabilitate plantations and ensure the sustainability of the certi�cation programs. E C O N O M I C AND S E CT OR WORK 64 C H A PTER 4 Industry-wide support to upgrading processes based on quality quality, consistency, and improved on-farm information, it is differentiation to supply specialty coffee markets has involved very unlikely to contribute to sustainable outcomes. In the considerable investments by donors. To illustrate, in Rwanda, end, international buyers will buy the product that ful�lls USAID led several initiatives in support of cooperatives and their requirements. Social and environmental claims are a private actors to improve quality and strengthen the industry plus and may become a requirement in certain markets in links with international buyers, with the entry point for quality the near future, but they will never be substitutes for quality upgrading being the establishment of washing coffee stations and consistency. and quality control capacity. Similarly, in Ethiopia and several other SSA countries, USAID has been supporting industry In SSA, challenges of consistency in the supply and quality investments to access specialty differentiated markets. The remain major bottlenecks of small-scale farmers’ participa- experience has demonstrated that although, with specialty tion in markets. The need for farmer collective action and coffee markets, importers and roasters buy and sell a “story,� strong group cohesion to aggregate volumes and facilitate the most powerful marketing tool of the specialty coffee in- small-scale farmer’s access to services remain important dustry is the promise of consistency and excellent quality.66 bottlenecks to be solved, both in certi�ed and noncerti�ed Still, signi�cant challenges remain in improving farm manage- markets. Therefore, the recent emphasis on the achieve- ment practices for smallholders (see chapter 6 for more de- ment of certi�cation by farmers or farmer groups should tails about Rwanda). More recently, other donors have joined not detract from the critical role of development efforts in USAID efforts, complementing the upgrading efforts with supporting continuous improvements to achieve quality and support for the achievement of FT and other certi�cations. productivity gains, promote smallholders organization and empowerment, and so forth. Hence, while the focus of many initiatives has been on cer- ti�cation, with the provision of training and other support Several of the attempts to solve smallholders’ bottlenecks required at the farm level expected to be provided by lead in participating in export markets through sustainability �rms or by development agencies or NGOs, in many other certi�cations have encountered the inconvenient truth that programs, integrated approaches have been pursued, with certi�cation is part of the solution, but not the solution, when quality improvements as the core element of the assistance, fundamental upgrades to ensure a reliable supply of qual- while opportunities for certi�cation are complementing the ity product have not yet been made. The point of departure efforts to enhance overall industry performance. of much support for smallholder certi�cation has been that fundamental upgrades have already been made and that the It is increasingly evident that the strategy to use certi�ed pro- remaining gaps can be easily narrowed. In many cases, this duction as a tool for smallholder market integration should assumption has been incorrect, with the need to go back be based on a continuum of improvements, with the target to basics—in farmer organization, applied research and advi- being to provide tools for long-term competitiveness. When sory services, business development services, and logistics certi�cation is applied as a replacement for undertaking the improvements—frequently producing “lessons learned� upgrades required for gradually achieving gains in terms of from these experiences. 66 In Ethiopia, differentiation has been based on the characteristics of the country as the birthplace of Arabic coffee, and therefore, protection of the genetic biodiversity is seen as fundamental. MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 65 Chapter 5: PRIVATE “BUYER� PERSPECTIVES ON ALTERNATIVE SOURCES OF SUPPLY INTRODUCTION departure. This literature tends to focus on the decision to As discussed in Chapter 2, a major debate in the agricultural contract out production rather than undertake own produc- development literature in recent years has been the impact tion (the “make or buy� decision that is key to “transaction of ongoing changes in the structure and modus operandi costs economics�) and/or the forms of contract used. It does of global agri-food systems on smallholders in developing not, however, probe the factors driving buyer choices among countries (see, for example, Reardon and Barrett 2000; a range of alternative suppliers and the relative importance Weatherspoon et al. 2001; Hazell 2005; Pelupessy and van attached to each in overall procurement. It is these latter Kempen 2005; Humphrey 2006). In this context, a speci�c questions that are the focus of this chapter. concern is the effect of agri-food standards, notably the food The speci�c context for this chapter is supply chains for safety and quality standards adopted by major food retailers fresh fruit and vegetable exports from sub-Saharan Africa in Europe and elsewhere, such as GLOBALG.A.P (Dolan and (SSA). Among policy makers, development practitioners, Humphrey 2001; Jaffee 2003; Henson and Humphrey 2009). and others there is considerable concern that evolving Key themes in this debate include whether smallholder mar- food safety and other standards could serve to erase past ket participation is compromised by the transformation of achievements in African fresh produce exports and the re- agri-food systems and, if they can participate, whether their munerative involvement of smallholders therein. Particular involvement in high-value markets brings appreciable and attention has been given to whether or not requirements for sustainable bene�ts in terms of enhanced livelihoods. On GLOBALG.A.P compliance are posing technical or �nancial these issues, the literature sends rather mixed messages. barriers to smallholders, or turning African exporters (i.e., Thus, while the existing literature presents a plethora of buyers) away from reliance on smallholder supplies. This cases in which smallholders are or are not able to participate concern has led to a plethora of initiatives—sponsored by in high-value supply chains, less attention has been given to governments, donors, and nongovernmental organizations the process by which their participation is determined. Most (NGOs)—seeking to strengthen African horticultural supply pertinent studies focus on analysis of the transaction costs chains generally and speci�cally to enhance the ability of faced by farmers, assuming that these determine their par- smallholder farmers to comply with regulatory and/or com- ticipation in alternative supply chains (see, for example, Staal mercial requirements (see Chapters 4 and 7 for highlights of et al. 1997; Key et al. 2000; Blandon et al. 2009). Attempts some of these interventions). have also been made to model the market choices of small- The fruit and vegetable export trade, particularly to Europe, holders in terms of decision variables entering a household has been among the few notable success stories in nontra- production or utility function (see, for example, Goetz 1992; ditional agricultural export development in SSA. Excluding Holloway et al. 2000, 2005; Winters et al. 2005; Neven et al. South Africa, the FOB value of this trade to Europe in- 2006; Hernandez et al. 2007). creased from US$480 million in 2000 to US$800 million in However, in the context of buyer-driven supply chains, it is 2008. Four countries—Côte d’Ivoire, Cameroon, Kenya, and arguably more relevant to focus on the sourcing decisions of Ghana—accounted for a combined 85 percent of this trade buyers rather than the market choices of smallholders. More in the latter year, although somewhat signi�cant industries relevant, therefore, is the literature examining the contract- have also emerged in Ethiopia, Madagascar, Senegal, and ing decisions of buyers in agri-food supply chains (see, for ex- several other countries. The biggest commodities in this ample, Dorward et al. 1998; Key and Runsten 1999; Swinnen trade include pineapples, bananas, green beans/peas, litchis, and Vandeplas 2007), which is taken here as the point of and mangoes. Production originates from a broad spectrum E C O N O M I C AND S E CT OR WORK 66 C H A PTER 5 of farm types, ranging from very limited smallholders to large about future opportunities in this line of business, relative plantations. to others. In order to gauge exporters’ attitudes toward procuring prod- For those companies choosing to pursue compliance, a wide uct from alternative sources, including smallholders, and to range of tactical options could be considered, covering busi- delineate the signi�cance of standards requirements in driv- ness and supplier relations, the company’s own management ing these procurement decisions and patterns, an online sur- structure and capacities, the geography of procurement, and vey was undertaken among sub-Saharan exporters as part the distribution of costs and risks within the supply chain. of this research work in 2008. A general conceptualization of A company’s choice set and overall room for maneuvering the strategic and procurement choices faced by exporters, will depend upon its own circumstances. Some examples of followed by a description of the survey’s methodology, and tactical measures include the following: an analysis of the results and main �ndings are presented in the following pages. Negotiations with Downstream Buyers Ask buyers to allow more time to become fully compliant. STRATEGIC AND TACTICAL OPTIONS AND Ask buyers to contribute to the technical measures or PROCUREMENT CHOICES IN THE FACE OF RISING costs of achieving compliance. STANDARDS Lobby for changes in the standards themselves, toler- In the face of evolving regulatory requirements and rising ance levels for noncompliance, and means of confor- private sector product, production process, and other stan- mity assessment. dards, African fruit and vegetable exporters must choose among or combine various strategic and tactical responses. Business Management Practices At the strategic level, companies can choose to: (i) comply, Increase the number/improve the quali�cations of via measures adopted within or beyond their own supply company �eld technical advisors. chain; (ii) not comply, and accept possible product rejections or quality claims as a cost of doing business; (iii) exit the fresh Improve company internal code of practice. produce export business; or (iv) shift product and/or market Develop and apply quality management systems. foci in order to reduce the burden of rising standards (table Provide training in good agricultural practice (GAP) for 5.1). The strategic choices that individual companies make internal staff. will be driven by their own circumstances—their history and Strengthen quality management system (QMS)—e.g., past experience in the business; their degree of commitment by adding or upgrading staff, establishing or upgrading to the business in the form of specialized investments and a company lab; upgrading documentation, instituting long-standing trade relations, etc.—and their perceptions crop-speci�c protocols, and so forth. TABLE 5.1: Firm Strategic Responses in the Face of Rising Standards REDUCE INVOLVEMENT OR EXIT THE FRESH PRODUCE SHIFT PRODUCT AND/OR PURSUE COMPLIANCE MAKE NO SPECIFIC CHANGES EXPORT BUSINESS MARKET ORIENTATION Within the company’s supply chain: (i) in- Notionally commit to making selected Disengage entirely from involvement Change product mix in favor of less tegrate forward to squeeze out middlemen changes as requested or required by in export/trade of the products. demanding or less risky products, from costs, (ii) integrate backward to increase downstream buyers but do not imple- a standards perspective. control and reduce risks, and/or (iii) use ment them. assured compliance to gain competitive advantage. External to the company’s supply chain: Deliberately evade higher regulations/ Reduce involvement in exports/ Shift toward less demanding end (i) push for domestic regulatory changes standards and accept product deten- trade of the products and switch to markets and/or less demanding to give teeth to compliance, (ii) push to tions and rejections as a business processed products to reduce burden customers. strengthen capacity of competent authori- cost. of compliance. ties, (iii) engage/encourage the develop- ment/use of business service providers, and (iv) push for provision of services through APEX organizations. Source: The Authors. MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 67 Alter Procurement Arrangements and Relationships between medium or larger outgrowers, smallholder farmers, Reduce geographic scope to enable tighter control; or various types of intermediaries (traders, cooperatives, focus procurement in geographical areas that are less brokers). Exporters may combine supplies from multiple prone to pests and diseases. sources, differentiate their supplies by product or by season, Change relationships with procurement agents, ne- or pursue some other arrangement. cessitating certain practices or restricting from whom The production and transaction costs and the risks associ- they can source. ated with different supply sources are affected by various Eliminate sourcing from all outgrowers and con- factors, including geography, demographics, land tenure, the centrate on own farm production; or source from distribution of knowledge and skills, various techno-econom- outgrowers only very low-risk commodities from the ic characteristics of the pertinent crops, and importantly, the perspective of standards compliance. product, process, and transaction attributes that are required Change relationship with small-scale farmers (e.g., re- by buyers and end markets. For at least some horticultural quiring involvement in groups, prior certi�cation, etc.). crops, smallholders are expected to have production cost Take steps to ensure the loyalty of certain outgrowers advantages over other potential sources of supply—stem- (e.g., provide inputs in-kind and/or advisory services, ming from lower costs for accessing and supervising labor pay price premia, increase volume or extend procure- (Poulton et al., 2005).Yet, sourcing from smallholders is ex- ment period for supply). pected to involve considerably higher transaction costs, due Require outgrowers to undertake and fund selected to both structural factors (e.g., physical distance, aggrega- investments and/or pre-certi�cation. tion logistics, poorer communication links) and to the facilita- Change recommended practices for land preparation, tion, monitoring, and enforcement of product and process irrigation, planting, spraying, record keeping, personal standards. hygiene, and so forth. In circumstances in which exporters source produce from This range of strategic and tactical options needs to be kept smallholders, the relationship may be indirect or direct, and in mind. There is a common (mis-)perception that fresh the latter could take on various forms or degrees of inten- produce exporters have little or no choice of strategy (i.e., sity. Exporters may indirectly source from smallholders via “comply or die�) and that the needed tactical steps are dic- various types of intermediaries—traders, brokers, agents, tated to them by downstream buyers. These circumstances larger farmers—with whom the company may or may not may apply to some �rms, but not for the vast majority of have a regular, ongoing relationship. In the fresh produce companies. business, these intermediaries tend to buy from small- holders, either on a cash-for-produce basis or as part of This complexity of strategic and tactical choices is best un- some longer-standing relationship. More direct links be- derstood when interviewing individual companies, with the tween exporters and smallholders (or their groups) can take choice set being closely related to a range of speci�c circum- various forms. One basic contractual arrangement involves stances for those companies. A survey approach, utilizing a mutual commitments to buy and sell, perhaps of a stated posted or mailed questionnaire, cannot effectively capture volume of produce, during certain time intervals, either at the complexity of business practices in this area, as each market or speci�ed prices. A deeper relationship combines company’s unique situation needs to be probed by follow-up these elements with the provision of speci�ed inputs, questions, solicitation of examples, and hypothetical scenar- sometimes on credit. More intensive relationships go ios. Case studies are thus better instruments for probing the farther to involve some shared management functions, breadth of strategic and tactical approaches. For purposes especially in relation to pest and disease management, of the exporter survey presented here, a much more limited farm record keeping, produce traceability, and product/farm choice set of approaches was considered. certi�cation. As noted in Chapter 3, the proposed conceptual framework �rst posits exporters making a broad “make or buy� deci- METHODS AND RESPONDENTS sion. They can undertake their own production on leased, purchased, or inherited land (“make�), they can purchase The analysis presented in the following pages derives from others (“buy�), or they can combine the two modalities. from an Internet-based survey of fresh produce exporters Within the “buy� category, there may be multiple choices as in 18 countries of SSA undertaken over the period July to E C O N O M I C AND S E CT OR WORK 68 C H A PTER 5 FIGURE 5.1: Composition of Survey Respondents by of the total value of SSA fresh fruit and vegetable exports in Value of Exports, 2007 (US$) that year, not counting South Africa. 50 The distribution of respondent �rms is reflective of the over- 45 all structural patterns in the SSA fresh produce trade, where 40 exporter numbers are considerably higher in some rather 35 than other countries. Hence, the greatest number of respon- Number of firms 30 dents was from: Kenya (33.1 percent), Ghana (18.6 percent), 25 Côte d’Ivoire (8.7 percent), Senegal (7.0 percent), Uganda 20 (7.0 percent), and Burkina Faso (5.2 percent) while all other 15 countries accounted for the remaining 20.4 percent. Only a 10 few exporters in some countries (Tanzania, Zambia, Gambia, 5 and Madagascar) account for the bulk of trade from their 0 countries, and these were among the respondents. Given Less than $100,000 $100,000 to $249,999 $250,000 to $499,999 $500,000 to $999,999 $1 million to $1.9 million $2 million to $4.9 million $5 million to $9.9 million $10 million to $24.9 million $25 million or above the large aggregate share, our respondent pool does not ap- pear to have excluded many signi�cant exporters and thus offers an excellent viewpoint on the procurement patterns in Africa’s fresh produce export trade circa 2007/2008. Respondent �rms export a wide range of fresh produce. On average, the companies export just over four products (4.12). Source: Calculations based on data from Internet-based survey of fresh The most common individual export commodities are French produce exporters in SSA—July to September 2008. beans (52.3 percent of �rms), mangoes (50.6 percent), okra (39.5 percent), pineapples (37.8 percent), peas (36.6 percent) chiles/hot peppers (31.4 percent), and passion fruit (30.2 September 2008.67 A prospective list of respondent �rms percent). (n = 326) was compiled from various sources including the Pesticides Initiatives Programme (PIP), the World Bank, and Most questions in the survey asked respondents to focus a review of exporter directories.68 on their main fresh export product, de�ned in terms of the volume procured and/or produced in 2007. The rationale for A total of 172 fresh produce exporters provided fully com- this approach is that procurement systems can vary sig- pleted questionnaires, representing a response rate of 52.8 ni�cantly across products, in terms of the performance of, percent. The respondents reported their total free on board and the costs of procuring from, smallholders versus other (FOB) export value in 2007. This ranged from $11,000 to sources of supply. Thus, the validity of asking respondents $145 million, with a mean of US$7.42 million (SD = $2.17 to focus instead on the procurement of all products they million). Figure 5.1 plots the distribution of �rms according to export is questionable. At the same time, there are con- the value of their exports and con�rms that the sample was cerns that focusing on an exporter’s main product in terms not dominated by larger exporters. Eighty-one (81) of the re- of volume procured/produced may miss a substantive part spondents were classi�ed as “small� (i.e., with exports be- of their procurement system. Yet, given that the main prod- low $500,000), 52 as “medium� (with exports between $0.5 uct represented 69.4 percent of respondents’ exports on and 4.9 million), and 39 as large (with exports exceeding $5 average (SD = 20.56), this would not appear to be a major million). These respondents accounted for nearly 88 percent concern. Across respondents as a whole, the lead or main export products were French beans (38.4 percent), pine- apples (25.6 percent), chiles/hot peppers (11.0 percent), and 67 The survey was designed and employed using guidelines on mangoes (7.0 percent), collectively accounting for 82 percent conducting Internet surveys (Couper 2000; Kraut et al. 2003; of responses. Lewis 2004). 68 An invitation to participate in the survey was sent by e-mail, which included a link to the online questionnaire. Four weeks Most �rms export to multiple markets. The key export mar- later a reminder e-mail was sent to all nonrespondents. The e- kets for the respondent’s main product were the United mails and questionnaire were in English or French, depending Kingdom (70.3 percent) and the rest of Europe (77.3 per- on the of�cial language of the country in which exporters were based. Respondent �rms were able to request a paper copy of cent). Only 21.5 percent export exclusively to the United the questionnaire if they so wished. Kingdom and only 29.7 percent export solely to continental MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 69 Europe. Almost half of the respondents exported to both These categories are worth noting. In the stakeholder dia- the United Kingdom and the rest of Europe. Other outlets logue on this subject there is sometimes an assertion that include markets in the Middle East (19.2 percent of �rms) GLOBALG.A.P or other standard certi�cation has effectively and other sub-Saharan African countries (16.9 percent). Few become a required “license� to supply fresh produce to companies sell elsewhere. The external market buyers most the European market. This applies for only a segment of frequently supplied were importers/distributors for (i) high- the European market, and there is evidence to suggest that end supermarkets (51.2 percent), (ii) discount supermarkets (continued) certi�cation is not an enforced requirement by (50.0 percent), (iii) small-scale grocers (48.2 percent), and even the leading supermarkets applying the most stringent “ethnic� food retailers (33.7 percent). Again, sales through standards. In addition, there remains a very large fresh pro- multiple (types of) distribution channels are common. duce market for noncerti�ed product/producers, especially in distribution channels servicing the so-called discount super- In addition to categorizing respondents according to their markets, in countries where wholesale and open-air markets relative size, �rms are also distinguished by the importance remain important, and within the distribution channels for of private standards compliance in their overseas distribution so-called “ethnic� and specialty produce. channels. Firms were asked about the proportion of their overseas customers and their volume of trade for which compliance with food safety standards is a major focus and SELECTION CRITERIA OF SURVEYED FRESH factor in business performance. Three categories of �rms are PRODUCE EXPORTERS represented among the respondents. Seventy-�ve compa- The surveyed �rms were asked to rate the importance of nies (43.6 percent of respondents) reported that the majority various criteria when considering how they structure their of their customers require and enforce food safety standards. fresh produce procurement arrangements, including their Thirty-four companies (19.8 percent) reported that a minority “make or buy� decision and their decisions about whom of customers are so focused. Sixty-three companies (29.6 to buy from. Each �rm was then asked to score the perfor- percent) do not have customers that require and enforce mance of alternative supply chains according to these same stringent food safety standards. Of this latter group, only 12 criteria, as reported in �gure 5.2. reported having customers that had explicitly indicated that they would enforce food safety standards in the foreseeable future. FIGURE 5.2: Performance Criteria Scores for Alternative Supply Chains Ability to meet quality Degree to which can grades cope with flexibility in payments 7 Consistency of quality Ability to make changes 6 Price/cost to production/handling 5 competitiveness practices 4 Ability to maintain 3 Application of good required records 2 agricultural practices 1 Ability to avoid risk of Ability to deliver agreed- total crop loss/supply upon quantity of supply failure Management of the risk Postharvest handling of crop failure practices Ability to meet sudden Ease of communication changes in orders Ability to meet food safety controls Small-scale outgrowers Medium- or large-scale outgrowers Own production Intermediaries Source: Calculations based on Data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. E C O N O M I C AND S E CT OR WORK 70 C H A PTER 5 TABLE 5.2: Performance of Alternative Suppliers According to Clustered Criteria MEAN SCORE SCALE SMALL-SCALE MEDIUM- AND LARGE- OWN PRODUCERS SCALE PRODUCERS PRODUCTION Competitive supplier 5.58a 5.56a 6.57 Reliability, flexibility, and risk 5.67b 5.30 5.68b management Food safety capacity 5.22 5.75 6.85 Note: Scores denoted by same letter are not signi�cantly different at the 5 percent level. Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. By applying Principle Components Analysis to the importance medium-scale companies are most interested in the past scores, three broad categories of criteria that are deemed experience of farmers and in their involvement in organized important by fresh produce exporters can be discerned: (i) extension or farmer marketing. Large companies are more competitive supply, in terms of quality and price; (ii) reliability, focused on whether the farmers have access to basic fac- flexibility, and risk management; and (iii) food safety compli- tors of production and whether they can meet food safety ance. The mean scores of alternative supply chains for each requirements. Larger companies can presumably overcome of these three broad criteria are reported in table 5.2. limited experience and weak (prior) organization through Some interesting patterns emerge, highlighting the perceived trade-offs of utilizing different sources of supply. Smallholder TABLE 5.3: Importance of Factors in Choosing farmers are seen as a valuable asset in terms of managing/ Small-Scale Producers as Supply spreading crop production risks and building flexibility into Source for Main Product the procurement system. That is, spreading production FACTOR MEAN among smallholders (perhaps in different geographical areas) Has been trained in good agricultural practice 6.14 helps to mitigate the supply shocks from certain weather Is able to access suf�cient paid labor if needed 6.02a events or outbreaks of pests and diseases. Contracting with Is within 5 kilometers of a main road 6.01a smallholders also allows for some (rapid) adjustments in the Is certi�ed to a food safety standard such as EUREPGAP/ 6.01a quantities supplied/purchased. Smallholders are considered GLOBALG.A.P or Nature’s Choice cost-effective suppliers and generally able to meet quality Has past experience growing your leading crop export 5.86b requirements. In contrast, smallholders are perceived to be Has reliable year-round supply of water 5.85b weaker in terms of adjusting production practices, in record Has past experience with producing export horticultural crops 5.60c keeping, in communication, in matching speci�c quantity re- quirements, and in the consistent application of good agricul- Participates in a regular program of public extension services 5.58c tural practices. Each of the other potential produce sources Has past experience producing an export crop 5.57c has it own relative strengths and weaknesses. Has basic literacy skills 5.46d Has minimum of two hectares of land 5.45d Exporters were asked about the properties of smallholders Has not failed in relations with an export company in the past 5.43d that would lead them to be a favorable or acceptable sup- Has independent access to �nancial services/credit 5.34 plier. Their responses are summarized in table 5.3, with rat- Is member of a well-organized farmer club/group 5.23e ings from low (1) to high (7). Applying Principal Components Analysis, these various factors can be clustered under four Has past experience supplying large export companies 5.21e headings: (i) basic skills and resources (e.g., land, literacy, Is member of a well-organized farmer cooperative 5.04 labor, access to water, �nance, and main roads), (ii) past ex- Has multiple able-bodied family members working on the farm 4.89f perience (with the crop, with export horticulture, or with the Has past experience supplying your company 4.88f �rm), (iii) organization (i.e., part of a farmer group or regular Is within 50 kilometers of your packing facility 4.46 extension program), and (iv) food safety capacity. Past/current elected of�cer of farmer organization 3.42 Note: Scores denoted by same letter are not signi�cantly different at the 5 percent Tables 5.4 and 5.5 contrast the weight of factors given by level companies of different sizes and companies whose trade tar- Source: Calculations based on data from Internet-based survey of fresh gets buyers with varied emphasis on food safety. Small- and produce exporters in SSA—July to September 2008. MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 71 TABLE 5.4: Clustered Criteria Factors Influencing access constraints, the prevailing agrarian structure, agro- Choice of Small-Scale Producers of Main ecological or geographical features, or other factors. Through Export Product by Exporter Size (Mean their own efforts, �rms may be unable to overcome broader Scores) structural constraints and thus need to either integrate back- FIRM SIZE ward to obtain needed produce or choose from a more con- SCALE strained range of “buy� options. SMALL MEDIUM LARGE Basic skills and resources 5.07 5.92a 5.98a The survey respondents generally do not appear to have Past experience 5.83 6.14 5.21 been highly constrained in the range of options to pursue Organized 6.03 6.31 5.57 when designing/adjusting their procurement strategies Food safety capacity 5.12 5.65 6.24 (table 5.6). A large majority of �rms have had the option to Note: Scores denoted by same letter are not signi�cantly different at the 5 percent source from their own farms, from smallholder outgrowers, level. from larger outgrowers, and via intermediaries. The major- Source: Calculations based on data from Internet-based survey of fresh ity currently use three of the four of these sources (all but produce exporters in SSA—July to September 2008. intermediaries). Table 5.7 highlights changes in the structure of respondent �rms’ procurement arrangements for their main product TABLE 5.5: Clustered Criteria Factors Influencing between 2003 and 2008. Smallholders still account for the Choice of Small-Scale Producers of Main largest single share, although the share of these farmers has Export Product by Customer Requirements fallen from 39.2 percent to 36.4 percent. While this does not for Compliance with Private Food Safety signal a wholesale exclusion of small farmers in an era of ris- Standards (Mean Scores) ing standards requirements, it does show that various factors PRIVATE STANDARD COMPLIANCE are putting pressure on the competitive position of smallhold- SCALE NO MINORITY OF MAJORITY OF ers in this export trade. Sourcing of the main product from CUSTOMERS CUSTOMERS CUSTOMERS company owned/leased farms has increased in prominence Basic skills and 5.16 5.68 5.89 during this decade. This is consistent with expectations, as resources there is an increased need to track and trace produce and Past experience 6.09 5.76 5.30 maintain up-to-date production records—all elements that Organized 6.01 6.28 5.64 are easier to do on one’s own farm. The role of medium and Food safety 5.19 5.48 6.31 capacity Note: Scores denoted by same letter are not signi�cantly different at the 5 percent level. TABLE 5.6: Availability and Use of Supply Chains for Source: Calculations based on data from Internet-based survey of fresh Main Product produce exporters in SSA—July to September 2008. NUMBER (%) SUPPLY CHAIN CURRENTLY AVAILABLE EVER USED USE their own training, advisory, and organizational measures. Traders, wholesalers, and 111 72 63 Limited past experience and limited organizational involve- other intermediaries (64.5%) (41.9%) (36.6%) ment also appear to be of comparatively less concern among Direct from small-scale 163 149 146 growers of less than �ve (94.8%) (86.6%) (84.9%) companies whose majority of customers enforce stringent acres food safety requirements. Some respondents implied that Direct from medium- or 135 100 97 past experience actually poses problems, as certain “bad� large-scale producers (78.5%) (58.1%) (56.4%) practices need to be unlearned or adjusted from. Production on own/leased 141 122 127 farm (82.0%) (70.9%) (73.8%) Other exporters 55 38 25 CHANGING PROCUREMENT PATTERNS OF FRESH (32.0%) (22.1%) (14.5%) PRODUCE EXPORTERS Other 6 6 5 (3.5%) (3.5%) (2.9%) In any local context, the range of alternative procurement Source: Calculations based on data from Internet-based survey of fresh strategies may be limited, either because of land tenure/land produce exporters in SSA—July to September 2008. E C O N O M I C AND S E CT OR WORK 72 C H A PTER 5 TABLE 5.7: Mean Percentage of Supply of Main TABLE 5.8: Mean Percentage of French Beans and Product Sourced Through Alternative Pineapples Currently Sourced Through Supply Chains Currently and Five Years Alternative Supply Chains (Weighted by Ago Relative Export Volume) MEAN % SUPPLY CHAIN FRENCH BEANS PINEAPPLES SUPPLY CHAIN CURRENTLY FIVE YEARS Traders, wholesalers and other 3.9% 7.3% AGO intermediaries Traders, wholesalers, and other 9.4% 14.9% Direct from small-scale growers of less 45.5% 20.6% intermediaries (18.6) (24.0) than �ve acres Direct from small-scale growers of 36.4% 39.2% Direct from medium- or large-scale 13.6% 29.9% less than �ve acres (29.0) (30.8) producers Direct from medium- or large-scale 17.0% 15.4% Production on own/leased farm 34.5% 40.5% producers (20.7) (20.4) Other exporters 0.6% 0.6% Production on own/leased farm 34.4% 27.9% Other 1.9% 1.1% (33.1) (32.2) Note: All respondents for which either French beans or pineapples is the main Other exporters 0.9% 0.9% product. (2.5) (3.0) Source: Calculations based on data from Internet-based survey of fresh Other 1.9% 4.1% produce exporters in SSA—July to September 2008. (12.8) (19.8) Note: Standard deviation in parentheses. Figure 5.3 contrasts the structure of procurement for small-, Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. medium-, and large-scale fresh produce exporters. Small companies, on average, have a bimodal procurement sys- tem, with direct supplies from smallholder farmers and own larger-scale outgrowers appears to have increased modestly, production accounting for the bulk of supplies. Compared while there has been a curtailment of procurement through with larger companies, these �rms rely less upon larger out- intermediaries.69 growers (presumably due to bargaining problems and those Table 5.8 contrasts the current procurement patterns for farmers preferring to supply larger companies), and rely more �rms reporting that either French beans or pineapples are on intermediaries. Large companies display an even greater their main product. Smallholders remain the leading source bimodal structure, again with direct smallholder supply and of supply in the French bean trade, in large part due to the own farm production predominating. Medium-scale compa- heavy labor requirements in production. For pineapple, com- nies rely somewhat more on medium-scale producers and pany owned/leased farms and larger outgrowers are the somewhat less on smallholders than do the other categories predominant suppliers. The number of smallholders supply- of companies. ing pineapple to companies for which pineapple is the main In an era of rising standards one would expect to �nd a pat- product has actually declined sharply since the early 2000s. tern in which companies that serve less exacting markets However, as the recent experience in Ghana illustrates, is- would rely more heavily on smallholders than would be the sues about (non-)compliance with food safety requirements case for companies primarily servicing high-end, food safe- have not been a factor in this trend. Instead, the key factor ty–stringent markets. The evidence on this is ambiguous, driving the shift from mixed smallholder/large farmer supply at least at the aggregate level. Table 5.9 suggests that it is to a dominant large farm structure has been the shift over medium/larger outgrowers and purchases through interme- from traditional to the MD2 variety of pineapple, necessitat- diaries that decline more in importance as companies serve ing higher outlays on planting material and higher investment a broader range of clients who are enforcing food safety re- in irrigation and other facilities (see Chapter 7). quirements. For exporters whose majority of customers for their main product are food safety enforcers, smallholders are only slightly less important than own farm production in 69 The focus on the �rms’ main product introduces something of a bias in the picture here, especially the relative (grow- total supply. ing) importance of company owned/leased farms. One would expect companies to devote more attention to their Surveyed �rms were asked about the number of smallhold- major export commodity on their own farm, as this com- ers from whom they source directly as well as the number modity might represent their key entry point into the mar- of smallholders with whom they estimate they are sourcing ket. Companies would be more inclined to rely on others to supply secondary or tertiary parts of their product portfolio. when purchasing supplies through intermediaries. Figures MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 73 FIGURE 5.3: Percentage of Supply of Main Product although back-of-the-envelope estimates should not be too from Alternative Supply Chains by Size of inaccurate based upon the volumes purchased and what is Exporter known about average smallholder plantings, yields, and crop 100 rotations. Still, the possibility of estimation error for this in- 90 direct sourcing from smallholders is a caveat that should be 80 considered in relation to some of the �ndings below. 70 60 For the survey respondents, the total number of smallhold- 50 ers estimated to be involved in the sourcing of their main 40 product was 47,980 in 2007. This includes 23,830 farmers 30 for whom produce was sourced directly (or through groups), 20 and 24,150 farmers whose supplies came via intermediaries. 10 Five years earlier, some 55,921 smallholders were involved 0 Small Medium Large in the supply of the main product for these companies. The decline in number of smallholder suppliers of pineapples ac- Other counts for the bulk of this decline. Own production Table 5.10 highlights changes in number of smallholders sup- Medium- and large-scale producers plying, directly or indirectly, �rms in different size categories. Small-scale producers Several points can be made. First, large companies account Traders, wholesalers and other intermediaries for the largest share of smallholder participation in this indus- try, including a majority of smallholders who supply directly Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. to exporters. The absolute number of smallholders supplying the larger companies seems to have declined only marginally between the early and late 2000s, with the number of such on the former should be reasonably reliable—given available growers supplying these �rms directly actually increasing. records—although respondent over- or underreporting is The dropoff in smallholder suppliers has been comparatively possible. The scope for error is signi�cantly higher for es- larger for small- and medium-size companies. For example, timates of smallholders connected through intermediaries, the number of smallholders directly supplying the main prod- uct to small companies has fallen by some 31 percent. TABLE 5.9: Mean Proportion of Main Product Procured The role of standards (as an exclusionary force) in these Through Alternative Chains by Whether trends is not so evident. Table 5.11 summarizes changes in Major Customers Require Compliance with the number of smallholders supplying �rms whose custom- Private Food Safety Standards ers do and do not require/enforce food safety standards. MEAN % Some 32 percent of the decline in reported smallholder SUPPLY CHAIN NO MINORITY MAJORITY supply numbers is attributable to companies for which no CUSTOMERS OF OF customers enforce food safety standards, while companies CUSTOMERS CUSTOMERS for whom only a minority of customers enforce food safety Traders, wholesalers, 17.9% 7.6% 3.0% standards account for 23 percent. Not surprisingly, many and other intermediaries (25.9) (12.8) (7.9) other factors are at work here. In addition to the role of other Direct from small-scale 27.0% 44.6% 39.7% growers of less than (18.1) (31.4) (32.6) technical factors—as in the case of the pineapple varietal 5 acres shift in Ghana—the early to mid-2000s was a period in which Direct from medium- or 27.0% 17.3% 13.0% many small- to medium-scale exporters struggled to survive large-scale producers (22.6) (23.7) (14.3) in the business, dealing with issues of logistics, product qual- Production on own/ 26.4% 25.7% 42.1% ity management, buyer and supplier opportunism, �nancial leased farm (24.9) (28.9) (38.1) management, and so forth. These dif�culties led many �rms Other exporters 1.7% 0.9% 0.5% (2.4) (2.9) (1.9) to exit this business and others to contract or deliver a more variable volume of trade. The smallholder farmers loosely or Other 0.0% 5.9% 1.7% (0.0) (23.9) (10.6) more closely tied with these �rms bore some of the conse- Source : Calculations based on data from Internet-based survey of fresh quences of the weakly competitive supply chains, and they produce exporters in SSA—July to September 2008. too needed to either reduce or diversify their involvement. E C O N O M I C AND S E CT OR WORK 74 C H A PTER 5 TABLE 5.10: Number of Smallholder Farmers Reportedly Involved Directly or Indirectly in the Sourcing Arrangements of Difference Size Companies, 2007 and 2002 COMPANY SIZE 2007 2002 CATEGORY DIRECTLY VIA TOTAL DIRECTLY VIA TOTAL INTERMEDIARIES INTERMEDIARIES Small 7,218 5,160 12,378 9,450 6,427 15,877 Medium 4,778 9,870 14,648 6,985 11,550 18,535 Large 11.834 9,120 20,954 7,845 13,664 21,509 Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. Here and there, problems with more stringent standards an environment in which certi�ed compliance with standards requirements occurred, but this almost certainly was not is allegedly the required norm or “license� to supply. That the lead factor in the majority of cases. The experiences of is, one would expect to �nd relatively little new entry by Uganda (Diaz-Rios et al. 2009) and Ghana (see Chapter 7) smallholders given all the new requirements and compliance well illustrate this. costs, and also to �nd farmers and companies going to great lengths to secure long-term relations in order to build up ap- Overall, the survey �ndings suggest a skewing pattern in proaches and procedures (and associated detailed records) which small- and medium-scale companies cut back on the to achieve and signal to downstream buyers compliance with number of smallholders from whom they procure—either the standards. directly or indirectly—while larger companies continue to strongly utilize smallholder farmers as part of a bimodal The reality seems rather different. For example, a multiyear procurement system. This skewing is clearly evident from survey of a panel of 770 farmers in Central Kenya con�rms �gure 5.4, showing that for all deciles up through the 90 per- anecdotal observations of high levels of new entry, new exit, cent decile, the number of smallholders supplying �rms has and individual farm contraction or expansion of vegetable declined while expanded smallholder numbers are involved production for export. Among the surveyed farmers, some with only the largest companies. 23 percent grew French beans for export both in the mid- 2000s and in 2008/9, these being the steady suppliers. Some While the evidence presented here is not consistent with 20 percent haven’t taken up this crop, these being the non- a dark picture of smallholder marginalization and exclusion participants. Some 21 percent have dropped out (growing in Africa’s fresh produce trade, other �ndings from the cur- French beans in the mid-2000s but not more recently), these rent survey and other research point to a highly fluid situa- being the existers. Remarkably, some 37 percent of the same tion with rather considerable patterns of smallholder “entry� are new entrants, having grown French beans in 2008/09 but and “exit� into/from this sector and relatively high rates of not in the mid-2000s. Hence, if exclusion is taking place, so turnover in the procurement schemes of fresh produce ex- is inclusion, perhaps on a slightly larger scale. porters. This would not be expected (other than “exit�) in TABLE 5.11: Number of Smallholder Farmers Reportedly Involved Directly or Indirectly in the Sourcing Arrangements of Companies Whose Customers Do and Do Not Enforce Food Safety Standards, 2007 and 2002 SHARE OF COMPANY CUSTOMERS ENFORCING FOOD 2007 2002 SAFETY STANDARDS DIRECTLY VIA TOTAL DIRECTLY VIA TOTAL INTERMEDIARIES INTERMEDIARIES None 6,538 9,830 16,368 8,034 10,855 18,889 Minority 5,041 4,940 9,981 3,710 8,111 11,821 Majority 12,251 9,380 21,631 12,536 12,675 25,211 Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 75 FIGURE 5.4: Decile Distribution of Average Number of Small-Scale Producers of Less than Five Acres from Which Source Main Product Directly or Indirectly 3500 3000 2500 2000 1500 1000 500 0 10 20 30 40 50 60 70 80 90 100 Currently Five years ago Note: Data include all exporters. Source: Data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. Tables 5.12, 5.13, and 5.14 draw upon our survey �ndings to percent for small companies. Similar proportions are dropped depict the situation of relatively high turnover in exporter pro- by companies of different sizes. The main difference is in the curement arrangements and, most especially, in their sourc- second column. A large number of smallholders voluntarily ing from smallholders. Table 5.12 notes modest rates of exit withdraw from the relationship with smaller companies. The or turnover in exporter relations with medium- or large-scale reasons could be varied, including late/nonpayments, nonreli- producers, yet relatively high proportions of intermediaries able purchases, logistical bottlenecks, weak or inappropriate and of smallholders either being dropped by the company or technical advice, or, more positively, that the farmers have voluntarily withdrawing from this relationship. The turnover on used these relationships as a learning platform upon which smallholders is just over 22 percent, meaning that one in �ve to move onto other things, perhaps even supplying more direct suppliers does not supply the company year after year. demanding clients. Table 5.13 looks speci�cally at the turnover rates for small- Table 5.14 presents a more ominous picture, more con- holders supplying different size companies. These range sistent with the dark cloud view of existing or pending from 16.5 percent for medium-sized companies to 27.9 exclusion. Reported turnover rates are exceptionally high TABLE 5.12: Proportion of Suppliers in Alternative TABLE 5.13: Proportion of Smallholder Outgrowers for Supply Chains for Main Product that Main Product that Typically Have to Be Typically Have to Be Dropped or Voluntary Dropped or Voluntary Drop Out Year-on- Drop Out Year-on-Year Year by Exporter Size MEAN % MEAN % SUPPLY CHAIN DROPPED VOLUNTARILY EXPORTER SIZE DROPPED VOLUNTARILY DROP DROP OUT OUT Traders, wholesalers, and other 14.0% 8.8% Small 12.7% 15.2% intermediaries (12.4) (5.4) (11.2) (27.0) Direct from small-scale growers 12.2% 9.9% Medium 11.1% 5.4% of less than 5 acres (12.3) (19.1) (12.5) (3.2) Direct from medium- or large- 3.6% 2.8% Large 12.4% 5.8% scale producers (3.2) (4.3) (14.2) (8.2) Other exporters 4.5% 4.2% Total 12.2% 9.9% (4.1) (3.3) (12.3) (19.1) Source: Calculations based on data from Internet-based survey of fresh Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. produce exporters in SSA—July to September 2008. E C O N O M I C AND S E CT OR WORK 76 C H A PTER 5 TABLE 5.14: Proportion of Smallholder Outgrowers with the size of the company. The majority of large compa- for Main Product that Typically Have to nies expect to experience signi�cant increases in their trade. Be Dropped or Voluntary Drop out Year- For small companies, an equal proportion of respondents on-Year by Whether Customers Require expect signi�cant increases, moderate increases, and either Compliance with Private Food Safety no change or a decline in future trade (�gure 5.5). Standards While the results may merely reinforce the “large �rm op- COMPLIANCE MEAN % timism,� �gure 5.6 indicates that the highest level of opti- REQUIREMENT mism about future growth comes precisely from companies DROPPED VOLUNTARILY that are supplying higher-end markets for which food safety DROP OUT compliance is most emphasized. The majority of companies No customers 8.8% 6.4% (6.5) (4.8) supplying nonstringent markets signal that they expect only Minority of customers 7.9% 4.5 moderate gains or no change in their future trade. Does this (5.4) (3.6) imply that certain markets are expected to experience little Majority of customers 17.2 15.7% or no growth? Or, do these responses reflect a lack of con- (16.4) (28.2) �dence by these �rms that they will be able to meet new Total 12.2% 9.9% requirements, should their current buyers require them? This (12.3) (19.1) question wasn’t directly explored, although as noted earlier, Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. only a small proportion of companies now serving customers who don’t enforce food safety standards expect this situa- tion to noticeably change in the near future. for companies whose major customers are enforcing food safety requirements. Nearly one in three smallholder farmers Expectations about future procurement arrangements vary is either dropped by the company or voluntarily drops out by company. Overall, the picture painted by the respondent of the relationship. Problems of noncompliance and tensions companies is not negative for smallholders. Some two-thirds over the responsibilities for compliance and the bearing of of companies expect smallholders to directly provide the requisite costs and risks undoubtedly are contributing to this same or a larger volume of their main crop in the future (�g- phenomenon. ure 5.7). However, if use of intermediary channels does in fact contract, then the overall level of smallholders involved What are the surveyed �rms’ expectations for the future? in export supply channels may show little gain. Medium-scale The majority of �rms are optimistic about the future growth outgrowers are expected to have a similar or increased role of their business, including the trade in their leading export in the future, while company-owned production is generally product. The degree of optimism seems to be correlated expected to increase. FIGURE 5.5: Expectations of Future Changes in Volume of Leading Product Export by Firm Size 60 50 % of respondents 40 30 20 10 0 Increase Increase No change Decline Decline significantly somewhat somewhat significantly Small Medium Large Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. MA K ING TH E GR A D E P R I VAT E “ B UY E R � P E RSP E CT IVE S ON ALT ERN ATI VE SOUR C ES OF SUPPLY 77 FIGURE 5.6: Expectations of Future Changes in Volume of Leading Product Export by Whether Customers Required Compliance with Private Food Safety Standards 60.0 50.0 % of respondents 40.0 30.0 20.0 10.0 0.0 Increase Increase No change Decline Decline significantly somewhat somewhat significantly Require compliance Do not require compliance Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. FIGURE 5.7 Expected Change in Volumes of Main Product Exports Sourced Through Alternative Supply Chains 120 100 80 60 % 40 20 0 Traders, Small-scale Medium- Own/leased Other Other wholesalers, producers and farms exporters and other large-scale intermediaries producers Increase No change Decrease Source: Calculations based on data from Internet-based survey of fresh produce exporters in SSA—July to September 2008. E C O N O M I C AND S E CT OR WORK 78 C H A PTER 5 CONCLUSIONS capability to cost-effectively procure from this source and This chapter has reported results from a 2008 survey of ensure that supplies meet their and downstream require- African fruit and vegetable exporters, with an emphasis ments—there are likely to be ample opportunities for remu- placed on the changing structure of their fresh produce pro- nerative involvement by smallholders. Indeed, a majority of curement arrangements and the underlying factors driving respondent �rms, including companies who supply standards the decisions to “make or buy� and from whom to buy. The stringent markets, expect to either maintain or increase the �rms responding to the survey had a reported export vol- volumes of supply that they obtain from smallholders in the ume in 2007 accounting for some 88 percent of sub-Saharan future. Africa’s fresh produce exports, outside of South Africa. These For the smallholder pessimists, who believe that standards �rms and their procurement arrangements thus substantially will continue to marginalize the role played by smallholders reflect the aggregate picture for trends and perceptions in in this sector, certain supportive evidence can be found from this industry. this survey. For example, the overall numbers of smallholders The results of this survey provide supportive evidence both reported to be supplying the main product to the respondent for the optimists and pessimists regarding the prospects �rms did decline from 2002 to 2007, with signi�cant propor- for continued smallholder participation in Africa’s fresh pro- tional declines in the procurement arrangements for both duce export trade. For the optimists, there is evidence that small- and medium-size companies. Noncompliance (or rising many exporters see the bene�ts of continuing to work with costs associated) with emerging standards may have played smallholders. Most exporters have developed and re�ned a some role in this, although other factors were certainly also procurement system built on a combination of make and buy, involved. Very high levels of turnover of smallholders involved with direct (and sometimes indirect) sourcing from small- in the procurement for all size categories of companies does holders being a critical part of the “buy� portfolio, especially not suggest a stable structure in which both producers and for labor-intensive crops. Exporters are well aware of the �rms develop trust and promote the upgrading of productiv- strengths and limitations of sourcing from smallholders—yet ity and the application of good agricultural practices. There also understand the constraints and risk involved in sourcing appears to be much fluidity in smallholder participation, with large quantities of produce from their own farmers and from a considerable level of entry, exit, and shifts in involvement those of larger outgrowers. Large companies, in particular, between one �rm or another. Export-oriented horticultural have continued to substantially draw upon smallholder sup- production entails quite a bit of production and commercial plies. These companies account for the bulk of Africa’s fresh risk. If a large proportion of smallholders are engaged in this produce exports. Region-wide, probably no more than 40 activity only periodically or as “free agents,� not immersed in companies account for a large majority of Africa’s trade. To the management systems of leading or long-standing com- the extent to which these companies continue to see the panies, then the prospects for remunerative and sustainable strategic advantages of smallholder sourcing—and have the participation are not strong. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 79 Chapter 6: CASE STUDIES: UPGRADING FOR THE DOMESTIC MARKET AND FOR TRADITIONAL EXPORT COMMODITIES INTRODUCTION Case 1: “Let the Sun Shine In�: Quality Upgrading and This chapter provides a series of short case studies address- Improved Market Links in Uganda’s Sunflower ing challenges and experiences of upgrading quality, food Subsector safety, and other standards in supply chains involving African Case 2: “Milking Opportunities� in Informal and Formal smallholder farmers. The foci here are on supply chains for Dairy Value Chains selected (agro-industrial) domestic markets and those involv- Case 3: Brewing Up Productivity and Income Gains ing upgrades of traditional (bulk) export commodities. The Linked to Sorghum policy dialogue on standards and African agriculture (and Case 4: Africa’s Groundnut Trade and European Union trade) has often been dominated by attention to market (EU) Mycotoxin Standards access problems into some of the world’s most discerning Case 5: Rwanda—Gaining a Place in the “Specialty� markets—including those for fresh fruits and vegetables Coffee Market and involving high-end (northern) European supermarkets— providing a very narrow and, frequently, negative picture of the role of standards, typically characterizing them as trade CASE 1: “LET THE SUN SHINE IN�: QUALITY or market “barriers.� In that high-flying world, standards are UPGRADING AND IMPROVED MARKET typically cast as a constraint, a source of added costs and LINKAGES IN UGANDA’S SUNFLOWER risks, and as a gatekeeper through which few African small- SUBSECTOR holders can pass. Sunflower was introduced in Uganda in the 1920s. By the This, of course, hardly represents the full spectrum of mar- 1960s, it was widely grown throughout the country, with kets and “buyer requirements� that African smallholders the crop variously being promoted by private, cooperative, do or could encounter. This chapter seeks to bring this dia- and religious organizations. After a period of civil disorder, logue a bit down to earth, highlighting a series of examples the Government of Uganda (GoU) led efforts to revitalize the where the pertinent standards are within close reach of sector in the late 1980s, including through the release of an African smallholders and the market intermediaries with improved open-pollinated variety—Sunfola—which had been whom they trade. Not all the cases are success stories or developed by the National Agricultural Research Organization ones where the sustainability of evident progress is assured. (NARO). Most of these cases highlight attempts and challenges to Sunflower is grown primarily in Uganda’s northern and east- upgrade production and postharvest systems from baselines ern regions, areas where the majority of Uganda’s poor are resembling level 1 in our conceptual framework to a status located. Boosting sunflower production was therefore seen resembling either level 2 or 3 in that framework. It is our by the GoU and several donors as a prospective poverty-re- contention that in relation to the large majority of African duction tool. At the same time, domestic demand for vegeta- smallholders, this space is really “where the action is� or ble oils was growing rapidly, with a high level of dependence should be from a development assistance perspective given on imported products. Increased sunflower production could the potential to involve large numbers of farmers, the gener- thus contribute to import substitution. ally higher rates of success, and the potentially very large welfare gains associated with improving product quality and Over the past decade, a number of development agencies food safety in domestic markets. The cases presented here have supported interventions in Uganda’s sunflower sub- are the following: sector, sometimes in collaboration with GoU entities and E C O N O M I C AND S E CT OR WORK 80 C H A PTER 6 sometimes with more directed support to private-sector pro- farmers. Yet, by the early 2000s the company was facing cessors. The collective experience has generally been posi- dif�culties procuring adequate local raw materials in compe- tive, with achievements in technology adoption, production tition with numerous small- and medium-scale processors. expansion, farmer welfare gains, and import substitution. In addition, the company was dissatis�ed with the quality Upwards of 85,000 smallholder farmers have been incorpo- characteristics of the Sunfola variety. rated into one or more coordinated supply chains. The sus- tained progress in this subsector contrasts sharply with the In 2003, Mukwano worked in collaboration with the variable results and more volatile experiences of Ugandan Investment Development Export Agriculture project of the farmers being supported for higher-value supply chains. The U.S. Agency for International Development (IDEA/USAID) simple upgrades involved here—centered primarily upon the and the Serere Agricultural and Animal Production Research use of improved seed varieties and some modest tasks of Institute (SAARI)70 to introduce a high-yielding, high-oil con- quality screening—represent relatively easy steps that can tent sunflower hybrid from South Africa (PAN 7351). Based be taken by most smallholder farmers. While the rewards on the success of the initial efforts, the company established for individual farmers are not exceptionally high, they have a partnership with the Agricultural Productivity Enhancement proven to be reliable, and the changes have not burdened Program (APEP/USAID) and the National Agriculture Advisory farmers with added risks. Overall, the costs of achieving Services (NAADS) in 2004, to expand the distribution of seed quality upgrades by these farmers have been very modest to outgrowers, and it set a coordinated company procurement on a per bene�ciary basis, especially when compared with model geared toward raising farmer productivity, imparting many other recent schemes to raise standards in Ugandan knowledge about better farmer practices and lowering the agriculture and trade. transaction costs in its procurement. Mukwano relied on NARO to conduct the adaptability and Selected Intervention Experiences veri�cation tests of the new variety. Under the partnership The International Fund for Agricultural Development (IFAD) with the institutions, the �rm was in charge of the overall has been supporting Uganda’s sunflower subsector for an direction of the project, while the institutional support from extended period. Its Vegetable Oil Development Project APEP and NAADS focused on showing the bene�ts of both (VODP), implemented by the Ministry of Agriculture, Animal low- and high-technology input packages, training lead farm- Industries, and Fisheries (MAAIF), provided support be- ers and site coordinators to manage the process, and deliver tween 1998 and 2008. Major foci of the program included messages to farmers on good agronomic practices through adaptive varietal research by NARO, planting seed multiplica- demonstration plots, and also via a weekly radio program tion and distribution and the mobilization of farmer groups (USAID 2008). APEP was implemented through a producer (through the Uganda Oilseeds Producers and Processors organization/lead farmer extension model, which was the ba- Association—UOSPA), extension support through District sis for the support to sunflower production as well. By 2006, Agricultural Of�ces, and the promotion of small-scale sun- there were some 2,244 demonstration sites and 31,291 reg- flower oil pressing. Considerable progress was achieved on istered farmers in the scheme. Quite a few of the farmers the agronomic and group organization aspects, although the had earlier been supported and organized into groups under experience in promoting the ram oil press technology was the VDOP. The company entered into purchase contracts more mixed, with many of the introduced machines being in with the farmer groups, with predetermined prices. A team disuse by the end of the program (IFAD 2010a). An alterna- of purchasing agents was hired by the company to coordi- tive to the Sunfola variety did not emerge from the research. nate extension services, and purchase and store the crop. That variety had good production characteristics yet relatively By 2009, the company was employing some 200 of its own low oil content and therefore was less attractive to large- extension workers. scale vegetable oil processors. The company procures all its local raw materials from small- Since the early 1990s, the leading company in the vegetable holders, with farmers having an average growing area of oil sector has been the Mukwano Group, which has used a 1.1 hectares (Elepu and Nalukenge 2007). The estimates on combination of imported crude palm oil and domestic raw the number of contracted farmers vary, but the number is materials to produce a range of consumer products. For certainly signi�cant. In the northern districts of Lira, Otuke, many years, Mukwano sourced local raw materials on a spot market basis and largely through intermediaries as it lacked 70 Currently known as National Semi-Arid Resources Research In- a presence in rural areas or experience working directly with stitute (NaSARRI). MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 81 Oyam, Kole, and Alebtong, the company estimates the num- tons of sunflower seed per year. Investments in the scheme, ber at 52,000 and expanding.71 Another report estimates the from APEP alone, through grant agreements with the com- number of outgrowers involved in various schemes at 75,000 pany are estimated at US$85,000 during the period 2004–07, to 85,000 (Elepu 2009). Most recently, Mukwano has been to support nearly 1,600 demonstration sites.72 Support to introducing maize and soybeans among its outgrowers as SAARI reached about US$12,000 for the evaluation, identi�- rotational crops, complementing cash crops with food crops, cation, and introduction of the high-yielding hybrid. In 2007, in order to address concerns on food security. the project supported the efforts of a new investor, Sanyu Agro Industries Ltd., through a grant agreement (US$18,300) While the scheme has generally been successful, it has not to set a sunflower scheme for 3,000 outgrowers in 2007–08. been without problems. For example, in the early years, APEP also supported A.K. Oils & Fats Limited from 2005 some farmers did not do a proper grading of their sunflower to 2007 through grants totaling nearly $75,000 to develop crop and included extraneous materials (e.g., dirt, stones) in 2,900 demonstration plots for high yielding hybrids. Those their deliveries. A combination of incentives, penalties, and plots targeted over 30,000 outgrowers. increased quality inspections at collection stations largely re- solved this problem. Side-selling has been a persistent issue, Overall, sunflower production in Uganda has increased dra- as the demand for sunflower seed among various processors matically since the early 1990s (�gure 6.1). A major leap oc- still substantially exceeds local production. Mukwano esti- curred in the early 1990s, which coincides with the efforts mated that some 40 percent of its contracted supply in 2007 to upgrade production through the adoption of the improved was sold to competing companies. Inadequate access to variety Sunfora, resulting in signi�cant increases in yields—in the higher-yielding seed has remained a bottleneck. The Pan the late 1990s the national average yield doubled, increasing 7351 hybrid variety continues to be imported, with Mukwano from 400 kg/ha to over 800 kg/ha. A second leap occurred al- being the main importer. In 2007, the company entered into most a decade later as a result of the activities promoted by a partnership with the Uganda National Agro Input Dealer’s donors as mentioned above, including the efforts to upgrade Association (UNADA). Through the partnership, Mukwano production toward the higher-yielding variety. Domestic de- agreed to make available imported hybrid seed to UNADA’s mand for vegetable oil continues to grow rapidly at some regional distributors for sale to millers around the country. 9 percent per annum (IFAD 2010b).73 Thus, there remains The Danish International Development Agency (DANIDA) considerable scope for further expansion of outgrower ar- provided guarantee for UNADA to purchase the hybrid seed rangements since the processing sector is still operating at from Mukwano. well below its capacity and must still rely upon imported raw materials to supplement local supplies to meet the growing demand. There are also broad opportunities to expand yields. Evidence of Impact For example, APEP reported that in spite of demonstrated Interventions, both through institutional partnerships and yield enhancement and cost reduction associated with high- through the lead �rm, have provided opportunities for small- input production technologies, their adoption by farmers was scale producers to engage in the production of sunflower. very low—of the about 34,354 farmers exposed to the pro- The increased supply of Sunfola seed to farmers, on which gram, only 172 adopted high-input production technology, VODP played a critical role, had a clear effect on expanded and about 30,919 adopted low-input technology.74 cultivation. According to IFAD (2010a), the area planted with sunflower with VODP support rose from 2,102 ha in 1998/99 to 81,548 ha in 2007–08. The number of farmers reached with the program was estimated at about 206,943 in 2008, 72 APEP estimated the company’s matching contributions at about with investments in the sector (from the IFAD loan) reach- $285,000. ing over US$8 million, and a project cost per bene�ciary of 73 The sector has bene�ted from important recent investments. US$37. For example, in 2007 A.K. Oils & Fats (U) Ltd (af�liated with the Mukwano Group) constructed a new oil mill in Lira, with an Mukwano has indicated that about 40,000 hectares are investment of approximately US$1.4 million, doubling the com- pany’s capacity, and also another plant in Tanzania. In 2009, a planted by its outgrowers, yielding some 40,000 to 50,000 new sunflower oil processing plant opened in Uganda, mainly for production of sunflower cake, with a very large processing capacity (around 100,000 tons of sunflower cake annually). 71 Northern Uganda’s New Agricultural Chapter, July 2010. Muk- 74 Low-input production technologies comprise basically the use of wano’s website http://www.mukwano.com/agriculture/agric_in_ hybrid seeds, timing planning and weeding, correct plant density, nothern_ug.php and so forth, but relatively low or no use of fertilizer. E C O N O M I C AND S E CT OR WORK 82 C H A PTER 6 FIGURE 6.1: Uganda Sunflower Production and Yields 250,000 1,400 Production (tonnes) 1,200 200,000 Yield (Kg/Ha) 1,000 150,000 800 600 100,000 400 50,000 200 0 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Calculations based on FAOSTAT data. For farmers there have been evident bene�ts from par- through improved seeds and farming practices have certainly ticipating in the sunflower outgrower schemes. A survey paid off. Although there are many challenges ahead, including by Elepu and Nalukenge (2007) found participating farm- concerns about soil fertility, ensuring the sustainable distribu- ers to have much better access to advisory services and tion of hybrid seeds, and �nding the right balance between reliable market outlets than did nonparticipants in similar cash and food crop production, there are certainly positive locations. The incremental incomes from sunflower haven’t prospects for the sector and the engagement of more farm- been exceptionally high, but yields have been relatively reli- ers. IFAD is planning a second phase VODP, and USAID’s able and prices are determined prior to plantings. Elepu and new investment in Uganda—the Livelihoods and Enterprises Nalukenge (2007) found reported gross pro�t per acre to be for Agricultural Development (LEAD) project that started in signi�cantly higher among the farmers participating in the 2008—has continued its support to sunflower outgrower contract scheme than the noncontracted farmers growing schemes. sunflower (USh 20,456/acre vs. negative 7,775/acre). This experience provides an excellent illustration of the op- APEP reported increased yields from adoption of hybrid seed portunities for achieving both commercial and developmental (and low input technologies) from 250–350 kg/acre with the bene�ts from interventions seeking to upgrade smallholder traditional variety to 575–600 kg/acre with the improved production from levels 1 to 2 in our conceptual spectrum system during the 2006/07 season, and net incomes consid- of market requirements. The technical and organizational erably higher among farmers adopting the hybrid. Similarly, challenges were straightforward. The scale of �nancial the impact evaluation of VODP project carried out in 2008 investment by donors and the GoU—largely in research, reported the emergence of the contracting scheme as one demonstration plots, advisory services—was rather modest of the factors affecting the performance of the project—the in relation to the number of farmer (and Ugandan consumer) adoption of the new variety produced a higher yield and com- bene�ciaries and the scale of production gains achieved. manded a higher price than the open-pollinated variety (OPV) Sunfola being distributed by VODP and was thus more pro�t- able for farmers.75 75 The project also highlighted that as a result of the adoption of hybrid seed, both the market for sunflower seed and the sup- Development agency and private sector efforts to promote ply of extension services became more diverse and the VODP- smallholder sunflower production and upgrade quality supported products became less attractive for farmers. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 83 Farmers were required to make very modest adjustments. experiences with dairy sector interventions in Kenya, Uganda, They were not asked to bear heavy �nancial or commercial and Zambia. It emphasizes that the traditional challenges risks. No third party was needed to certify products or pro- in smallholder dairying—related to animal husbandry, farm duction practices. productivity, and realizing economies of scale in milk bulking and sale—remain the prominent focus and that there is little evidence to suggest that smallholders have been excluded CASE 2: “MILKING OPPORTUNITIES� IN from formal markets due to quality-related concerns. In fact, INFORMAL AND FORMAL DAIRY VALUE CHAINS76 processors have been unable to source enough smallholder In recent decades, there has been a growing interest in the raw milk—and therefore, continue to operate at below ca- potential of smallholder dairy development to reduce poverty pacity—not because of quality mismatches but because the in developing countries via income and nutrition improve- processors frequently cannot compete with informal market ments. Even among the lower-end smallholders, holding just channels on the basis of price and the transaction costs as- one dairy cow is acknowledged to have signi�cant bene�ts in sociated with sales. terms of household nutrition and supplemental income gains (IFAD 2005; Swanson 2009). Following the liberalization of Challenges of Smallholder Dairy Development and the the sector in much of sub-Saharan Africa (SSA) during the Importance of Quality and Safety Standards 1990s, smallholder dairy production has shown signs of con- Public standards, whether mandatory or voluntary, covering siderable dynamism. Region-wide, smallholders are estimat- milk and milk products, have been driven by concerns over ed to account for about 80 percent of raw milk production, public health and by a conviction that ensuring the safety of the balance coming from medium- or large-scale commercial dairy products is a fundamental role of the state.78 But the farms or integrated farming/processing operations.77 pursuit of consumer protection objectives by encouraging During the past decade, there has been growing concern the formalization of milk trade implies signi�cant challenges, about the ability of African smallholders to sustain a remu- particularly as it relates to the implied required changes in nerative position in national dairy value chains. One factor production and handling practices to ensure quality milk. has been competition from imported milk powder, being Additionally, other challenges include putting in place ef- widely used by processors due to logistical considerations (in �cient and well-coordinated logistical arrangements along contrast with procuring highly perishable raw milk). A second the chain to avoid quality deterioration and investments in factor has related to standards, those laid down and enforced infrastructure and technologies (including cooling systems). by both governments and the private sector. Governments A failure in the process can easily compromise the quality of have sought to protect consumers from the potential risks the pasteurized milk and related dairy products. associated with improper milk production, handling, and adul- Dairy production is generally regarded as a very expensive teration. Elements of the private sector, including processors activity. In the case of smallholder dairy development, a selling milk through modern supermarkets and companies major challenge is the high farm-level start-up cost. The producing higher value dairy products, have raised quality value of dairy livestock often accounts for 50 to 70 percent standards above the prevailing norm. of total investment costs, which can be particularly dif�cult Addressing these challenges—and taking advantage of for small-scale farmers to afford without external support or emerging market opportunities—has stimulated an array access to arti�cial insemination services to upgrade existing of donor-supported programs in dairy development within animals through breeding. Once a smallholder has been able Africa, often implemented with close collaboration with the to engage in dairy activities, the level of upgrade required private sector. This mini case study highlights some recent to participate in formal markets will be associated with the 78 Public approaches to provide consumer protection on the con- 76 Detailed information on this case study is presented in Keyser, J. sumption of milk and milk products have included i) recommen- (forthcoming). dations on the proper hygienic control of milk and milk products 77 Although smallholders involved in dairy production might not be throughout the food chain, ii) the publication of speci�cations the poorest, they are certainly both poor and disadvantaged. In for the quality of milk, according to its intended use, including Kenya, for example, the average dairy farm size is 2.6 ha and microbiological and other criteria, iii) procedures for testing and supports six people; a quarter of these households are female- analysis, and iv) in several countries, speci�c provisions for the headed. The mean number of cattle is only three, but for about marketing of raw milk, including the banning of informal raw milk half the farms dairying is a major source of income. trade, particularly in urban centers. E C O N O M I C AND S E CT OR WORK 84 C H A PTER 6 TABLE 6.1: Continuum of Market Requirements and Associated Conformity Systems in Milk and Milk Products STRINGENCY OF OFFICIAL AND BUYER REQUIREMENTS LEVEL OF SOPHISTICATION OF THE CONFORMITY ASSESSMENT SYSTEMS DAIRY LEVEL 1 DAIRY LEVEL 2 DAIRY LEVEL 3 DAIRY LEVEL 4 DAIRY LEVEL 4a Market Outlets Informal Formal (increasing requirements for capital investment, Local sales by farmers Sales to urban and town Sales to urban and town Processor (domestic, Processor (COMESA/EAC inspection, and licensing or unlicensed vendors to markets by unlicensed markets by licensed some current exports) export ready) as move from left to right customers in the farm traders, vendors, milk traders, vendors, milk on continuum) area shop owners shop owners + licensed Milk from level 3 bulking Milk from advanced bulking centers center or own milk run bulking center or own milk run Main Products Raw Milk Processed Milk (increasing standards for hygiene and freshness as Raw milk Raw milk Raw milk + processed Pasteurized milk UHT milk, dry milk move from left to right on yoghurt, ghee, cheese, (including fermented powder, plus other continuum) fermented milk milk), yoghurt, butter, long life, value-added ghee, cheese, ice cream, products at COMESA/ Some batch pasteurized cream, UHT, dry milk EAC export level milk powder, etc. Quality Requirements Fresh milk, quick delivery Fresh milk, quick delivery Fresh milk, some chilling Fresh milk, chilling to Fresh milk, consistent w/o chilling w/o chilling to prolong life if needed prolong life as required chilling to prevent bacteria growth essential Certi�cation and licens- More advanced national ing by national authority level certi�cation and + detailed speci�cations licensing requirements for product, packaging, that are variably based labeling, composition, on ISO and HACCP guide- and laboratory analysis lines for milk hygiene and using ISO methods timeliness of intake Quality Inspection Sight and smell Sight and smell Sight and smell 3-4 routine platform 3-4 routine platform tests tests at bulking center at bulking center and + occasional platform + wider range of routine and other critical control all other critical control tests platform tests points (ideal) points (needed) + basic record keeping of + more detailed quality + very detailed quality milk intake and payments analysis at plant (ideal) analysis and record to farmers keeping at plant (required) Source: Keyser, J. (forthcoming). characteristics of the targeted market (as determined by the are the essential requirements. At the other end of the intended use of the raw milk—yogurt, cheese, UHT milk, spectrum, for supply chains in which the procured milk will etc.), as well as by the starting point of the farm in terms of be converted into milk powder or UHT milk, the range and knowledge and investments already made to improve dairy stringency of quality criteria are considerable. Raw milk with productivity and to ensure quality and safety. a total bacteria count greater than 200,000 cfu/ml is unsuit- able for UHT production. Similarly, the sophistication of con- Table 6.1 outlines �ve levels of upgrading in dairy develop- formity assessment systems varies across this spectrum of ment, applying the generic framework laid out earlier in markets and users. Chapter 3. Buyer requirements for freshness, shelf life, physical quality attribute, and microbiological quality become As farmers move from level 1 to level 2 value chains and increasingly stringent as one moves from informal to for- then beyond, the costs associated with quality upgrading mal markets and as end uses relate more to value-added increase and can be dif�cult for farmers to afford in terms products. In local outlets, where raw milk is sold for direct of up-front cash requirements as well as managing the de- consumption, the freshness of the milk and its quick delivery preciation of their assets. Data from the three focal countries MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 85 illustrate the higher production costs of moving toward “im- Very often, the bulking function in formal dairy systems is proved� and “advanced� dairy production, yet also clearly carried out by farmer-owned cooperatives, although this may indicate a higher level of pro�tability for those farmers able be performed by private entrepreneurs or even processors to make the upgrades (table 6.2). as part of a vertically integrated milk run in areas where there is large enough production and/or strong competition for raw Off-farm upgrades become especially critical for farmers milk to justify the investment. Bulking systems without chill- to supply levels 3, 4, and 4a value chains. Normally, there ing are more common in Kenya than in Uganda and Zambia will be the need for investment in a raw milk bulker, except due to the very large volumes of milk produced in Kenya and where farmers are in close proximity to a dairy plant or when the proximity of farmers to a processing plant, particularly in their daily production is large enough to justify direct deliv- the leading production regions. Where cooling does not take ery. At such milk bulking sites quality assurance can be done place, Kenyan dairies have developed ISO-certi�ed systems through routine platform tests. In level 2 value chains for to monitor the timeliness of delivery and record platform test raw milk, the bulking function is typically carried out by small results at each stage of the collection and delivery operation. traders or bicycle vendors who buy direct from smallholder In Uganda, nearly all milk that reaches a processing plant farmers and sell to �nal consumers or other intermediaries has been chilled and, in Zambia, chilling is absolutely essen- on a daily basis. These informal markets depend on quick tial because of the dispersed nature of production and time turnover and are unlikely to involve milk chilling except when required to collect suf�cient quantities to justify selling to a long delivery times are involved that would cause the milk dairy processor. to spoil. TABLE 6.2: Costs and Returns of Smallholder Dairy Upgrades in Selected Countries PRODUCTION COSTS (USD) FARMER REVENUE (USD) TOTAL MILK AVAILABLE TOTAL COST COST PER COST PER TOTAL NET NET PROFIT TOTAL PROFIT FOR SALE PER HERD COW LITER SOLD PROFIT (CASH FROM MILK PER COW (LITERS/YR) & IMPUTED) SALES (CASH (CASH & ONLY) IMPUTED) Kenya (3-cow) Typical 5,448 1,944 648 0.36 39 (148) 13 Basic 6,229 2,085 695 0.33 152 (56) 51 * Improved 9,060 2,945 982 0.33 944 441 315 * Advanced 14,269 4,026 1,342 0.28 1,564 874 521 Kenya (6-cow) Typical 7,533 2,385 398 0.32 463 255 77 Basic 9,015 2,545 424 0.28 734 505 122 * Improved 11,785 3,430 572 0.29 1,595 1,187 266 * Advanced 17,193 4,941 824 0.29 2,193 1,742 366 Uganda (3-cow) * Basic 4,177 1,131 377 0.27 321 (122) 107 * Improved 7,843 1,623 541 0.21 638 100 213 * Advanced 11,754 2,007 669 0.17 931 360 310 Zambia (1-cow) * Basic 617 394 394 0.64 586 (209) 586 * Recommended 1,932 649 649 0.34 926 (97) 926 * Advanced 3,037 902 902 0.30 1,099 52 1,099 Zambia (2-cow) Basic 1,564 657 328 0.42 1,214 (188) 607 Recommended 4,269 1,193 596 0.28 1,843 27 922 Advanced 6,509 1,678 839 0.26 2,213 368 1,106 Management assumptions Kenya, zero-graze: breed improves at each level, switch from plastic to metal. Uganda, zero-graze: breed improves from typical to improved (same for improved and advanced). Zambia, semi-zero graze: high-quality breed throughout. * Indicates metal dairy equipment Source: Keyser, 2003 (Uganda), Keyser, 2008 (Zambia), Parsons and Matiru, 2008 (Kenya). E C O N O M I C AND S E CT OR WORK 86 C H A PTER 6 The costs of establishing an ef�cient milk bulking operation of informality is the result of the proliferation of small-scale can be signi�cant. Large investments in stainless steel dairy (and technically illegal) milk traders after liberalization, with equipment, cooling tanks, quality test kits, insulated tankers, these suppliers being able to provide milk more cheaply and and new or upgraded buildings may be required.79 Signi�cant more directly to large numbers of consumers. In Uganda, the investments in business management training and quality formal sector is estimated to handle only 5 percent of the control procedures may also be required. It is not unusual for milk that is domestically marketed or consumed. milk bulking centers in East Africa to have an annual turnover In both Kenya and Uganda the of�cial government policy has greater than a million dollars, which imposes signi�cant man- been to restrict the activities of small-scale milk vendors, os- agement demands. Operation of a competitive milk bulking tensibly to protect consumers. In Kenya, for example, such system, in fact, creates a number of important management vendors cannot operate unless they are licensed, yet the ex- problems in terms of having to keep track of farmer pay- isting regulations made no provisions for licensing or engag- ments, deciding where to market the milk to get the best ing them (Kaitibie et al. 2009). In Uganda, milk handlers have price, how to organize the logistics of milk collection and faced tight laws and licensing requirements since 2002 and delivery, quality assurance, and long-term �nancial planning the national authority is looking at legislation that would com- to cover depreciation costs and future expansions. pletely ban the sale of raw milk in urban areas. However, due For processing upgrades, there are several technological op- to the high demand for cheap, raw milk, the informal sector tions for the preservation or processing of raw milk, from has continued to flourish in both countries, making it almost very basic small-scale systems—level 3-type technology, impossible for the respective authorities to enforce the laws, with little asset-speci�city involved—to very complex pro- given the size of the sector. In Kenya in particular, this situ- cesses and higher investments in facilities and equipment ation gave rise to what was called the “milk war� between (e.g., the production and packaging of long-life UHT milk and processors and the informal sector. This was a dispute that evaporated milk powder for domestic markets and export later resulted in a comprehensive policy shift toward small- require more sophisticated capital-intensive techniques and scale milk vendors, as will be discussed later. specialized skills, so are associated greater economies of The evident dynamism of the informal milk trading sector scale and higher degrees of asset speci�city (Jaffee, 1995)). represents a tremendous challenge for processors, who Furthermore, speci�c quality requirements can be particu- have made signi�cant investments in plant and equipment larly challenging in some higher-end products. yet are forced to compete with informal channels to gain enough supply of quality milk to expand their market pres- Characteristics of Country Industries and the Relevance ence, both at home and regionally. Most processors in both of Standards Kenya and Uganda operate at well below their installed Since economic liberalization and the privatization of state capacity and have little scope to compete with small-scale dairy-related functions, a vibrant small-scale sector has traders on the basis of price because of the extra costs of emerged in Kenya and Uganda. In Kenya, some 750,000 their operations, including expensive packaging costs. As a smallholders are involved; in Uganda, about 200,000. In both result, they are rarely able to pay a signi�cant premium for of these countries, most milk production has been tradition- higher-quality milk, and this detracts from the incentives for ally sold through informal channels. In Kenya, for example, farmers to supply the former sector.80 the International Livestock Research Institute (ILRI) esti- mates that informal milk markets account for approximately Thus, from the standards perspective, clearly, in Uganda and 86 percent of milk supplied to consumers, with supply chain Kenya, where a large informal sector exits, standards have actors including small-scale producers, mobile milk traders, not been a constraint for smallholder market access. The is- milk bar operators and milk transporters. The high degree sue has not been exclusion due to standards, but rather a lack of incentives motivating farmers to make upgrades to supply formal markets, allowing processors to take advantage of growing demand for dairy products at home and in regional 79 In Kenya, the capital equipment required for a typical bulking center with 4,000-liter daily capacity is estimated to be around US$40,000 without chilling tanks or US$80,000 with these (Key- ser 2006). In Zambia, the cost of opening a new collection center 80 There are 52 milk processors in Kenya, although in early 2009 with a small 1,500-liter cooling tank is around US$30,000 (Keyser only 34 were active. There were 7 large processors active in 2006a). Uganda in 2009. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 87 markets. In the context of informal markets, in Kenya for ex- purpose, the access to arti�cial insemination (AI) services ample, under the new provisions of the Dairy Act, the burden was considered critical. Product quality came as a speci�c of compliance is passed on to traders who now need to be project objective in the early 2000s, with approaches target- trained and certi�ed and make small investments in testing ing farmers through cooperatives or other groups. These equipment to be able to supply quality milk to the market. In approaches extended to value-chain frameworks, targeting Uganda, the fact that the formal sector has not been able to improvements along the chain, using different entry points capture a signi�cant share of the market due to constraints to enhance the capacities of different actors and the overall at milk collection and processing levels, has limited the op- performance of the chain. portunities to reduce milk waste and contribute to income stabilization, as fluctuations in prices between dry and rainy Many of the more recent projects have been based on a seasons can reach 60 percent or more. Business Service Development (BSD) model in which farm- ers were provided improved understanding of and access In contrast to Kenya and Uganda, dairy production is much to selected services (e.g., AI services) and quality inputs less developed in Zambia and is a comparatively new activ- (e.g., feeds, veterinary drugs) and the capacities of service ity for smallholder farmers. It is estimated that about 1,700 providers was strengthened. One example was the DFID- smallholders sell into commercial supply chains. The entire supported Business Service Market Development Program smallholder output in 2008 was of a similar volume as the (BSMDP), which supported farmer links to both informal and raw milk handled by many individual collection stations in formal supply chains. Several service hubs were established Kenya and Uganda. In Zambia, dairy developed from large for milk bulking and chilling, regional AI stations were estab- investments, both in production and processing capacity. lished, and support was given to agricultural input stockists. The challenge of dairy development in this industry has been to scale-up domestic production to ful�ll growing demand. USAID has supported the sector, most recently through its Considerable amounts of powdered milk must be imported Kenya Dairy Development Program (KDDP) and the Kenya by the lead processors due to inadequate local availability of Dairy Sector Competitiveness Program (KDSCP). The latter raw milk. From the perspective of smallholders, the challenge emphasized the creation of sustainable local businesses, co- has been to achieve economies of scale—in production and operatives, and enterprises to provide services for improve- bulking—and the quality required to become an attractive ments in market expansion, cost competitiveness and pro- procurement option for the large-scale processors. ductivity. Complementing this approach, several programs have focused on quality improvements, providing access to chilling equipment to reduce spoilage and increase milk sup- Development Agency Approaches to Smallholder Dairy plies and incomes. For example, the KDDP developed the Support and Associated Compliance Challenges “Milk Quality System�—a kit containing six real-time cow- The challenge of smallholder dairy development has been side technologies—as an alternative to centralized laborato- seen by development agencies through two distinct lenses. ries that use complex, nonportable, and expensive analytical One is a commercial lens, with the aim being to enable equipment. small-scale farmers to supply more discerning market chan- Lessons have been learned from these experiences and nels (i.e., levels 3 to 4a) and, in so doing, contribute to higher examples of good practice have been identi�ed and repli- levels of ef�ciency of the industry and increased regional cated. For example, the experiences of Land O’Lakes with trade. The second is a poverty reduction lens, with the aim cooperative business services and TecnoServe with “service being to support farmer participation in level 1 and 2 value hubs� are now being replicated by other donors in Kenya chains, recognizing the incomes gained by producers as well and throughout the region. “Milking/service hubs� are places as the bene�ts for poor consumers. where milk can be bulked, cooled, and marketed. The centers Kenya—In Kenya the dairy sector has been subject to con- link the farmers to processors and develop businesses that siderable donor investments. Some US$40–50 million has ensure a steady, cost-effective supply of goods and services been committed by donors to support the sector since 1997, to farmer groups. A key aspect is to link these chilling plants/ excluding recent commitments within regional projects. business hubs to �nancial institutions to help the entities Approaches to commercial dairy in Kenya have evolved from with their (substantial) �nancing needs. The service centers farmer-based approaches in the 1990s toward market-orient- focus on creating incentives to small farmers and traders, to ed approaches in the early 2000s, with farm improvements encourage them to invest in better production practices and focusing on improving the quality of cattle stock. For this improved technologies (including animals). E C O N O M I C AND S E CT OR WORK 88 C H A PTER 6 Thus, in Kenya, it is apparent that within the context of sup- “business groups� as the entry point for intervention, but, port to dairy development, collective action through “service importantly, relies on a step-wise process to strengthen hubs,� as the entry point for channeling support to smallhold- farmer groups, complemented by investments in training ers and a practical donor exit strategy, is the predominant ap- and quality-related infrastructure (box 6.1). In Kenya, devel- proach in current interventions, complemented by activities opment agencies have also played a very important role in to strengthen the capacities of the business service provid- supporting dairy sector policy reforms.81 ers to serve the needs of smallholders and other actors. The IFAD-funded project under implementation by the Ministry Uganda—In the late 1980s and early 1990s donor agencies of Livestock and Fisheries Development (MLFD) follows a made considerable investments to help rehabilitate Uganda’s similar approach for the formalization of milk supply, using dairy industry. Investments were made in insulated road tank- ers, refrigerated distribution trucks, coolers, lab equipment, and upgrading of milk collection facilities in production ar- eas—all within the domain of the parastatal Dairy Corporation BOX 6.1: Formalizing Milk Supply in Kenya: The (DC). With the support of DANIDA, the government initiated Market-Oriented Dairy Enterprise Approach a process of reviewing the dairy policy. Yet, it was not until 2006 that the DC’s commercial arm was privatized. Project interventions are targeted to support the pro- gressive movement of groups or individuals through Support to commercialization initiatives started in the mid- steps: 1990s with donor investments totaling around $12 million. The foci of activity have been on on-farm improvements and (a) Step 1. Here, there is increasing collective activity farmers’ collective action as a way to link producers to for- (for example, in the form of contact with input suppliers mal markets. However, with the larger donor investments, to purchase feed in bulk) and a clear increase in incomes. value-chain interventions have dominated. Support for the Evidence of consistent successful activity (measured at establishment and development of industry service-based this low level in terms of volume or a slightly increased organizations has been quite prominent in Uganda. It is likely pro�t level) will indicate that the group can move on to that the service/milk hubs approach will become the domi- the next level. The group or individual will decide when nant method of intervention to reach smallholders, through, and how to take the next step. for example, the investments to be made by the East Africa (b) Step 2. Following a period of time and based on their Dairy Development Project (EADD). broadened perspectives and understanding of market opportunities, the group may decide to build capacity In terms of quality upgrading, one of the most signi�cant to expand and assume a higher level of risk. The bulk changes has been the support to policy action/regulatory of program resources will support technical training ac- intervention leading to the ban on the use of plastic contain- tivities to help bene�ciaries gain the knowledge to cope ers to carry milk (2002), and the requirement of the use of with risk. chilling equipment and insulated tankers by traders except for local sales within the immediate farm area (2006). In (c) Step 3. Groups become organized as business en- Uganda, transport distances are larger than in Kenya, and, tities and expand and consolidate their activities. They therefore, chilling is critical. As a consequence of this should also be able to demonstrate that they have sus- policy change, large parts of the so-called informal sector tained dairy-based activities generating a pro�t that pro- vides regular incomes to their members. The entity (for example, a self-help group, women’s group, cooperative, or company) can then be considered to have progressed 81 The new dairy policy now clearly acknowledges the role of the to maturity. informal market actors in the development of the sector. Do- nors have provided support to the implementation of the policy, Gradual adoption of dairy product standards is encour- which has implied support to the certi�cation of trainers of trad- aged through awareness-raising and capacity-building ers; licensing of traders; training to traders, transporters, milk bars, and so forth; the creation of traders associations, and so for milk producers, processors, traders and consumers. forth. The Improving Quality Assurance in Milk Markets (IQAM) Investments in small dairy cooling/processing units are implemented by Strengthening Informal Sector Training and Enterprise (SITE), with funds of DANIDA and the Department also supported. for International Development (DFID), was formulated with the Source: IFAD (2005). objective of supporting the policy implementation. Traders now appear as a key target group in recent projects. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 89 in Uganda have become relatively sophisticated in which types of support focused on the fundamentals of good dairy medium-size traders have their own collection networks management and breed improvement, facilitating farmer ac- and cooling tanks in farm areas, and bring raw milk for sale cess to high-yielding livestock, and facilitating investments in insulated tankers. Estimates indicate that, as a result of in milk bulking. this policy change, over 200,000 small-scale traders were pushed to exit the business during the transition period of Support to new dairy farmers has included intensive training policy implementation, and as a result of not being able to in dairy production and milk hygiene, and the provision of a afford the required upgrades. pregnant heifer with the understanding they must pass on the �rst female calf to another group member as a way to Zambia—Dairy investments have often been made within extend the program’s outreach and minimize costs per ben- the context of broader programs and, therefore, it is dif�cult e�ciary. Some observers argue that the pass-on requirement to estimate the size of the investments made. The support can create signi�cant risks to farmers and could undermine has needed to be signi�cant since smallholder dairying was the long-term sustainability of new value chains developed started nearly from scratch and substantial investments have with project assistance (Keyser 2006, 2008). Business ser- included the high start-up costs of livestock. Although value vice development approaches have been tested but have chain approaches have been applied, the focus of the invest- faced the challenge of enough demand for the services, ments has been on on-farm productivity and aggregation of given the relatively small number of small-scale producers product to achieve economies of scale, the latter being an and their dispersion over large geographic areas. enormous challenge in Zambia.82 Approaches have included working with two types of farm- Evidence of Impacts and Learning ers. One group was better endowed smallholders who own Dairy production has increased signi�cantly in the region, relatively large numbers of cattle, but who were never en- in both formal and informal markets. In Kenya, for example, gaged in trade. It was expected that these farmers were able estimates indicate that the formal sector has nearly tripled to more easily absorb the training messages and make the in size since 2001, reaching about 420 million liters in 2007. transition to commercial dairy production. The other target The marketing of raw milk has also grown quite rapidly. From group has been food-insecure households for whom dairying 2001 to 2007, the amounts being marketed through raw would be an entirely new activity. milk channels increased by 430 million liters (Grant 2008). Donors have tested several approaches to support the partic- Development support to the dairy sector has undoubtedly ipation of the larger smallholder farmers in formal dairy mar- contributed to these gains, particularly in terms of ensuring kets. Commercial demand for fresh milk was on the rise, and that quality milk reaches formal channels. it was perceived that this so-called “ready market� offered an From the review of different donor experiences, it is clear ideal opportunity for smallholders to deliver their surplus milk that the major constraints to smallholder dairying in East and and become part of the modern supply chain (Mukumbuta Southern Africa have related to long-standing issues about and Sherchand 2006). However, it quickly became apparent on-farm productivity, animal husbandry, and the economics that the surplus milk model was not suf�cient for long-term of milk bulking and marketing rather than the more recent success. Given the low productivity of the traditional live- focus on addressing the challenges of quality upgrading. stock, very often milk volume was too small to justify de- Although standards-related requirements have played an livery. More integrated approaches have been implemented important part in shaping donor and private investor strate- under value-chain frameworks, including providing intensive gies for channeling milk to the formal sector, there is little evidence that new quality requirements have kept small farmers from successful dairy marketing. 82 Financial analyses have shown that a typical bulking center in Zambia requires a minimum throughput of 200,000 liters per year This is not to say that quality upgrading has not been im- to break even. Many of the centers set up through donor proj- portant. In Kenya and Uganda, where farmers are used to ects have had an annual throughput of 60,000 liters or less. They will thus require several years of steady growth—or continued selling in level 1- and level 2-type markets, the experiences subsidization—in order to eventually achieve �nancial indepen- have showed that farm-level upgrading to levels 4 and 4a dence. Zambia’s thin production base is the main cause of this can be particularly dif�cult without adequate price incentives problem, although the situation has been compounded by donor priorities that have sometimes required project implementers to being provided by processors. Dairy projects in this setting, spread interventions over many locations for the sake of equity. therefore, have needed to focus on farmer training in cost- E C O N O M I C AND S E CT OR WORK 90 C H A PTER 6 effective management improvements, helping producers to In terms of interventions to support quality improvements afford metal dairy equipment, and other types of investments in informal markets, Kenya’s experience of endorsing small- that make trading with formal sector buyers more reliable scale milk vendors and milk bar operators through a certi�ca- and appealing. Thus in this type of market, the challenge has tion and licensing program demonstrates that investments been the high costs of dairy development and �nding the can bring these markets to level 3-type standards, while right balance in project activities to address the bottlenecks helping to create a more level playing �eld for formal sector that matter most. operators to compete and attract the kind of supplies they need for value-added processing. Studies have begun to Some development partners have argued that although proj- quantify the speci�c impacts of this policy, which are dem- ect activities have contributed to increasing the volume of onstrating positive outcomes in terms of welfare effects, milk produced and marketed by the targeted groups, quality reduction of transaction costs, reduction of consumer prices, issues through the whole value chain remain a problem, par- and changes in behavior among regulators—away from a ticularly in Kenya, and low milk quality has affected the ability policy of harassment and rent-seeking. They have also high- of processors to diversify into higher-value products and take lighted the need for a fairer way of assessing certi�cation advantage of underserved regional markets. Unless these fees among producers and consumers (Kaitibie et al. 2009). markets are exploited through improved quality, increased production will ultimately lead to low farm gate prices, a Similarly, considerable success has been achieved in Uganda major disincentive to the smallholder dairy farmer (Land by working with small-scale traders to improve the depend- O’Lakes 2008). ability of raw milk markets by investing in new dairy equip- ment and the training of operators in hygienic dairy handling. In newly emerging dairy countries such as Zambia, where Even in Zambia where the outlets for raw milk are much informal markets are less prevalent, more comprehensive smaller, counter sales have still been an important revenue kinds of assistance have been required to achieve the stan- stream at most bulking centers and often provide more value dards that commercial processors require. Despite the costs per liter compared to selling to a formal buyer once the costs of this assistance, project directors say that the challenges of milk transportation are taken into account. As a strategy of quality upgrading have actually been easier to address in to help overcome the major problem in Zambia of achieving Zambia than in East Africa, since new farmers can be trained effective economies of scale, the importance of local outlets and equipped to do things right from the very beginning.83 and potential for simple kinds of processing that add value to Because of the focus on dairy development as a route to im- local production should be considered. proved food security, however, another important risk arises in spreading the production base too thinly and, therefore, In terms of project approaches, there has been a lot of experi- never achieving suf�cient economies of scale in post-farm mentation on ways to better serve the needs of smallholders operations. and of the industry. The sequencing of donor interventions and the replication of effective approaches have been clearly observed. For example, many of the most sustainable busi- ness service models piloted by a project have then been 83 Milk quality test results in smallholder collection centers have recorded higher total plate count results than commercial and supported and expanded by other programs. The BSD ap- emergent farmers, but have still been consistently within the proaches for dairy support have bene�ted from the plentiful B-grade range, which is entirely acceptable even for producing supply of trained veterinary staff and an increasing presence UHT milk. Compared with East Africa, where smallholder total plate counts often exceed 2 million cfu/ml, the results for Zam- of suppliers of basic services (such as arti�cial insemination, bia are outstanding and well within the limits set out in the draft clinical and agro-vet services, and so on), and from the exist- COMESA standards. From 2003 to 2007, 0.2 percent of small- ing technologies, �nancial infrastructure, and existing models holder milk was classi�ed as A-grade, 88.8 percent was B-grade, and 11 percent was C-grade. Over the same period, 88 percent of service hubs (cooperatives). Yet, sustainability of business of commercial famer milk was classi�ed as A-grade, 12 percent service providers has frequently depended upon their ability was B-grade, and less than 1 percent was C-grade. Commercial to provide a diverse range of services. farmers mostly use automatic milking machines and on-farm cooling tanks. Smallholder milk is sometimes regarded as su- perior to commercial farmer milk, particularly with regard to but- The dairy sector offers considerable promise for smallholder terfat content from which dairy processors make most of their participation despite the importance of quality standards and revenue. This is a result of many small farmers being provided buyer demands in some market segments. Quality standards with Jersey cows, which are hardier under local conditions and naturally produce milk with more fat content than the Friesian have not been the most important barrier to successful cows owned by most large commercial producers. smallholder dairying, but attention to quality and investments MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 91 FIGURE 6.2: Uganda Sorghum Production, 1985–2009 550,000 Production (Tonnes) 500,000 450,000 400,000 350,000 300,000 250,000 200,000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Calculations based on FAOSTAT data.] in quality upgrading are important and can have signi�cant The latter, Epuripur, is a white-seeded sorghum hybrid va- impact on farmer revenues, trade competitiveness, and the riety suitable for milling and baking, and was developed for total value added by the national industries. improved processing and diversi�ed utilization of sorghum in the food industry. It matures in about 110 days and yields CASE 3: BREWING UP PRODUCTIVITY AND between 2,500 and 3,000 kg/ha.84 However, at the farmer INCOME GAINS LINKED TO SORGHUM level the yield ranges from 500–800 kg per acre, due to the use of low-input production technologies. Upgrading Production and Marketing Arrangements In SSA, sorghum is still largely a subsistence food crop. Its In the early 2000s, Epuripur was the basis for an attractive production is crucial to food security given its unique char- innovation in the commercialization of sorghum in Uganda, acteristics to resist drought and withstand periods of high led by Nile Breweries Limited (NBL), a subsidiary of South temperature. It also grows well in subtropical Africa, char- African Breweries (SAB) Miller. In 2001, the company started acterized by intermittent rains and by brief periods of very its search for the local ingredient to reduce reliance on im- high rainfall. In fact sorghum is not only drought-resistant, it ported malt, and therefore make affordable nonmalt beer can also withstand periods of water logging (Taylor 2010). In for Ugandan consumers. Low-cost raw materials would Uganda, the crop is mainly grown in drier areas in the east- represent important cost reductions to the company that ern, northern, and southwestern regions, and is, together would then be passed on to the consumer in the form of a with maize and millet, one of the most important staple cere- lower price. Epuripur sorghum was identi�ed as a promis- als in the country. ing ingredient, and after undertaking pilot brewing in South Africa, it was found to have excellent brewing qualities for Over the past decades sorghum production has increased high-quality clear beer. This innovation gave origin to a new steadily in Uganda, from nearly 350,000 tons in the mid-1980s product “Eagle Lager,� which would became a few years to almost half a million tons in 2009 (�gure 6.2.). However, later, the second largest brand for the company in Africa the increase in production has been a result of increasing (SAB Miller 2008). area under cultivation rather than an improvement in yield. Sorghum is mainly used for food and brewing. In an attempt Based on its former experience of smallholder sourcing to improve food security and incomes among the rural poor under contracts,85 NBL decided to establish a partnership households, SAARI has generated a number of technologies with the National Semi Arid Resources Research Institute, among which are Sekedo and Epuripur improved sorghum Serere (NaSARRI), for the multiplication of the hybrid seed varieties released in 1995. for distribution among the farmers. During the second 84 Sekedo is a brown-seeded variety developed by SAARI, which has been developed to improve on household food security in dry areas of Uganda. It also has good brewing qualities and could be 85 The company established in South Africa in the 1990s its �rst used in the beer brewing industry. It can yield up to 3,500 kg/ha contract farming scheme to encourage local barley production to under average management, or higher under good management. reduce reliance on imports. E C O N O M I C AND S E CT OR WORK 92 C H A PTER 6 season of 2002, the company provided 10 metric tons of the delivery of sorghum supplies more than double NBL’s seeds to farmers in four districts—Soroti, Kumi, Katakwi, and requirements. Kaberamaido—initiating the �rst contract farming scheme for sorghum production in Uganda. The company honored the contracts and ensured that farmers were informed that the company was not going The scheme has bene�ted from the engagement of other or- to buy sorghum in the next season, and it supplied farm- ganizations, all playing critical roles. For example, SAB Miller/ ers with maize and rice seeds to ensure that their incomes NBL, together with NARO, NaSARRI, and NAADS, have wouldn’t drop off signi�cantly. Yet it also started to put in respectively provided the �nancial and technical assistance place a strategy to prevent oversupply in the future, includ- required for the smooth running of the contract scheme; and ing selective distribution of seeds to limit harvests, inden- Afro-Kai Limited (a seed and commodity broker, who joined tifying speci�c communities for long-term relations and the scheme in 2003) is responsible for seed multiplication more timely communication with farmers. In 2007/2008, and distribution, as well as for the procurement of the har- the number of farmers involved in the scheme dropped to vested product from the farmers, including transport and 1,071. Yet, since then the company’s brewing capacity has storage. Afro-Kai multiplies Epuripur seeds on its own farms been expanded and some 5,800 farmers were involved in and through organized growers. Seeds for planting are then the scheme in 2009. distributed by Afro-Kai via farmers’ associations and govern- mental and nongovernmental organizations. NBL/Afro Kai Bene�ts Accruing to Farmers does not enter into direct forward contracts with farmers but Clearly the farmers that have been able to participate in the with district farmers’ associations. The GoU supported the scheme have bene�ted from an assured or reliable market, initiative through removing the excise duty paid by NBL on an additional source of cash income, and increased adoption beer produced under the contractual scheme (Eagle Lager of improved sorghum technologies. Afro-Kai/NBL remains and Eagle Extra Lager)—this was increased from zero at the the single largest buyer of Epuripur sorghum, with the other beginning of the scheme to 20 percent in 2006.86 marketing channels available offering lower prices and trad- The initial pilot comprised only 350 farmers from four tradi- ing lower volumes. There have been, however, a few occa- tional sorghum producing districts. In the season 2002/2003 sions when alternative marketing channels have become the number of farmers participating in the scheme increased more attractive. For instance, due to the huge demand for to 1,133 and reached 8,326 farmers in 2006, generating a grain in South Sudan some Epuripur sorghum has found its supplemental or seasonal labor demand for about 58,238 way there. rural workers. Prior to 2005, the double seasonal production Since the inception of the contract scheme, NBL has paid of sorghum by contracted farmers resulted in undersupply— over US$5 million to the players involved. Of this total pay- below the projected production quantities, with several fac- ment, about 56 percent of it has been received by farmers tors responsible for this including the reluctance of farmers (�gure 6.3). Farmers have evidently used this money to meet to adopt the seeds and civil disturbance in 2003. their household needs (e.g., nutrition, education, health, As a result, Afro-Kai initiated a more aggressive strategy to clothing, entertainment, etc.) and to procure household as- increase the volume of product reaching NBL’s plant by ex- sets (e.g., land, livestock, bicycle, radio, house, etc.). panding the number of farmers recruited into the contract scheme, including the recruitment of relatively large-scale FIGURE 6.3: Percent Distribution of NBL Payment farmers. NBL was then a victim of its success, with the Others 2006 harvest causing oversupply. Increased con�dence of 19% a reliable market at a guaranteed price, a better under- standing by farmers of the need to buy seeds, access to Bag suppliers extension services, and volatility of markets of other cash 7% Farmers crops such as cotton, contributed to many farmers em- Processors 56% bracing the scheme, and, with ample seed available, to (Utilities) 8% Transporters 10% 86 Signi�cantly lower than the duty paid on other beers, which could reach 60 percent. Source: Afro-Kai (Reported by Elepu and Nalukenge, 2007). MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 93 Other actors also bene�t: The company estimates the beer by the company, which they believe have provided better re- sales revenue at US$43 million per year in Uganda (SAB sults. The partnership model avoids the company taking over Miller 2008), generating revenues to the Ugandan govern- responsibilities that are outside its core competencies, but ment estimated at nearly US$6.8 million on excise duty and also allows it to get a certain level of control, to be able to get VAT of US$4.8 million in 2007/08. Eagle Lager has been part the grip with emerging problems. of SAB Miller’s success in Uganda. The company estimates that farmers have received over CASE 4: AFRICA’S GROUNDNUT TRADE US$3.8 million through the program over the past four years, AND EUROPEAN UNION (EU) MYCOTOXIN providing a supplemental income of around $250 per farmer STANDARDS88 over and above their subsistence farming, with each farmer Compliance with EU Aflatoxin Standards: A Barrier to supplying an average of 1.4 tons of sorghum each year. SSA Trade to Europe? The introduction of Epuripur sorghum, and its contractual pro- Awareness of the safety risks associated with the consump- duction arrangements, has led to its wide adoption by farm- tion of products contaminated with mycotoxins—aflatoxins ers. Previously, the adoption of improved sorghum technolo- in particular—has increased signi�cantly since the late 1980s, gies such as improved varieties had been low mainly due to when the International Agency for Research on Cancer the lack of output markets. For example, improved sorghum (IARC) placed Aflatoxin B1 on the list of human carcinogens. varieties that have been developed before but have not been In response, countries have established a set of regulatory widely adopted include Serena, Seredo, and Sekedo. measures to reduce risks associated with consumption of products contaminated with aflatoxins. The European Although the scheme does not operate without problems, Union’s adoption of harmonized standards for aflatoxins in it does certainly constitute an example of the upgrading groundnuts and groundnut products in 1998, above the lev- possibilities available to private actors, the government, and els that were proposed/discussed at the Codex Alimentarius development partners to leverage poverty outcomes through Commission,89 has been one of the most controversial food upgrades at levels 1 and 2. In the example cited, the market safety regulatory interventions in international trade. It has served may not have the capacity to engage thousands of been argued, and discussion remains ongoing, that the strict small-scale producers; however, it illustrates the power of EU standards would not signi�cantly lower the health risk to markets to leverage supply-chain improvements. In Africa, consumers, but they would impose serious costs or technical a number of improved hybrid varieties of sorghum are avail- dif�culties on the suppliers. The discussions have also ques- able that can help improve yields (Olembo et al. 2010). The tioned EU methods of sampling and analyzing aflatoxins.90 experience in Uganda illustrates how combining improved It is empirically dif�cult to determine de�nitively how one technology with strong market links can provide a powerful country or region adopting new or more stringent standards boost even for a crop that is not generally considered a cash affects trade, because of the many repercussions of such crop in Africa. SAB Miller has recently highlighted the learning that the experience in Uganda has provided to the company’s op- 88 For a more detailed analysis of this case see Diaz Rios and Jaffee erations in other locations. In 2005 the company initiated a (2008). similar operation in Zambia, operating almost entirely through 89 EU maximum limits for groundnuts to be subjected to sorting, an outsourcing model bene�ting around 2,600 producers in or other physical treatment, before human consumption or use as an ingredient in foodstuffs were set at 8.0 ppb for B1 for 15.0 2007/08.87 The operations in Tanzania and South Africa have ppb for Total aflatoxins. The maximum limit for groundnuts and been implemented through an in-sourcing model, with the nuts, and processed products thereof, intended for direct human consumption or use as an ingredient in foodstuffs were set at company providing directly the support and leading the op- 2.0 ppb for B1 for 4.0 ppb for Total aflatoxins. Codex maximum eration. In Uganda, and most recently in India, the programs limit for peanuts intended for further processing (hereafter re- used a partnership model, with various levels of engagement ferred to as “Codex limit�) was set at 15 ppb. 90 Criticism has also extended to the maximum levels set by Codex, as the recommendations resulting from the risk assessment car- ried out by JECFA compared relatively low levels (10 ppb and 20 ppb), with critics arguing that the developing-country perspec- 87 Partners in the initiative include the NGO CARE, the Cooperative tive—that such levels would be very challenging to achieve and League of the United States of America (CLUSA), and CHC Com- would not greatly reduce risk—was not considered during the modities, a grain dealer and brokerage �rm. process of setting the Codex International Standard. E C O N O M I C AND S E CT OR WORK 94 C H A PTER 6 standards, the varied responses, and the multitude of other Evolution of EU Market Requirements for Groundnuts factors affecting trade flows and competitiveness. Even so, and Groundnut Products and Upgrades Required to there have been some attempts to measure the impacts. For Achieve Sustained Market Participation aflatoxins, some of the most referenced studies on the trade Since the colonial era, groundnut exports have tradition- impacts of the EU regulations come from Otsuki and others ally been an important source of export revenue for several (2001a, 2001b). The authors predict large losses for Africa’s African countries and a source of livelihood for thousands trade in cereals, nuts, and dried fruit to Europe.91 Although of SSA small-scale producers. The market demands of the the authors employed a hypothetical and greatly simpli�ed EU—the lead importing market—have played a critical role model, their �ndings have frequently been referred to as in determining SSA’s participation and competitiveness evidence that African countries in fact lost such levels of in groundnut trade, and in shaping international trade for trade as a result of EU regulations, and consequently, these groundnuts and groundnut products, overall. These mar- stricter regulations have often been referred to as the cause ket developments have involved a period of increasing EU for SSA’s continued marginalization within international demand for vegetable oil and industrial oils and fats, which groundnut trade. marked the emergence and expansion of SSA’s groundnut production and trade during the 1960s and 1970s and the The responses adopted by countries to the challenges as- subsequent shift from the oil market to edible groundnuts in sociated with market developments are critical to ensure the 1980s. The shift to edible groundnuts led to tough com- their sustained participation in the served markets. Suppliers petition among old (SSA and United States) and emerging of groundnuts and groundnut products to the EU responded (Argentina and China) suppliers to capture a larger share of very differently to the challenges imposed by strict standards the EU market, including being able to effectively respond to and overall demands for quality and safety. In some coun- new, stricter and evolving market requirements. The evolu- tries, the response has included proactive, forward-looking tion of these requirements and associated systems for con- strategies seeking to reinforce competitive advantages, with formity assessment are illustrated in �gure 6.4. stricter standards acting as a catalyst for continued improve- ments. In other countries, the response was to deliberately The evolution of requirements in the edible groundnut trade accept rejections as part of business costs, with tremendous to Europe has implied two clear phases of upgrading steps at consequences for these industries. Often, the noncompli- production and processing levels. The �rst phase related to ance by individual companies resulted in collective punish- very basic product quality and productivity upgrades (upgrades ment against an entire export-oriented cluster of companies. from level 1 to 2) and implies the expansion of crop areas or These events forced industries (and governments) to act increased yields (or a combination of both) and adoption of reactively and defensively, seeking to adjust in the face of desirable varieties and grades. The second phase involved restricted trade. As analyzed below, the most effective re- the adoption of improved production and postharvest tech- sponses to compliance challenges associated with stricter nologies and practices to maintain quality and quantities, but standards have come from those industries that had been also to achieve safety outcomes and differentiate products gradually making investments to improve their competitive (upgrades at levels 3 to 5). These second stages of upgrades position in the EU market. SSA industries, for several rea- are combined with end-product testing and inspections at sons, have failed to do so. different stages of the supply chain implemented by of�cial authorities in importing and/or in the exporting countries, as well as by the buyers and exporters. In the �rst stage, upgrades are facilitated by reliable external markets for inputs and outputs, extension services, access 91 Their �ndings suggested that the trade of nine African countries to credit and technologies, and a stable macroeconomic would potentially decline by $400 million under the proposed, stringent new EU standards, whereas this trade might have in- environment. The second phase of upgrades is facilitated creased by some $670 million had the EU based its new har- by (i) available knowledge of production and processing monized standards on the guidelines of the Codex Alimentarius practices (e.g., good agricultural practice—GAP—and good (Otsuki et al. 2001a). A second study, focusing only on edible groundnut exports from Africa, estimated that the new EU stan- manufacturing practices—GMP), technologies (e.g., shelling/ dard for aflatoxin would result in an 11 percent decline in EU im- blanching), and systems (e.g., Hazard Analysis and Critical ports from Africa, and a trade flow some 63 percent lower than Control Point—HACCP) oriented at reducing aflatoxin con- it would have been had the Codex international standards been adopted (Otsuki et al. 2001b). tamination and differentiating products, (ii) availability of MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 95 FIGURE 6.4: Evolution of EU Market Requirements and Associated Conformity Assessment Systems for Groundnuts and Groundnut Products Market In most recent requirements years in the early 2000’s + Increasing Market importance of requirements GAP in the late 80’s implementation in and early 90’s fields and HACCP Upgrading steps + Traceability and in processing EU harmonized plans Market levels on aflatoxins requirements in the late 70’s Market and early 80’s + Strengthening EU + Third party requirements + Safety (aflatoxin import border certification in the 60’s + Quality grades tolerances) inspections + Sophisticated and varietal + EU importer’s samples preferences for inspections procedures in the the confectionary + Official individual EU country’s + Inspections and exporting Visual industry companies to characteristics import border controls by official + Visual inspection authorities in monitor safety inspections Visual inspection + Consistent exporting countries and quality quality and quantities Level 1 Level 2 Level 3 Level 4 Level 5 Stringency of official and buyer’s requirements Level of sophistication of the conformity assessment systems Source : Diaz Rios and Jaffee, 2008. extension services and credit to facilitate the adoption of In contrast, efforts to increase productivity within SSA have those practices/systems and technologies by farmers and/ been constrained by market inef�ciencies in the distribution or �rms, and (iii) a reliable of�cial control in place, supported of agricultural inputs (seeds and fertilizers). After the exit by the availability of testing and certi�cation services (either of governments from this market, farmers mostly relied on public or private). informal (including farmer-to-farmer) sources of seed, which are often of low or variable quality (World Bank 2003c; Mbaye First Stage of Upgrades Yet to Happen in SSA 2004; World Bank 2007c). Upgrades accomplished through Groundnut Industries the use of varieties suitable for the confectionery industry The emergence of leading suppliers of groundnuts, such as have also been constrained by the dif�culties in reproducing Argentina and China, in the 1980s, was marked by tremen- suitable seeds of a standard quality. In Africa, overall, there dous expansion of production area and yields. In Argentina, have been several scattered efforts to upgrade groundnut toward the mid-1980s, the industry started replacing tradi- supply chains by introducing preferred varieties, changing tional varieties with those speci�cally oriented to producing production practices, and focusing attention on quality con- high quality groundnuts for the confectionery industry. In trol. But progress has been uneven, without sustained suc- the case of China, process upgrades have focused mainly cess in international competitiveness.92 on achieving productivity gains. China’s source of competi- tiveness in the international groundnut market has been its The Second Stage of Upgrades Required Investments ability to provide consistent quantities at competitive prices. and Strict Public and Private Collaboration Argentina, along with recently emerging suppliers such as The upgrade processes to be followed to achieve compli- Nicaragua and Brazil, combined initial production level up- ance with safety requirements are more complex and many grades with process upgrades based on the development countries use different strategies. Proactive strategies, of competitive advantages through a cycle of continuous seeking to reinforce competitive advantages have been improvements and innovations to supply high-quality and safe products to highly differentiated markets (levels 3 to 5). Supply-chain coordination and increased collaboration 92 See Diaz Rios and Jaffee (2008) for detailed information on the between the private and public sectors were critical factors attempts made to upgrade groundnut chains in selected SSA facilitating the supply-chain upgrade process. countries. E C O N O M I C AND S E CT OR WORK 96 C H A PTER 6 adopted by countries such as Argentina, and most recently China—In contrast to the situation in Argentina, China’s also Nicaragua and Brazil. In China and Egypt, in contrast, production of groundnuts is highly fragmented. Limited signi�cant reactive measures came after groundnut intercep- availability of arable land and a large rural population restrict tions (and a temporary ban in Egypt) and critical inspection large-scale peanut cultivation. Despite this, according to EU missions by EU authorities. In all cases, effective responses buyers, Chinese peanuts have come a very long way in terms have implied strong collaboration between the public and the of quality, with remarkable improvements in the control sys- private sector, as well as upgrading the capacities of both. A tems, implemented by both the private and public sectors, to discussion of a few of those experiences follows. assure compliance. However, for China, the delay in compli- ance has had considerable consequences. As a result of the Argentina—The country’s efforts to achieve compliance mission carried out by the EU authorities to assess the sys- with EU regulatory developments have included regulatory tems in place for aflatoxin control in 2001, speci�c provisions measures; technical and scienti�c research; improvements were set for peanuts consigned from or originating in China. in production, postharvest, and processing technologies; in- A second mission, carried out in December 2006, indicated vestments in physical infrastructure; and strengthening of ac- that China had made great progress during the ensuing �ve creditation and certi�cation systems. At the regulatory level, years to improve the system to certify compliance, including responsibility for the control of agricultural products exported signi�cant changes in the regulatory framework in terms of from Argentina (including groundnuts) lies with the National registering establishments, sampling and analyzing peanuts Service for Health and Quality of Agri-Foodstuffs (SENASA). for export, setting domestic standards for aflatoxin (aflatoxin Argentine authorities have issued of�cial measures regard- B1 at 20 ppb), and improving public and private infrastructure ing the certi�cation and control of exports, including peanuts, for conformity assessment. In 2006, more than a dozen ac- since the mid-1990s, yet it was not until the beginning of credited of�cial laboratories and two private laboratories car- this decade that SENASA established the procedure and re- ried out of�cial analysis for aflatoxins on product intended for quirements with regard to the certi�cation of peanut exports export. At the time of the �rst EU assessment mission, the to the European Union (Resolution 436/2002). Although of- General Administration of Quality and Supervision, Inspection �cial supervision of aflatoxin is oriented toward end-product and Quarantine (AQSIQ), responsible for the control of pea- control, the private sector has implemented preventive nut exports, had only recently been established. Since then, measures to reduce aflatoxin contamination along the supply the capacities of AQSIQ have considerably strengthened. chain. Groundnut cultivation in Argentina is based on modern agricultural technology, including incorporation of good agri- Furthermore, the government was promoting a “shock tactic cultural practices (GAPs). The same applies to the processing policy� to promote approaches to aflatoxin reduction among area, in which companies have been applying good manu- farm and exporter operations. These policies included enforc- facturing practices and the principles of the HACCP system. ing requirements related to the application of GAPs, GMPs, Conformity assessment of product intended for export is and HACCP during cultivation and processing of peanuts for the responsibility of private authorized certi�cation bodies, export; application of aflatoxin levels stricter than the ones which carry out of�cial sampling and analysis of groundnut set by the EU; and suspension of sanitary registration to consignments and issue lot-speci�c safety certi�cates. Local those companies that are involved in a Rapid Alert System infrastructure for conformity assessment includes several for Food and Feed (RASFF) noti�cation, until corrective mea- private laboratories and one national reference laboratory. sures have been taken and veri�cation is carried out. Of�cial efforts have been focused on generating opportuni- Experiences from SSA—As in the case of China, reactive ties for private operators to perform conformity assessment measures to prevent aflatoxin contamination, though not yet services. generalized, have also been taken in some SSA countries. For example, in Ghana, the government has initiated a pro- Argentina’s reputation as a reliable supplier of quality product, gram to support the implementation of GMPs and HACCP as well as the low number of noti�cations during the years principles in small- and medium-scale enterprises. A most prior to and after implementation of the EU harmonized lev- recent milestone was the accreditation of a laboratory for els, may have given Argentina the time needed to make the microbiological analysis with support of several donors, in necessary adjustments to strengthen the local of�cial control 2009. systems. In May 2005, the European authorities carried out the �rst mission to Argentina to assess the control systems In Malawi, the National Smallholder Farmers Association of in place, with overall positive results from the mission. Malawi (NASFAM) and International Crops Research Institute MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 97 for the Semi-Arid Tropics (ICRISAT) collaborate in the imple- view of intercepted trade, one analysis of EU of�cial �gures mentation of cost-effective methods for aflatoxin detection, pointed to little more than 949 tons being intercepted during while in Senegal, Centre de Coopération Internationale en 2004–06, with the total volume affected during 1999–2006 Recherche Agronomique pour le Développement (CIRAD) likely being no more than 1,600 tons, at an estimated value in partnership with the main Senegalese producer orga- of $1.2–$1.5 million. Against the region’s $175 million in nization (Association Sénégalaise pour la Promotion du sales to Europe over the period, the affected trade appears Développement à la Base –ASPRODEB), is implementing the insigni�cant. Taking into account that a large proportion of “Edible Groundnut Program,� aiming to ensure high-quality the product intercepted underwent physical treatment, and product to satisfy demands for confectionary groundnuts in therefore could be traded in the European market, the value export markets. of “lost� trade becomes even smaller. The indirect effects are more dif�cult to estimate, including Evidence of Direct Impacts of EU Standards on SSA the deterrent effect on stakeholder investments in groundnut- Groundnut Trade related activity and changes in the commercial orientations of As mentioned above, during the 1980s, African suppliers groundnut processors and traders. Certainly for the individual were unable to meet emerging demand for consistent vol- companies involved in the noti�cations, the EU regulations umes and quality of product and thus were overtaken by have had more profound effects, as the economic implica- competitors from Latin America and Asia—SSA accounted tions of returned consignments or discounted product can be for just under 89 percent of global exports in the 1960s, yet signi�cant. Yet, the “lost� trade that can be con�dently attrib- the region’s share of international trade fell to the single dig- uted to the EU standards has been extremely low, given the its by the late 1980s, and to only 1.2 percent in 2008. multitude of other technical, institutional, and other problems reducing the competitiveness of African groundnut supply Although the changes in the global groundnut trade during chains seeking to participate in any international markets— the 1970s and 1980s were signi�cant, according to Badiane let alone the more discerning one in the EU. and Kinteh (1994), the decline of African raw groundnut ex- ports was primarily the result of macroeconomic and sector The evidence indicates that the SSA region would not signi�- policies that reduced producer incentives through direct or cantly bene�t from a less stringent standard, for example the indirect taxation. In most sub-Saharan exporting countries, international levels accepted by Codex. Nearly 80 percent of the sector faced heavy government involvement in input the consignments from Africa that were intercepted by EU supply, marketing, and producer prices. Inef�cient provision authorities between 2004 to 2006, would have failed even of quality seed and other agricultural inputs and too little sup- the less strict Codex standard.93 In Ghana, particularly, afla- ply chain coordination still constrain quality and productivity. toxins remain a signi�cant problem in exports of processed products. Lower competitiveness and limited demand for groundnut oil—along with an inability to shift industry focus to the The primary bene�ciaries of less stricter standards would edible confectionery market, a market with higher quality be Africa’s main competitors (in the EU market), especially and safety requirements—helped marginalize sub-Saharan Argentina, the United States, Brazil, China, and Egypt. These Africa’s global market position. The region’s participation countries have made considerable investments to upgrade in the global trade of groundnuts and groundnut products their production systems to achieve quality and productivity has fallen in both the dynamic (edible groundnuts) and least gains, and most recently, to also achieve safety objectives by dynamic (oil/cake) sectors. As they have not achieved sus- preventing and reducing aflatoxin contamination. tained gains in groundnut productivity and product quality, many of Africa’s groundnut industries were ill prepared to For most African supply chains, it is more accurate to refer to meet stringent of�cial and buyer requirement. By the late an aflatoxin management problem than to a trade standards 1990s, compliance with aflatoxin standards was only one compliance problem. The focus of policy-maker attention of many challenges faced by SSA industries supplying the international market. How much the EU aflatoxin standards subsequently af- 93 During the period 2007–09, the equivalent percent of noti�ca- tions related to aflatoxins from SSA, compromising peanuts, but fected the already marginalized African groundnut export also other products, presenting levels above Codex was 55 per- trade is dif�cult to determine precisely. From the point of cent (of which 50 percent presented levels above 50 ppb). E C O N O M I C AND S E CT OR WORK 98 C H A PTER 6 on the alleged trade barrier aspect of the EU’s aflatoxin levels have highlighted the magnitude of the problem on the standards has contributed little to exports or public health domestic/regional scale. improvements in SSA, and does not provide a basis for im- proved strategy development and investment. However, it is recognized that the establishment of aflatoxin regulations or of strict standards by buyers will have limited Undoubtedly, for some countries supplying edible ground- effects in terms of health protection in the region, as many nuts to the EU market (Egypt and China), the stringency of farmers grow grains and groundnuts for their own consump- the EU aflatoxin regulation did act as a temporary barrier to tion. Although in SSA, regulatory intervention and strict trade, and subsequently (in a reactive way) as a catalyst for end-product controls are necessary, they have limited roles the modernization of the supply chain and for improved col- to play due to the prevalence of subsistence farming. Thus, laboration between the public and the private sector. The there is a realization that the solutions to this problem need catalytic role of EU standards enforcement is more clearly to be holistic, looking at multiple dimensions of the problem seen in the case of the Argentine industry, which has used and the speci�c characteristics of SSA’s supply chains. compliance as a means to improve the industry’s competi- tive position and gain market participation. Emerging Cost-Effective Management Solutions While aflatoxins cannot be completely eliminated, measures In contrast, for most SSA countries, the stringency of the can be taken to manage the risks to lessen their prevalence EU standards has served neither as a signi�cant barrier to and minimize the trade, health, and food-security effects trade nor as a signi�cant catalyst for proactive action. Sub- on humans and animals. Approaches to managing aflatoxin Saharan suppliers’ inability to build a reputation for reliable risks rely on prevention to reduce the probability of product supply, consistent quality, and safe product contributes contamination and mitigation to reduce its potential impact. to their marginalization in international groundnut trade. Research efforts undertaken by several organizations in the Upgrades at the production and harvest levels to improve region are progressively making available appropriate and basic quality characteristics and ensure consistency are potentially cost-effective measures for aflatoxin prevention/ needed, along with safety improvements. Yet, attempts to mitigation, emphasizing on-farm technologies. move off of this continuum of improvements often results in the need to go back to re-enforcing basic compliance capaci- For example, research led by ICRISAT and the International ties (see box 6.2). Institute of Tropical Agriculture (IITA) is targeting the problem through holistic approaches, including (i) the development of resistant/tolerant varieties, (ii) the identi�cation and validation The Multiple Dimensions of the Aflatoxin Problem in of appropriate agronomic practices (e.g., application of soil Africa amendments—lime, crop remnants, manure—to reduce the The aflatoxin problem in SSA has often been considered effect of drought at the end of the harvest season, testing within a trade barrier context, whereas the domestic market, proper crop densities, planting days, etc.), (iii) the identi�ca- and the associated public health and food security dimen- tion of proper practices and technologies for drying, storing, sions, have received much less attention.94 Recent attempts and processing, and (iv) the development of cost-effective made by private actors and donors to improve quality and diagnostic tools. These efforts have been complemented safety by setting and enforcing requirements for aflatoxin by the exploration of alternative uses for contaminated product. Biological control has also emerged as a very promising solu- 94 Several authors have found widespread chronic dietary exposure to aflatoxins in Africa (Peanut Collaborative Research Support tion in the United States, with pilot trials being implemented Program—PCRSP). Also several studies in China, Kenya, Mo- in SSA under the leadership of IITA and the U.S. Department zambique, the Philippines, Swaziland, Thailand, and South Af- of Agriculture (USDA), although mainly in maize. Several rica have shown a strong positive correlation between aflatoxin levels in the diet and the development of cancer (WHO 2005). efforts are underway to gain support for more trials/pilots The synergy between exposure to aflatoxins and infection with and possible partnerships to commercialize the technology. hepatitis B substantially increases the risk of carcinoma. Aflatox- ins are also associated with growth retardation and immune sup- However, as solutions emerge, a lot of work is still needed pression. In Benin and Togo, children in high aflatoxin exposure to understand the effectiveness of these technologies/prac- zones were found to gain 22 percent less height than children tices in different contexts and the incentives for their adoption in low-exposure zones. Childhood exposure to aflatoxin in the Gambia was also associated with immune suppression (Myco- among different types of farmers. For example, research led Globe 2005). by ICRISAT in Mali determined that the immediate removal MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 99 BOX 6.2: Attempts to Develop Fair Trade Nut Exports to Europe In an effort to open opportunities for nut producers to such as food ingredients, peanut butter, oil, and bird supply the EU market, a project known as “Capturing food. The seasonal variation in crop volume and quality value for smallholder nut producers in southern Africa, creates additional burdens on the POs, as they have to through Fair Trade nut market access� was implement- deal with members’ and exporters’ expectations. ed within the frame of DFID’s Regional Trade Facilitation Although the project has been able to demonstrate the Programme for Southern Africa, starting in 2005. The potential for a signi�cant scaling-up of exports through project was implemented by the fair trade (FT) organi- links with international and regional buyers, overall qual- zation Twin, working with organizations of smallholder ity and aflatoxin remain major risks, which limits the abil- producers in Malawi (NASFAM) and Mozambique (Ikuru) ity to capture new market opportunities. Ensuring that to revitalize exports of groundnuts and cashews to an increasing number of farmers understand aflatoxin Europe. risks and that systems are established to facilitate the The project concentrated on the establishment of end- trade of larger volumes of low aflatoxin groundnuts to market links with potential European buyers through value added markets is a critical challenge. participation in international FT exhibitions and support Critical control points in the supply chains in order to for preseason planning meetings and midseason crop manage risks have been identi�ed, as well as improved assessments in support of the management of export practices to minimize risks. These practices include the contracts. The participation of smallholder nut produc- need to shift from hand-shelled to in-shell nut purchases ers in the value chain was strengthened through the for- controlled by farmer organizations, as well as signi�cant mation of Liberation Foods, as a community interest FT investments in postharvest processing and crop quality company, with participation of smallholders. In order to management. In the cashew trade, there was a realiza- increase the number of southern African FT nut produc- tion of the need to shift toward longer-term issues that ers with access to markets, visits to potential new pro- affect crop quality, such as the planting of new cashew ducer organizations in Malawi, Kenya, and South Africa, tree stock with increased yields, larger kernels, and im- and groundnut producers in Zambia, were facilitated by proved processing ef�ciencies. the project. The initial positive results have motivated several part- The project was able to develop an emerging trade of FT ners to support the initiative through the implementation product to the EU market. In 2007, exports of FT ground- of measures to improve quality and safety, including the nuts reached 632Mt (of those, 44Mt were also certi- multiplication and distribution of improved groundnut �ed as organic) and trade of cashews reached 110Mt. seed, training to farmers, upgrading processing infra- However, developing a reliable supply of quality and safe structure—e.g., the introduction of mechanical shellers nuts proved to be quite challenging. Therefore, to en- through Sainsbury’s Fair Development Fund, and a pilot sure that export opportunities were captured, Liberation initiative to install processing equipment and aflatoxin Foods (the trading company) has been forced to build its testing facilities, which is funded by DFID through its procurement strategy by buying from several sources support of the Regional Standards Program (RSP), and (Malawi/Mozambique, but also Nicaragua), to deal with which is expected to have a demonstration effect. seasonal shortages in the supply due to weather and aflatoxin problems, as well as serving different markets, Source: RTFP Final Report, Twin Trading Ltd. (2008). of pods from harvested plants was the most effective con- Institute (IFPRI) and supported by the Bill and Melinda Gates trol method for drying groundnuts, yet higher labor demands Foundation. Thus, there is clear evidence of the emergent constrain the applicability of this method. willingness of the development/donor community to deal with this long-standing issue in SSA. In addition to the efforts In 2008, several organizations partnered to explore the scope described here, there is ongoing dialogue among several or- of cost-effective aflatoxin risk reduction strategies in maize ganizations on the possibility of forming a broader partnership and groundnut value chains in SSA, under the AflaControl ini- to overcome challenges associated with the development, tiative, which is led by the International Food Policy Research E C O N O M I C AND S E CT OR WORK 100 C H A PTER 6 adoption, and scaling-up of cost-effective reduction/mitigation each would continue to expand output. Thus, without major methods by small-scale farmers to achieve desired trade, investment and, perhaps, a reorientation of the industry, the domestic commercial, and public health objectives. These prospects for Rwanda’s coffee sector looked bleak. efforts are certainly welcome news to SSA smallholder producers. Taking Action—Targeting the Coffee “Specialty�96 Market (Upgrades from Level 1 to Levels 3 and 4) From an agro-climatic perspective, Rwanda enjoys ideal CASE 5: RWANDA—GAINING A PLACE IN THE conditions for the growth of Arabica coffee, given its rich vol- “SPECIALTY� COFFEE MARKET canic soils, high altitudes, ample rainfall, and mild year-round Introduction temperatures. The latter leads to the slow maturation of the Since its introduction early in the twentieth century, coffee coffee bean and creates a distinctive taste in the cup. This production in Rwanda was subject to strict of�cial controls, natural comparative advantage has formed the basis for the both during the colonial period and following independence. collective efforts of the GoR, private sector, donor agencies, In the early 1930s, growing coffee was made compulsory and NGOs to revive Rwanda’s coffee industry with a particu- in Rwanda. At independence (in 1963), legislation prohibited lar focus on targeting the “speciality� coffee segment. the uprooting of coffee trees, with a Government of Rwanda (GoR) majority-owned company holding a monopoly on cof- Plans for the revitalization of the industry were laid out in the fee exports. These restrictions remained in place until the im- late 1990s and early 2000s. A Rwanda Coffee Working Group plementation of economic and sector reforms in the 1990s. outlined a very ambitious strategy covering the 2002 to 2010 period. Over this period, targets were set for $70 million in The combined impacts of social strife, reduced international investments and accumulative export revenues of $600 mil- coffee prices, and relaxed restrictions led many farmers to lion. The strategy proposed multiple interventions, along dif- neglect coffee in favor of more pro�table food crops. National ferent points in the value chain, to address productivity and coffee production fell from 35,000 tons in 1986 to 14,000 quality bottlenecks and to open new market opportunities. tons in 1998, with a substantial reduction in quality mix of About half of the sector revitalization budget was supposed marketed sales. Farmers were exiting the sector. Some 55 to be directed at the farm level, to support the replacement percent of Rwandan farmers grew coffee in 1991; by 2002, of trees, the training of farmers, and the uptake of fertilizer only 30 percent were active growers. While in the 1970s, and other production inputs. About one-third of the budget coffee exports accounted for up to 80 percent of Rwanda’s was to go for investments of CWSs and other infrastructure merchandise exports, this share fell to less than 60 percent (e.g., energy, water, and roads). in the 1990s and to only 34 percent in 2000.95 Despite declining production and participation, coffee re- mained an important element in the Rwandan rural landscape. 96 There is no unique de�nition of “specialty� coffee. It was initially According to a production census, some 400,000 smallholder used to describe the range of coffee products sold in dedicated coffee shops, in order to differentiate these supplies from cof- farmers were still producing coffee in 2002. Average plant- fee generally available through supermarkets and other retail ings were very small, at some 150 bushes, with a large per- outlets. Specialty today refers both to whole-bean sales and to centage of plants being thirty years old or older. The critical coffee beverages sold in coffee bars and cafés (as opposed to restaurants and other catering establishments). The range in- situation at the production level was aggravated by the lack cludes higher-quality coffees, both single-origin and blends, un- of cost-effective technologies for processing. This translated conventional coffees such as flavored coffees and coffees with an unusual background or story behind them. However, with the into poor (and declining) quality coffee. Although two cof- rapid growth in the number of specialty coffee retail outlets and fee washing stations (CWS) had been built, these were not particularly the expansion of the specialty coffee product range operational. The bleak situation at home was compounded into more mainstream outlets such as supermarkets, the term has become much looser. It is fair to say that “specialty� coffee by international developments. Large and low-cost suppli- has become a generic label covering a range of different coffees, ers such as Vietnam and Brazil were increasingly dominat- which either command a premium price over other coffees or ing the low-quality coffee segment, with expectations that are perceived by consumers as being different from the widely available mainstream brands of coffee. The Specialty Coffee Association of America says the following: “Sometimes called ‘gourmet’ or ‘premium’ coffee, specialty coffees are made from exceptional beans grown only in ideal coffee producing climates. 95 See Lode et al. (2004), Loveridge et al. (2002), and USAID (2006) They tend to feature distinctive flavors, which are shaped by the for more details. unique characteristics of the soil that produces them.� MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 101 International development agencies were expected to con- Specialty Coffee Company (RWASHOSCCO), created in 2004 tribute about one-third of the costs associated with this sec- by eleven coffee cooperatives to represent the interests of tor (re-)development strategy. In fact, the development com- approximately 20,000 farmers. The company’s service in- munity lived up to its commitments. For example, USAID cludes extension, quality control, buyer relations, marketing, has been a major supporter of the industry, through a series and shipping on behalf of its member cooperatives. The sec- of projects implemented within Rwanda and at the regional ond is the Rwanda Fine Coffee Association (RFCA), which level.97 The costs of these projects have been around $17 represents the interests of the privately owned enterprises. million. IFAD has been another signi�cant player through its Support to these two initiatives has continued under the $6 million Smallholder Cash and Export Crop Development USAID SPREAD project and with other donors (e.g., Agence Project (PDCRE). Many other donors have provided contribu- Française de Développement—AFD). tions, particularly for the expansion of processing capabili- ties (CWSs). Examples include the EU through its STABEX98 Signi�cant Gains Resulting from the Quality Upgrading program, and the United Nationals Development Program Process (UNDP). A regional coffee program supported by the Gates The combined results of NGOs, government, and donor sup- Foundation and being implemented by TecnoServe also has port efforts have been impressive. Table 6.3 summarizes been very active in Rwanda. indicators of achievement over the past decade, in terms of A central pillar of the coffee strategy and related donor invest- investments, trade, bene�ciaries, and so forth. Even though ments has been the promotion of coffee washing stations. only a relatively small proportion of Rwanda’s coffee exports With proper processing, it would be possible to increase the are fully washed (just over 3,000 tons in 2009 or 7 percent of volume and uniformity of quality coffee. Two approaches export volume), Rwanda has become something of a “hot� have been taken. One approach has emphasized the role of destination for global coffee roasting companies and large private entrepreneurs in the establishment of CWSs and in wholesale buyers seeking new origins for specialty coffee.99 developing relationships with individual farmers and/or farm- The efforts to support product quality upgrades were comple- er cooperatives as the most sustainable way to facilitate the mented with efforts to further differentiate products through process of quality upgrading. A second approach has focused sustainability certi�cations, including fair trade and, to a less- on collective action, with farmer cooperatives taking the lead er degree, also organic certi�cation. Information retrieved in processing and marketing functions. Cooperatives were from the Fair Trade Africa database indicate, a total of seven also used as the basis for achieving fair trade and organic cer- cooperatives fair trade certi�ed, covering about 23,000 small- ti�cations. The majority of donor interventions took the latter scale producers—about 5 percent of total coffee farmers.100 route, focusing on the development and operations of coffee International buyers such as Starbucks and Green Mountain cooperatives as this arrangement was seen to have better Coffee have been switching product lines toward fair trade prospects for technical outreach to farmers and, perhaps, a product, and are becoming active supporters of fair trade pro- more equitable sharing of the bene�ts from improved quality grams in Rwanda.101 Furthermore, certi�cation against Café and market access. Although there have been a series of donor interventions 99 The industry’s achievements fell far short of the very ambitious over the past decade, a nod in the direction of an exit strat- targets set out in the 2002–10 strategy. The export of 3,000 egy has been made through the establishment of two indus- tons of fully washed coffee in 2009 is but a fraction of the tar- try umbrella organizations. One is the Rwanda Smallholder get set at 20,000 tons. Aggregate export revenues over the planning period were $270 million, compared with the target of $600 million. 100 SPREAD project estimates the number of coffee farmers at half 97 These have included the Agribusiness Development Assis- a million (higher than the 400,000 �gure reported in 2002). tance to Rwanda (ADAR) project; the Partnership for Enhanc- 101 Starbucks partnered with fair trade organizations to certify ing Agriculture in Rwanda through Linkages (PEARL) project, Rwandan coffee coming to the UK in 2010. The company made implemented by Michigan State and Texas A&M Universities, in commitments in 2009 to sell exclusive Rwanda coffee in the collaboration with the National University of Rwanda; the ACDI- UK. Similarly, TransFair USA, the Cordes Foundation, Green VOCA PL 480 food monetization program; the Sustaining Part- Mountain Coffee, and the Clinton Global Initiative partnered to nerships to Enhance Rural Enterprise and Agribusiness Develop- �ght poverty among small farmers in Rwanda by enabling them ment (SPREAD) project; and support through the Eastern African to sell more fair trade certi�ed coffee (Trans Fair USA, Septem- Coffee Association. ber, 2009—http://www.transfairusa.org/press-room/press_re- 98 French acronym for the EU program on Stabilisation des recettes lease/transfair-usa-cordes-foundation-and-green-mountain-cof- d’Exportation. fee-announce-commitme) E C O N O M I C AND S E CT OR WORK 102 C H A PTER 6 TABLE 6.3: Summary of Achievements of the Rwanda Coffee Industry in Recent Years COFFEE STRATEGY 2002–2010—QUALITY UPGRADING (FULLY WASHED COFFEE) PRE-STRATEGY • Investments of about US$60–70 million to raise total accumulated revenues from coffee exports above (LATE 1990S/EARLY US$600 million in 2010 POST-STRATEGY 2000S) • 44,000 tons of coffee are produced in 2010 (63% fully washed, 25% standards and 12% ordinary) • Yield per tree 0.35 to 0.74 (kg/tree) • Two coffee washing Replace old trees • Over 120 washing stations (CWS) in 2002 stations by the end of Farmers Individual level Increase use of inputs 2007 (185 in 2010) • 48 Tons of Green spe- cialty coffee exported Train at the farmer level • 3,045 Tons of green in 2002 specialty coffee Internal capacities of the industry Expand use of shaded grown trees exported in 2009 • Fully washed coffee represents 1 percent of Support the establishment of private washing stations, training, and TA on processing • Total value of spe- Firms production and business skills cialty coffee exported • Total value of spe- US$11.6 million cialty coffee exported • Fully washed coffee Support the establishment washing stations by farmer’s cooperatives, training, and TA US$90,000 represents 20 percent on processing and business skills of production in 2007 Collective level Train cuppers and implementation of quality control systems • Approximately 50,000 households have seen GIS Study their incomes from cof- Strengthen producer association and cooperatives fee production double • 4,000 jobs in 2006 Promotional campaign/initiate coffee culture created by the washing Market end-market linkages stations • Rwanda coffee Institutional strengthening External capacities of the industry featured by main Reinforce ISAR’s coffee department international buyers as a highly prestigious Information (Webpage creation OCIR) product Reinforce OCIR-CAFÉ • Quality ratings for Rwandan coffee have Reinforce Banque Populaire improved considerably Infrastructure (Road and infrastructure to washing stations) since 2002 (from 3.5 to 4.5) Provide �nancial framework throughout coffee chain Keep the pace of reforms Source: Compiled by the Authors. Practices (a well-recognized standard) to obtained Preferred strategy placed little responsibility on Rwandan smallholders, Supplier Status has been pursued, mainly by privately owned but also provided them with only modest support or incen- CWSs. tives to improve (or better classify) the quality of harvested beans. Primary production has also not kept pace with the The Challenges to Sustained Progress expansion of processing capacity, leading to a situation in While the revitalization strategy proposed to develop the cof- which all raw materials are competitively sought with little fee industry via interventions and improvements throughout price differentiation. Many CWSs have experienced low the entire supply chain, in practice the bulk of attention has pro�tability due to high operational costs (partly related to been on improving quality and strengthening the industry link- capacity underutilization) and management limitations. ages with international buyers, with the entry point for quality upgrading being the establishment of washing stations and Limited On-Farm Production Improvements—Lagging quality control capacity. The experience has demonstrated Pace with Processing Capacity that although under specialty coffee markets, importers, and Primary production of coffee has remained stagnant over roasters buy and sell a “story,� the most powerful marketing much of the past decade (�gure 6.5). With expanding invest- tool to the specialty coffee industry is the promise of consis- ment in processing, many CWSs are operating at only 30 tent quality and a reliable supply.102 There remain, however, evident weak(er) links in the chain. 102 According to a survey among coffee international buyers under- taken in 2002 and 2007, reliability, consistency, and strength of One of these is at the level of primary production. Due to the relationships are the most important supply attributes for buy- fragmented structure of production, the quality upgrading ers (MAAR, 2008–12). MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 103 FIGURE 6.5: Production and Exports of Coffee in Rwanda 60,000 Export Volume (Tons) 50,000 Production (Tons) 40,000 Export Value (US$’000) 30,000 20,000 10,000 0 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source. Trade data from the Commodity Trade Statistics Database (COMTRADE); production data from FAO statistics (FAOSTAT) percent of their installed capacity. Production of ordinary that is of undistinguished quality and that does not fetch the coffee, favored by increasingly attractive international prices, higher prices crucial to long-term �nancial stability (USAID has been the main driver of coffee receipts. The strategy 2006, MAAR 2008). highlights the critical problem of pests and diseases that may reduce Rwanda’s production by as much as 50 percent.103 The quality of cherries has not improved, as very little has Low production inputs, cyclical production, and poor agro- been done to upgrade farming practices with farmers having nomic practices aggravate the picture. Although availability had very little reason to do so. Differential prices for quality of coffee cherries is a critical factor determining low coffee are not applied—CWS paid a flat rate for cherries, having to processing, perhaps an equally important issue has been accept floaters along with good cherries—coffee is accepted the inadequate business, planning and management of the regardless of the quality (RNCS 2009–12). CWS. Low Performance of Cooperatives Competition for raw product between CWSs and ordinary In 2007, the SPREAD project undertook an assessment of the processors, and between processors (cooperative and cooperatives supported by USAID investments, highlighting private processors), together with poor �nancial skills and the factors hampering the sustainability of these entities vis mismanagement, characterize the coffee industry. Thus, à vis competition with privately operated CWSs. A summary although farmers may well be bene�ting from the strong of their �ndings is presented in box 6.3. competition among buyers, it also means higher transac- Several studies have sought to compare the bene�ts accru- tion costs—e.g., by excessive search for cherries and ad- ing to coffee farmers from being af�liated with cooperatives ditional incentives to farmers to �ll the processing capacity versus selling their crop through private processors. The (Murekezi 2009). This situation, in the end, may be affecting results have been mixed, although one study did �nd that overall industry competitiveness, as it has already been op- cooperative members have access to additional services erating under high costs.104 In addition to the little progress not otherwise available (Murekezi 2009; Boudreaux 2010). made at production level, an important problem has been the signi�cant proportion of the fully washed coffee produced 104 For example, Diop et al. (2005) estimated the transport cost from the farm gate in Rwanda to the port in Mombasa at about 103 For example, nearly 25 percent of all Rwandan specialty cof- 80 percent of the producer price. The transport cost from the fees in 2008 revealed signi�cant levels of potato taste defect. farm gate to the capital, Kigali, was estimated at 40 percent of Already, Rwanda is losing income due to this problem. Sev- the farm gate price. In order to increase ef�ciencies, reduce eral higher-end buyers have even refused to continue to buy transportation costs, and improve quality, donors are supporting Rwandan coffee because of this problem (Strategic Plan for the distribution of special bicycles called the “coffee bike.� The the Transformation of Agriculture Phase II Kigali December device was designed by the NGO Project Rwanda, and allows 2008—Reported by J. E. Austin Associates, Inc. 2009). the transport of up to 200 kilograms of coffee cherries. E C O N O M I C AND S E CT OR WORK 104 C H A PTER 6 BOX 6.3: Weak Cooperatives as a Bottleneck to Improved Export Performance in Quality Coffee Markets One of the principal problems facing coffee cooperatives cherries has grown. Farmers will sell their most valuable in Rwanda today is that the producers themselves—the cash crop where they can get the best return, and in the supposed actual owners of these cooperatives—have past two years, cooperatives have lost ground to the not kept pace with the capacity building that has taken private entrepreneur businesses. in other areas of the coffee value chain. Attention given None of SPREAD’s 14 cooperatives can be said to be well to links in the upper levels of this value chain (outside managed or business focused. Without major changes the cooperative itself) has been very successful, and has in management styles, priorities, and ef�ciencies in in- launched Rwanda into the world specialty coffee mar- ternal operations, it is almost certain that many of these ket—accessible to any Rwandan group, private entre- cooperatives will go bankrupt as soon as project support preneur, or cooperative capable of competing. Rwandan is removed. SPREAD will need to move additional �nan- cooperatives, their Board of Directors (BoDs), and their cial resources toward this membership base of the co- members, however, have not been making the organiza- operative systems they are supporting. The alternative tional and behavioral changes needed fast enough, and will be to see many years of USAID effort and millions face an uncertain future. of dollars expended on coffee cooperatives in Rwanda When focus and some training is given to the coopera- leading to ultimate failure. Private-sector entrepreneur tive, much of this goes no farther than the BoD, who tend competition within the coffee industry is a very good to run their cooperative like a social welfare organization, thing, and this reality may �nally force cooperatives to without consideration of business principles. Members make the changes they need to make. This competition have almost no ownership of their cooperatives, and should help assure that Rwanda’s smallholder coffee only see the cooperative as one option, among others, farmers receive the prices they should for their valuable for selling their coffee cherries. coffee. In the face of rapidly growing and aggressive private-sec- tor coffee entrepreneurs, competition for the farmer’s Source: SPREAD, 2008. The advantages of cooperative membership certainly relate Thousands of Rwanda smallholders are bene�ting from high- to the distinctive performance and management of one’s er coffee prices for fully washed specialty coffee. The price own cooperative. For example, one study found, not sur- that cooperatives and noncooperative (private sector) CWSs prisingly, that the range of bene�ts accruing to members of are paying to farmers for cherries has risen from 60 to 80 cooperatives af�liated with Fair Trade distribution channels Rwandan francs in 2004 to between 160 and 180 Rwandan may be undercut by poor management of such cooperatives francs in 2008 (RNCS 2009–12; SPREAD 2008).106 (Whit�eld 2010). Thus, the low performance of cooperatives is limiting their capacity to leverage larger gains for their Diop et al. (2005), using household data from 2001, carried out members and for the industry as a whole. In order to address a set of indicative simulations that demonstrated the potential these constraints, SPREAD, ICIR-CAFÉ,105 and TecnoServe for substantial reductions in rural poverty from initiatives that have been implementing a program to strengthen the most reduce trade costs in coffee supply chains, enhance the qual- viable cooperatives known as the “turnaround cooperative ity of coffee, and facilitate movement out of subsistence into program.� commercial coffee production. Assessment of actual farmer Overall Perspective of Developmental Impacts—Coffee Farmers Are Better Off 106 Murekezi (2009) found that marketing through the coffee cherry channels increases the average annual food expenditures per Producers have certainly gained from sector reforms and adult equivalent by 15 percent compared to selling through tra- from GoR, donor, and private investments in the sector. ditional nonwashed (parchment) coffee channels. Similarly, sell- ing coffee cherries improves the total annual expenditures per adult equivalent by 17 percent compared to selling parchment coffee. Coffee growers have improved the overall household 105 OCIR (Of�ce des Cultures Industrielles du Rwanda) CAFE is the expenditure by 13 percent in 2007 compared to the period be- government authority for the coffee sector. fore the reforms. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING F OR T HE DOMES TI C MA RK ET A ND FOR TRA D ITIONA L EX PORT C OMMOD ITIES 105 gains has recently been undertaken, using both general and Donors and NGOs are committed to supporting those ef- very detailed analytical methods. Boudreaux has highlighted forts and continuing the search for innovative solutions to in several reports the set of direct and indirect bene�ts ac- the problems faced by the industry. The coffee strategy has cruing to farmers from coffee sectoral reforms (Boudreaux been revisited and new targets have been set. This time, the 2007; Boudreaux and Sacks 2007; Boudreaux and Ahluwalia expectation is to increase production to 33,000 tons by 2012, 2009; Boudreaux 2010). with 19,000 tons of this being fully washed, generating ex- ports of US$115 million by 2012, and estimated investments Thus, thousands of Rwanda smallholders are bene�ting from of US$51.8 million. This time the strategy also embraces higher coffee prices for fully washed specialty coffee, but ordinary coffee. also from ordinary coffee. Exports of coffee represented 36 percent of total export revenue in 2009, with ordinary (not Clearly, positive international markets are contributing to ex- specialty) coffee accounting for the bulk of sales. port growth, yet for Rwanda, a small player in international coffee markets, the efforts to improve quality along the chain During the past decade a small quality-based industry has would certainly provide a better buffer for the inevitable peri- emerged in Rwanda, yet signi�cant challenges remain ahead. ods of low prices. However, the notion driving improvements The GoR is taking measures to implement the needed needs to be that quality starts at the farm level and can be adjustments to push for further progress in the industry. maintained only through proper processing. E C O N O M I C AND S E CT OR WORK C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 107 Chapter 7: CASE STUDIES: UPGRADING OF HIGHER- VALUE “NONTRADITIONAL� EXPORT PRODUCTS This chapter provides a series of short case studies pertain- challenges, in the forms of freight bottlenecks, new compe- ing to the challenges and experiences of upgrading quality, tition, macroeconomic instability, periodic industry indigeni- food safety, and other standards in African supply chains for zation campaigns, and new requirements from regulators horticultural products and other so-called “nontraditional� and customers. The industry has progressively moved with exports. For the latter, we include cases related to honey the tide, altering its product mix, upgrading production and and organically certi�ed commodities. Support to African postharvest/packing operations, improving management horticulture export industries has been widespread among systems, and periodically reinventing its basis of competi- development agencies over the past decade and more. tive advantage. Highly favorable agro-ecological conditions Sustained success stories have been few in number, al- and abundant labor were leveraged by a series of highly (lo- though the sector continues to attract attention due to its cal and foreign owned) entrepreneurial �rms to create and continued potential for employment and other livelihoods’ sustain a very dynamic industry. Kenya’s growing status as support. The specter of smallholder market exclusion due to an economic and tourism hub in East Africa brought with it rising standards has motivated an array of governmental and the availability of freight and various technical services that development assistance interventions. The following cases contributed to the expanding horticultural cluster. Although are discussed here: uneven and of mixed ef�cacy over the years, the Kenyan government provided some important areas of support to the Case 1: “Saving� Kenya’s Horticultural Exports, industry, including the provision of high-quality phytosanitary Preventing “Smallholder Exclusion,� and Other services, the facilitation of expanded freight services, and Illusions access to the latest technology. Case 2: Many Donors, Yet Few Certi�ed Farmers: The Elusive Quest for a Zambian “Smallholder� The industry developed and expanded with a mixed or multi- Horticulture modal structure. Some subsectors featured large-scale pro- Case 3: Servicing Europe’s Ethnic Food Markets: Tales duction and vertically integrated supply chains. The pineapple from Kenya, Uganda, and Ghana canning industry was an example. The flower industry also Case 4: Shifting Market Preferences Partially Derail had its roots in the 1960s with the same pattern, although Ghana’s Pineapple Industry massive investment since—both local and foreign—has tak- en multiple forms. For the most part, however, smallholder Case 5: Intrigued by the Buzz, Stung by the Results: farmers have been marginal players in Kenya’s successful Adventures with Ugandan Honey floriculture industry. The fresh fruit and vegetable industry Case 6: Overcoming Competitive Challenges via has long featured a dominant lead core of 8 to 15 companies, Organics Certi�cation: Uganda’s “Success� complemented by a large competitive fringe of some 50 to 150 companies. In both groups there has been a blend of CASE 1: “SAVING� KENYA’S HORTICULTURAL ownership structures—foreign, Kenyan of Asian origin, and EXPORTS, PREVENTING “SMALLHOLDER so-called indigenous Kenyans. Production structures have EXCLUSION,� AND OTHER ILLUSIONS varied by crop and shifted frequently over time, being influ- enced by developments within the industry itself, in sectors Background with which it has competed for land and labor (e.g., coffee, Kenya’s horticultural exports are based on a long-standing dairy, etc.), and in the broader economy. Long-standing play- industry dating back to the post–World War II years. The ers in the industry have frequently shifted their product sourc- industry faced and successfully overcame a steady series of ing structures and strategies between backward integration E C O N O M I C AND S E CT OR WORK 108 C H A PTER 7 (on owned or leased farms), coordinated sourcing from larger the value of Kenya’s fresh vegetable trade exceeded $100 or smaller outgrowers, and purchases via intermediaries—all million, while the total combined exports of horticultural the while trying to manage costs and risks, while getting the and floricultural products exceeded $250 million. Over the best return on their own capital and other resources. period from 1980 to 2000, this sector contributed nearly two- thirds of the incremental value of Kenya’s entire agricultural As Kenya’s fresh horticultural produce export industry ma- exports. tured through the 1980s and 1990s, smallholder farmers came to play a rather important role. There was a large pool In the late 1990s many of the leading exporters undertook of growers to draw from. Upwards of 500,000 rural house- to vertically integrate a substantial part of their raw mate- holds had some experience growing fruits and vegetables for rial needs. Those �rms that previously had a farm acquired the domestic market, with large numbers of such growers or leased others. Gaining more control over supplies and operating in locations within 50 to 100 kilometers of Nairobi ensuring traceability were the leading motivating factors as (and its airport and other transport nodes). Other than for supermarket buyers and/or their category managers were pineapple, large-scale fruit plantations had a poor track rec- insisting on these elements. Some �rms found that having ord in Kenya, and thus the bulk of the country’s nascent and their own farms was a good showpiece for potential new ultimately not very successful trade in avocado, mango, and customers. Having their own, professionally managed farm other fruits came to be dependent upon supplies from large also enabled �rms to experiment with new crops or produce numbers of smallholder farmers, each maintaining relatively highly specialized crops in the small quantities needed for few trees. For vegetables, smallholders became the lead the (high-value) prepared vegetable products. With profes- suppliers of crops requiring very high labor input (and care- sional agronomists employed, the �rms were able to apply ful husbandry), yet neither sophisticated techniques (e.g., and even move beyond the pesticide use regimes of their arti�cial lighting) nor heavy capital (e.g., for wire tresselling). major clients. Green/French beans emerged as the signature feature of Kenya’s fresh produce trade in the 1980s, with smallholder As a result of this backward integration, the contribution to farmers likely accounting for the bulk of its supply. Jaffee the trade being made by smallholder farmers evidently de- (1990) estimated that in the mid- to late 1980s, some 7,000 clined in the mid- to late 1990s. Dolan et al. (1999) estimated smallholders were regularly supplying the fresh vegetable that the smallholder share of the vegetable export trade export trade, accounting for some 45 percent of the traded had fallen to 18 percent by 1998. Jaffee (2003) found the volume. These farmers were located in several clusters just smallholder share to be somewhat higher in 2001–02, at 27 to the east, north, and west of Nairobi.107 percent. However, his �ndings suggested that the volume of smallholder produce supplied to the fresh vegetable export During the 1990s, Kenya’s vegetable trade became more trade was more or less the same in 2002 as it had been in diversi�ed, although French beans remained an anchor in the 1989, implying that the entire increment in export volume sales of most of the leading companies. With higher freight during the 1990s was attributable to either medium- or large- costs and intensi�ed competition in some traditional prod- scale outgrowers or, more substantially, to expanded produc- uct lines (so-called “Asian� vegetables), and with the rapid tion on export company-owned or leased farms.108 growth of supermarket chains within Europe, Kenya’s fresh vegetable trade raised its game, progressively moving into At that time, the evolving commodity composition of the higher value-added segments and increasingly directing its trade pointed to the possibility of the further erosion of the sales to leading and secondary supermarket chains. Many once very large smallholder contribution to the sector. But did Kenyan pack houses were upgraded from dusty warehouses this matter? The industry’s poverty reduction role appeared to modern hygienic facilities with tight quality controls. While to be strong, with continued rapid growth in employment, sales of bulk vegetables in 5- to 10-kg cartons continued, a both in pack houses and on large farms. In the late 1990s growing proportion of Kenya’s vegetable trade look the form and early 2000s, there were probably 10,000 to 13,000 small- of labeled consumer packs and a growing assortment of pre- holders supplying the fresh vegetable export trade and a pared salads, vegetable mixes, and other products. By 2000, 108 For example, runner beans emerged as a new and expanding 107 Another 15,000 to 20,000 smallholders were then part of an product line, yet smallholders played no role in this trade as outgrower scheme in western Kenya supplying French beans the varieties planted required arti�cial lighting to grow properly for canning and subsequent export. under Kenyan conditions. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 109 similar number supplying the processed vegetable industry. The experience of these interventions was mixed but Yet, already then there were some 50,000 people regularly ultimately they became a sideshow, completely overshad- employed on larger horticultural farms and in pack houses, owed—and, in several cases, hijacked—by initiatives from and a somewhat larger number of people employed in the the development community to “save� Kenya’s horticultural af�liated floricultural sector. While �nding that horticultural export industry from the haunting specter of “exclusion.� growers obtain higher incomes than nonhorticultural grow- This stemmed from the arrival of EurepGAP at the gates of ers, McCulloch and Ota (2002) found that more powerful Nairobi. First released in 2000 by a consortium of European welfare effects were coming from employment as both pack retailers, the Euro-Retailer Produce Working Group (EUREP) house workers and farm laborers are poorer than horticul- Fruit and Vegetable Protocol sought to manage the legal and tural producers. reputational risks facing European retailers in the context of evolving European Union (EU) pesticide-related and wider While new product innovations and a strong reputation for food safety regulations. While the protocol was �rst directed quality seemed to be assuring sustained competitiveness for at European fresh produce farmers, by 2002 and 2003 pres- vegetable exports, Kenya’s fruit exports showed little mo- sures began to build to apply this to all sources of supply, mentum despite some breakthroughs in sea freight systems. including developing countries such as Kenya. A deadline The fruit subsector was not attracting new investment, and of January 1, 2004, was set for compliance by some of the entire supply chains remained fragmented. Weaknesses also participating retailers. persisted in the domestic fresh produce market, character- ized by strong seasonality of supplies and prices, high post- While the Kenyan industry was then in the midst of making harvest losses, low hygienic wholesale facilities, and minimal adjustments in pesticide use and other practices to comply cold chain development. In response to growth and upgrad- with the new EU regulations, the EUREP protocol demanded ing opportunities in the fruit subsector and in domestic fresh much more. It called for on-farm physical infrastructure for produce marketing, a number of development assistance pesticide storage and human hygiene and the introduction of programs were designed for implementation during the a wide series of risk identi�cation, management, and control early to mid-2000s. These included the International Fund for systems, with accompanying documentation. These sys- Agricultural Development (IFAD) Smallholder Development tems would need to be checked and certi�ed by third-party Project, two projects supported by the U.S. Agency for auditors. In addition to the on-farm investments and produc- International Development (USAID), the Department for tion process controls, measures would be needed to ensure International Development (DFID) Business Services Market full traceability of produce through the supply chain. Development Programme, and several projects initiated by international nongovernmental organizations (NGOs). In For those Kenyan exporters that had previously developed the phraseology of the conceptual framework (Chapter 3), their own farms, the EUREP Protocol may have required these programs were designed to enable the upgrade of some incremental investments and changes in management smallholder production and market links from level 1 to level practices, yet it posed no serious business risk. By 2002, four 2 or 3. In several cases, efforts would be made to develop of the leading companies had already had their own farms or strengthen innovative approaches for service delivery to EurepGAP certi�ed. Yet, questions quickly emerged about smallholders and reduce the transaction costs of these farm- the applicability of the protocol for outgrower-based systems, ers in reaching remunerative markets.109 especially involving smallholder farmers. How were some of the physical and planning requirements to be interpreted in the context of a developing country?110 Could the technical changes really be done at the farm level by smallholders? 109 The Kenya Business Service Development Project (KBSD) was Could the control systems and traceability requirements be one of the �rst USAID projects to apply a value chain approach to market development, with the core objective of increasing met? Could all this be done at a reasonable cost, as there growth and income among rural micro and small enterprises didn’t seem to be the offer of price premiums for compliant/ through increased access to business services. The program certi�ed growers? focused on tree fruits (avocado, mango, and passion fruit) to satisfy both domestic and export market demands. The Ken- ya Horticultural Development Project (KHDP) was designed with a wider focus, but also used service development as a key approach for implementation (speci�cally in passion fruit). Although these interventions were formulated with a strong 110 For example, does a nearby stream qualify as “running water� smallholder focus, none of them were designed speci�cally to or are piped systems required? Can a “chemical store� be a support compliance with private standards. secure container or does it require a concrete building? E C O N O M I C AND S E CT OR WORK 110 C H A PTER 7 Development Response several thousand farmers in good practices. It printed 4,500 When the January 2004 deadline was announced in early copies of the EUREP Protocol, paid farmers to attend three- 2003, confusion reigned in Kenya. Of�cial and private state- day events, and discussed a range of issues, both practical ments mistakenly linked the EUREP Protocol to EU regula- (safe pesticide use) and abstract (the concept of quality man- tions, implying that applying it would be mandatory—even agement systems). More training took place, including the in circumstances when one was not supplying one of the training of trainers, yet it wasn’t really clear what farmers EUREP retail members. That is, this would become a new needed to practically do and what guidance they would be “license� simply to supply fresh produce to Europe. Kenya’s given to do so. The speci�c roles for farmers, farmer groups, Fresh Produce Exporters Association (FPEAK), representing and companies in the development and implementation of many of the smaller exporters, issued statements warn- quality management systems (QMS) remained unclear.112 ing that this would undermine the industry. FPEAK and the Another project worked with one (passive) exporter to Kenyan government requested multiple donors to provide demonstrate that it was technically possible to prepare and assistance in order to “save� the industry, and especially certify smallholders under EurepGAP, yet the costs for doing to prevent the “exclusion� of smallholder farmers and the so appeared unwieldy, especially when use was made of in- adverse welfare impact that this would have. Exaggerated ternational advisors, new structures were built to a very high claims about the number of affected smallholders were standard, and tests of water, soil, and products were done mixed with exaggerated fears about the shutdown of the for each and every farmer. Groups that were certi�ed in 2004 industry to yield a very compelling case for support. were not recerti�ed the next year. Within a three-year period And the development community did respond. Several proj- (late 2003 to late 2005) nearly two dozen donor supported ini- ects that had other foci shifted their direction or attention. tiatives were launched with the goal of assisting EurepGAP For example, the Business Service Market Development compliance/ certi�cation, especially for smallholder outgrow- Program (BSMDP) (2003–07) decided to concentrate all its ers (table 7.1). initial project activities in the export horticulture subsector in Some of these were dedicated to this purpose, while others supporting compliance with this standard,111 while keeping were retro�tted from other designs to take on this purpose.113 its initial approach to market service development. USAID’s It was not uncommon for individual export companies to be Kenya Business Development Project (KBSDP) and Kenya accessing assistance from three to �ve donor programs at Horticulture Development Program (KHDP) and the German the same time. Private Sector Development in Agriculture (PSDA) readjusted their activities to include components related to smallholder Several different approaches or models were applied in this compliance with EurepGAP. Similarly, NGO-managed inter- effort. For example, one set of programs worked directly mediary organizations, whose work was focusing on improv- with or through companies, essentially seeking to strengthen ing smallholder links to input and output markets, played the their QMS and traceability arrangements and to train their “exclusion� card, increasing their donor funding to include compliance with EurepGAP as a new objective of their farmer support. 112 This project was connected with an initiative to set up produce From the (hindsight) perspective of nearly all stakeholders, collection/packing depots in rural areas, under the auspices of the Horticultural Crops Development Authority. Farmers trained the initial flurry of activity was uncoordinated, misdirected, in EurepGAP were encouraged to supply these depots, which, and largely unproductive. One initiative sought to train in turn, were to supply small exporters who lacked their own pack houses. Yet, none of these small exporters were supplying European customers that required EurepGAP. 113 For example, promoting the provision of integrated crop man- agement services (case 17) would support the implementation 111 A BSDMP report noted, “The industry as a whole appears to be of EurepGAP but would also be relevant for meeting EU pesti- desperately short of target in establishing a coherent and realis- cide maximum residue levels (MRLs). The same is true for the tic approach to this rapidly approaching deadline. The players in EU’s PIP, case 2. PIP’s mandate was not to provide support in the industry with the biggest possibility of experiencing severe meeting EurepGAP, yet some 17 companies did eventually use damage and dislocation—the smaller exporters, the intricate PIP support to meet the standard. Several programs supported chain of marketers linking smallholders to the market and the the development and improvement of the institutional infra- small-scale producers—are the least well informed about the structure for compliance, including a new certi�cation body, Af- regulations and basically totally unprepared for the challenges.� ricert, and existing institutions dealing with pest management (BSMDP—Project Concept Note: Planned Activities in Export and phytosanitary services (cases 4, 5, and 6). Again, the activi- Horticulture Subsector 2004). ties of these bodies were not con�ned to EurepGAP. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 111 TABLE 7.1: Donor Projects (Re-)Directed Toward EurepGAP DONOR AGENCY PROJECTS TIME PERIOD Japan International 1. Training of extension staff on EU regulations and EurepGAP. Project extended to include market development ser- 2003–05 Cooperation Agency vices and horticulture marketing infrastructure. With Ministry of Agriculture and Horticultural Crop Development (JICA) Authority (HCDA). EU Pesticides Initiative 2. Training programs for technical staff and small growers at 41 export companies. Not focused solely on EurepGAP. 2002–08 Programme (PIP) 3. Support for Africert (also provided by Deutsche Gesellschaft für Technische Zusammenarbeit GmbH—GTZ—and BSMDP). 4. Support for the Kenya Plant Health Inspectorate Services (KEPHIS) capacity building programs. Dutch government, 5. Certi�cation of small farmers, working with Vegpro. 2005–08 NAK AGRO* GTZ 6. Development of QMS manual and testing with farmer groups (also supported by DFID). 2003–07 USAID, through KBDSP 7. Training of trainers for the International Centre of Insect Physiology and Ecology (ICIPE). 2003–07 and KHDP 8. Formation of avocado grower groups with Kenya Horticultural Exporters (KBDSP). 9. Support for passion fruit and avocado producers through QMS manual, certi�cation of six groups and promotion of awareness of EurepGAP (KBDSP). 10. EurepGAP implementation and certi�cation, Gatanga Horticultural Farmers’ Group and Myner Exporters (KHDP ). 11. Certi�cation of outgrower groups working with East African Growers (EAGA) and Woni (KHDP). 12. Work with Karikoini Green Growers group, linked to Kenya Horticulture Exporters Ltd. (KHE) (KHDP). 13. Promotion of market link �rms to support avocado farmer groups (KBDSP). DFID through BSMDP 14. Promotion of new intermediary service provider, Freshlink. 2003–06 (from 15. Small exporters association—Association of Developing Horticultural Exporters of Kenya (ADHEK). 2007 linked to 16. Promotion of integrated pest management services, Real IPM. DANIDA busi- ness develop- 17. Support for Agribusiness and Allied Kenya Ltd to provide training for EurepGAP. ment program) 18. Training of �eld staff (independent from exporters) to create private sector service providers to work with farmer groups (with ICIPE and the Natural Resources Institute (NRI) ). 19. Support for ICIPE. 20. Support for integrated pest management (IPM) through Dudutech (not part of BSMDP). Pride Africa-Drumnet 21. Formation of farmer groups in Mount Kenya region, farmer training, credit, and market linkages to KHE. 2004–06 (United States) CARE International 22. Provision of EurepGAP services to farmers organized in farmer groups. Linked to Vegpro and to Reach-the- 2004–07 through Rural Enterprise Children. Also partly supported by BSMDP. Agribusiness Promotion Project *NAK AGRO is an institute for inspection and analysis established in 1995, as a subsidiary of NAK (Dutch General Inspection Service for Agricultural Seeds and Seed Potatoes). Source: Adapted from Humphrey (2008). farmers to meet their (and EUREP’s) requirements. These in locations or for crops where these companies did not have lead-�rm-centered interventions were ostensibly owned their own organizational presence (and would thus be more by the �rms, who contributed substantially to the costs. passive). A third model involved group and individual farmer- Support included training for staff; materials for farmer train- centered interventions. Farmers were generally organized ing; provision of software; subsidized testing of soil, water, as a PMO (producer marketing organization) and trained and and products; and/or coverage of certi�cation costs. Donors equipped to service an array of potential market outlets. In bore the majority of costs for these items, although �rms a EurepGAP context, such entities would be supported to (and farmers) bore more of the costs for on-farm and farmer develop their own QMS. group infrastructure. Lead-�rm-centered interventions were premised on the Another set of programs centered on strengthening farm types of assumptions underpinning the conceptual frame- and business service capabilities and included efforts to work presented in Chapter 3. They assumed that exporters strengthen certain intermediary organizations to take on the act as gatekeepers to the important segments of Europe’s responsibilities for quality management systems. This inter- fresh vegetable market, and that the keys to gates are sys- mediary-centered model was deemed potentially suitable to tem controls within outgrower schemes. The costs of these link farmers with smaller exporters (whose own management controls, together with the other costs of smallholder compli- capacities were limited) or link farmers to larger companies ance, could lead to “exclusion.� To the extent that the costs E C O N O M I C AND S E CT OR WORK 112 C H A PTER 7 of setting up compliant schemes fall on exporters—either are others. Sourcing from smallholders continues to provide because they pay some of the farmers’ costs or because exporters with a means of spreading weather and disease- the schemes increase management costs—they might be related risks. Second, smallholders may continue to provide tempted to switch to large farm production, including their the lowest-cost (and highest-quality) supply of particular prod- own. Donors might reduce the risks of small farmer exclu- ucts, even taking into account compliance and other transac- sion by subsidizing either or both of these types of cost. tion costs. But, more decidedly, as we will see below, the ac- tual number of smallholder EurepGAP certi�cations remained Some attempts were made to calculate the costs of com- quite low through to 2007, yet has picked up in more recent pliance for smallholder farmers or related to smallholder years—that is, after the end of donor subsidy programs. outgrower schemes. These were generally found to be quite substantial, although highly variable. While one set of This is not to say that exporters were not appreciative of the researchers concluded that the costs far exceed levels that assistance provided, and many cite these programs, espe- smallholders can bear (Graffham et al. 2007), other research- cially that of PIP, of providing important insights and oppor- ers found that considering certain bene�t streams, the rate tunities to learn by doing. While those companies that were of return would be reasonably high for farmers provided that required to have their systems fully compliant with EurepGAP they remained in this line of activity through the medium (and other even more stringent schemes) would certainly term (Asfaw et al. 2007).114 have pursued various strategies on their own, the �nancial and technical support provided may well have accelerated and The highly variable estimates of compliance costs are not deepened their learning (and experimentation) process. For surprising given wide differences in the circumstances fac- smaller exporters, the ef�cacy of these interventions was ing particular farmer groups and export companies. For some likely more mixed, being quite positive for some (whose up- that have made past investments to upgrade farm and post- graded operations enabled them to access more discerning harvest infrastructure, the incremental physical investments yet reliable buyers), but perhaps even negative for others to match EurepGAP requirements would be much lower than (which found themselves managing more sophisticated sys- for those starting from scratch. Also, over time companies tems and higher recurrent costs yet without any change in their and auditors learned better how to interpret the intentions of sales or any demand from their traditional buyers for EurepGAP). the protocol and apply it in ways more effectively in a Kenyan context. Hence, a closed tin container with a nozzle could One area in which interventions did appear to make a classify as a source of “running water.� With an increasing substantial difference was in the development of a “new number of Kenyans trained as advisors and auditors and with model� for smallholder scheme certi�cation. The interven- local capacities improved for soil, water, and residue testing, tion by NAK AGRO introduced the concept that farmers in some of the enormous service costs incurred in early efforts a tightly organized outgrower scheme could be considered were reduced later on. individual �elds rather than distinct operators. This helped to substantially cut down soil and water testing and also eased Whether or not the interventions aimed at embellishing and the auditing process.115 subsidizing outgrower schemes actually prevented “exclu- sion� is not clear, although there are reasons to doubt this. While the “lead �rm� approach had the bene�t of targeting First, standards nonconformity is only one of the types of those companies that effectively act as the gatekeepers to risk faced by exporters. Weather, disease, and logistical risks the prime external market, working with exporters raises is- sues about whether or not private companies should bene�t from the direct application of public funds. And, such arrange- 114 Asfaw et al. (2009) report on survey evidence showing that, all other things being equal, GLOBALG.A.P adopters had sig- ments do little to improve farmer bargaining power and may ni�cantly higher revenues per acre than nonadopter export actually strengthen the hand of the gatekeepers. For these growers. And, while adopters and nonadopters were found to use similar amounts of pesticides, adopters generally use safer reasons, and also to cater to the needs of SMEs, a number pesticides as determined by the World Health Organization of donor interventions sought to create market provision of (WHO) classi�cations. This seems to have translated into health support services that, in principle, could bene�t many farm- bene�ts, with surveyed adopters reporting a 70 percent lower incidence of acute illness compared with nonadopters and with ers and also be used by different �rms. the former spending some 50 to 60 percent less in restoring health following pesticide-related illnesses. Adopters also per- ceive other bene�ts, including more assured (year-round) mar- 115 However, this approach was not further pursued by kets, improved bargaining power with buyers, better on-farm GLOBALG.A.P due to concerns about actual compliance across hygienic conditions, and so forth. the different plots (farms). MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 113 The range of business services covered by donor interventions indicated an interest to purchase from the intermediary. was very broad. It included strengthening of institutions, such Yet, in late 2005 there were flood conditions in the main as interventions 4 and 7 in table 7.1. It also included support production area, leading to a shortfall of supply and higher for the development of specialist local services, such as fund- spot market prices. Most of the farmer groups bypassed the ing by various donors of a local certi�cation company, Africert; intermediary, selling to the highest bidders.The intermediary support for integrated pest management; and the promotion company then collapsed. of companies providing spraying services and training of staff who were expected to provide consultancy services in the Several other intermediary-based or service provision �eld. In each case, the model was one of independent pro- schemes also had short lives, either because farmers re- ducers being enabled to meet the EurepGAP requirements so fused to pay for the services that were subsidized by donors that they would then be able to supply exporters. through the intermediary organization, or because the end products did not meet the quality and other requirements These interventions faced three problems. First, by subsidiz- of the exporters. The lesson learned by several exporters— ing the services offered to smallholders in order to reduce which experienced pesticide residue problems for produce the costs of certi�cation, and also by bringing in experts from purchased through one scheme was that nice paperwork their home countries, some donors undermined the local (about spraying records) is a poor substitute for direct control. market for EurepGAP-related services. Second, the training While perhaps more costly to develop, direct relationships of local experts did not necessarily lead to the creation of with farmers are an absolute necessity in circumstances specialist services available to all producers. In fact, in some where there is no margin for error in standards compliance. cases these newly trained specialists were hired by the For smaller exporters, oriented to less discerning buyers, this larger exporters. In other words, initiatives to increase local was less of an issue, although the volume requirements of service provision raise the local stock of knowledge but do such exporters were insuf�cient to provide adequate rev- not necessarily create independent service suppliers. enue for the service providers. Third, even if the barriers to compliance with EurepGAP were lowered by the development of such services, would Ef�cacy and Subsequent Developments exporters be willing to source from the producers using The January 2004 deadline came and passed as did the these services? One of the projects sought to upgrade an deadline the following year. A drought in the 2004–05 winter existing �rm to become a type of super intermediary whose resulted in a sharp temporary shortfall in production, lead- functions would include farmer group formation and devel- ing even those EUREP members who were insisting on opment; provision of credit, inputs, and spraying services; EurepGAP certi�cation to relax their enforcement (or face facilitation of construction of collection centers; and market- empty shelf space). By September 2005, only 300 Kenyan ing of farmer group produce. The entity would also develop smallholders were EurepGAP certi�ed, although quite a few and implement a EurepGAP quality management system for of the own farms of the exporters were also certi�ed. The the various groups working with it. In principle, it would free majority of these smallholders were not recerti�ed the next up farmers from dependence on particular exporters and year. By September 2006, still only 386 smallholders were be in a position to provide certi�ed produce to the range of certi�ed. By April of 2007, when the name of EurepGAP was different exporters. The �rm had contracts with neither the changed to GLOBALG.A.P, this would increase to 606. Yet, farmers nor with exporters and did not take ownership of the Mithofer et al., (2006) had estimated that in 2005 there were product. It simply brokered the relationship between farmers 11,100 smallholders producing vegetables for fresh export in and various exporters. nine districts of Central or Eastern Provinces.116 Considering that there were additional active growers elsewhere, this This model has risks, which soon manifested themselves. implied that only about 5 percent of the active smallholders While farmers have the possibility of supplying various ex- were then certi�ed. porters and are no longer tied into the fortunes and strate- gies of a particular exporter, they no longer have a particular Why wasn’t “exclusion� happening—or were some farmers exporter committed to them. For exporters, the potential of being excluded while others were replacing them? During working with multiple farmer groups without the costs of running an outgrowers scheme is offset by the fact that they 116 This is consistent with the fact that the 41 companies support- no longer have an assured source of supply. If product is in ed by PIP in the mid-2000s had, in aggregate, 9,500 reported short supply, which exporters will be favored? Four exporters smallholder outgrowers. E C O N O M I C AND S E CT OR WORK 114 C H A PTER 7 FIGURE 7.1: Kenya Export Volume Trends (Tons) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 French Beans Runner Beans High Care Prepared Source: Calculations based on HCDA data. that period and through to 2009 (when adverse weather Kenya’s smallholders derive from farms with up-to-date certi- conditions and the �nancial crisis adversely impacted both �cations. And for the industry as a whole, the share of French supply and demand), Kenya’s vegetable exports continued to bean exports that originate on farms that are GLOBALG.A.P expand as the lead �rms continued to bolster their positions certi�ed (or part of a certi�ed outgrower scheme) is in the in traditional markets plus develop new outlets within Europe order of 45 percent. and elsewhere. Despite increased competition (including from Ethiopia and from North Africa) Kenya’s French bean How to explain this? First, while the United Kingdom is trade remained vibrant and actually increased in volume from the dominant outlet for Kenya’s French beans, a signi�cant 15,450 in 2003 to 32,190 tons in 2007 (�gure 7.1). While quantity is sold on the European continent, including in pro�t margins for this product were under pressure, this markets and among buyers for which GLOBALG.A.P is not high-volume product continued to serve an important role in required. Yet, it is evident that a large volume of beans from spreading the overhead costs of companies and in enabling not currently certi�ed growers are being sold in the United less expensive bulk air freight charter arrangements, which Kingdom. Why are some buyers not enforcing the stipula- also carried the higher-value product lines. A few of the lead- tion for GLOBALG.A.P certi�cation? Regular certi�cation is a ing export companies sought to source a larger share of their valuable signal to downstream buyers that all systems are in French bean requirements from their own farms, yet this place and good agricultural practices are being applied. Yet, it was not the norm in the industry, and some other �rms have is not the only signal for this. Kenya’s leading companies have moved in the opposite direction, �nding the return on capital an excellent reputation in this business. Their management, too low when growing French beans on their own farms. internal control systems, and expertise are �rst class. Their systems for quality control and product traceability have been Hence, based on information provided by leading companies, upgraded and regularly tested—by buyers— over the years. in recent years smallholders have continued to account for Periodically, things go wrong, but this is apparently rare. the largest share (perhaps 60 percent) of Kenya’s French bean exports. A rough calculation—based on typical planted areas, Hence, major buyers are very con�dent in their Kenyan sup- yields, wastage rates, and so forth—leads to an estimated pliers and trust the latter to be performing adequate due 11,500 smallholders still active in that speci�c trade in 2009, diligence arrangements that are consistent with meeting similar to the earlier estimate for 2005–06.117 By January EU regulations (e.g., for pesticide residues) and meeting the 2011, long after the end of programs to subsidize certi�ca- tion, the number of GLOBALG.A.P certi�ed smallholder farm- 117 Assumptions: (i) export volume of 26,000 tons, (ii) wastage/cut- ers had risen to 1,076, according to information provided by tings of 20 percent during preparation, (iii) smallholders account for 60 percent of supply, (iv) average planted area is 0.4 acres, FoodPLUS Gmbh, the administrator of GLOBALG.A.P. Thus, (v) average number of crops per year is 2.5, (vi) average market- perhaps only 15 percent of the French beans supplied by able yield is 1.6 tons/acre. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 115 core principals and requirements of GLOBALG.A.P. Having all some 772 farmers, located in Kirinyaga, Central Province, a or even large numbers of outgrowers formally certi�ed each site in which there have been a couple of donor-supported year is thus not necessary for risk management purposes. interventions. These farmers were interviewed as part of Where there is no smoke, there generally is no �re! There sequential surveys in 2005, 2006, and more recently in 2009, are a few companies that annually obtain recerti�cations of with one line of inquiry covering whether or not they grew their smallholder outgrowers, yet this is not the norm. It also French beans for the fresh export trade. Of this sample, ap- doesn’t seem to be a problem. Many players in the indus- proximately 20 percent have never grown French beans, 37 try thus seem able to provide assured compliance through percent were new entrants since either 2005 or 2006, 21 means other than annually updated certi�cates. percent had exited these supply chains, while 23 percent re- mained involved over the whole period. Interestingly, many Even though the overall number of smallholders active in the of the growers who ceased to produce beans for the fresh French bean and broader fresh vegetable export trade seems export trade shifted over to supplying a different variety not to have declined since the early to mid-2000s, might of French beans to a canning company—which in the late the phenomenon of “exclusion� have still occurred? Some 2000s had more than 25,000 outgrowers. growers, especially those operating on very small plots or those lacking reliable rainfall or irrigated water supply, might Discussions with leading exporters about the composition have exited this sector or come to only provide labor to their and geography of their smallholder outgrower schemes re- neighbors who have remained direct suppliers. Have the veal surprisingly high rates of turnover, with many farmers stringent product and production practice and record-keeping and groups still being dropped (or dropping out) and many requirements led exporters to be much more discerning in new (for the company) farmers coming on board on a year- their selection of outgrowers—choosing the cream of the by-year basis. Turnover rates seem to be in the range of 15 crop and developing more intensive and long-standing rela- to 30 percent. How can an industry that faces very stringent tions with such farmers? Over time, the transaction costs standards and challenges, to assure smallholder compliance, involved in dealing with those farmers would be expected to persist in having seemingly fluid movements of different fall considerably as many aspects of the relationship would smallholder groups between and among the exporter supply be routinized. Thus, while once the industry featured some chains? One possibility is that the long years of experience and fluidity with farmers dealing with multiple exporters or shift- the extensive programs of training and technical assistance ing between them from season to season, perhaps the new have, in fact, created a large and dense pool of knowledge- requirements have in fact led to much tighter vertical coordi- able and (more or less) standards-compliant smallholders and nation with a �ner distinction between farmers who are “in� smallholder groups that are readily transferable among differ- and those who are “out.� ent exporters.118 Exporters that drop certain groups and pick up new ones �nd many of the latter to be very well aware Despite a great deal of research done in the past few years and equipped to meet high standards and only minor adjust- on the Kenyan horticultural industry, we know remarkably ments are needed to incorporate these outgrowers within little about the underlying dynamics of smallholder participa- the company’s quality control regime. The transaction costs tion. There does appear to be a process of differentiation oc- of this fluidity thus seem to be manageable. curring, although in all likelihood this predated the EurepGAP/ GLOBALG.A.P era and was also a feature of structural Hence, even if an individual donor’s program was not able change in the industry during the prior decade. Asfaw et al. to point to high levels of success in terms of the number of (2007) report on a 2005–06 survey of 439 farmers in Kenya’s certi�ed (and recerti�ed) smallholder farmers, there appears Central Province. Comparisons between the EurepGAP to have been a substantial aggregated impact from an array adopters and nonadopters showed the former to have larger amounts of fertile land, more livestock, a higher number of farm machinery, higher incidence of access to irrigation and higher levels of household member education than was the 118 One survey undertaken as part of this research reinterviewed, in 2009, farmers who had been involved in a 2004–05 training, case for nonadopters. They identify lack of human capital, credit, and exporter link scheme in Kenya’s central region. While physical capital, and social capital (group membership) as fac- that scheme had collapsed in 2006, in 2009 these farmers were 29 percent more likely to grow French beans than were farm- tors inhibiting broader adoption. ers in a control group (not earlier supported but having similar household characteristics). And, for many issues related to pes- A survey conducted as part of the present research revealed ticide safety, these scheme-supported farmers displayed better a remarkable fluidity in farmer behavior. The survey included knowledge than did farmers in the control group. E C O N O M I C AND S E CT OR WORK 116 C H A PTER 7 of programs, together with the continued diligent efforts of Looking forward, there are uncertainties in the path of Kenya’s Kenya’s export companies. The broad legacy seems to be fresh vegetable exports, in a context of high fuel (and thus that the average producer in the sector is now more aware airfreight) costs and growing competition. Vegetable exports of and more compliant with crop protection and other good declined sharply in both 2009 and 2010 as a result of adverse practices. And, many companies have been much more weather conditions in Kenya, a downturn in demand, and deeply involved over the years in providing support and exogenous shocks, including the Icelandic volcano eruption, oversight to outgrowers.119 While earlier research concluded which disrupted airfreighted business into Northern Europe that “standards compliance is not possible without external in early 2010. Yet, Kenya’s trade in French beans may have support� (Graffham et al. 2006), the recent experience has peaked in 2007. A year later, the value of the country’s trade illustrated that standards compliance should not be equated in high-care prepared vegetable products matched that of its with certi�cation and that time and experience tend to en- French bean trade for the �rst time ever and surpassed it able strong industries to �nd workable solutions to seem- in 2009. Does this foreshadow a future in which the overall ingly intractable constraints. volume of Kenya’s vegetable trade declines, yet its value is sustained by further shifts into prepared consumer prod- Kenya’s horticultural industry never needed to be “saved� ucts—meeting some of the highest quality and food safety by the development community, and the threat of small- standards in the food industry? If so, what are the implica- holder “exclusion� due to standards proved to be quite ex- tions for smallholders as suppliers? As it has for 40 years, aggerated. This industry and these farmers attracted rather the saga continues. exceptional attention (and resources) in part due to its long history of absolute and relative success. While some donor resources were undoubtedly wasted and several individual CASE 2: MANY DONORS, YET FEW CERTIFIED projects featured more failures than successes, the overall FARMERS: THE ELUSIVE QUEST FOR A ZAMBIAN ef�cacy of the multiple programs is positive. Yet, in reach- “SMALLHOLDER� HORTICULTURE ing this conclusion, we also believe that the development Over the past decade, at least a half dozen donors have community was a bit lucky. While most of the institutional provided support geared toward mimicking Kenya’s experi- experimentation by donors seems to have either failed or ence and fostering a smallholder outgrower system within not been sustainable, the inherent strengths and leadership Zambia’s export horticultural sector. From today’s vantage within the industry seems to have extracted victory from the point this effort can be deemed a failure, as only tiny quanti- jaws of defeat. Had the messy scene of interventions that ties of smallholder fresh produce leave the country and as occurred in the period from 2004 to 2006 taken place in virtu- the larger fresh produce industry has continued to struggle ally any other high-value (or horticultural) export industry in over recent years. Yet, perhaps this experience has yielded Africa, there probably would have been little to show for it important insights about the scope and limitations of various �ve years later. types of development interventions. If so, then the failed in- Whether this heavy focus on the livelihoods of some 10,000 vestments might still have made an important contribution. to 20,000 farmers (including some signi�cant number of fruit Zambia’s horticultural crop exports date to the early 1980s, growers in the Central Province) from a poverty-reduction a time in which the country was experiencing severe for- point of view was fully justi�ed is hard to say, as from the eign exchange shortages. A few farmer/investors, mainly of perspective of the early to mid-2000s more was at risk, in- European origin, entered the �eld in order to access foreign cluding perhaps signi�cant numbers of pack house and other exchange and diversify beyond cereals and livestock produc- jobs. Still, in more recent years donor support to Kenyan hor- tion. The early trade was based upon the supply of off-sea- ticulture has reverted to addressing constraints and pursuing son vegetables and strawberries to the U.K. market. By the opportunities in the domestic market, where, prospectively, mid-1990s this sector was dominated by two companies: far more stakeholders—producers, traders, and consumers— York Farm, by then owned as a joint venture between can be impacted. the United Kingdom’s Commonwealth Development Corporation and the University of Zambia. York Farm 119 There were also several useful by-products from these interven- operated its own large farm just outside of Lusaka, tions. One was the creation and accreditation of a new, locally which employed more than 1,000 permanent employ- based audit/certi�cation company called Africert, whose work over time has extended to cover multiple types of certi�cation ees and 1,500 part-time employees. It produced a va- and multiple African countries. riety of temperate vegetables as well as cut flowers, MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 117 plus grew maize, soybeans, and vegetables for the 2002–03 season, some 447 farmers were selling to AFSS. domestic market. Their sales, amounting to around $300,000, still represented Agriflora, which started operating in 1994 with its own a very small share of Agriflora’s overall business ($25 million) large farm and a cluster of 25 medium/large-scale as the latter continued to rely heavily on its own vegetable outgrowers. It focused on high-value/low-volume veg- and flower farms where it employed thousands of people. In etables such as mange-tout peas, sweet peas, baby 2003, two new collection centers were built, drawing upon corn, and other baby vegetables. just over $100,000 provided by IFAD under its smallholder water utilization project. By the late 1990s, there was emerging interest by donors to support the links between Zambia’s smallholder farmers and That same year, yet another donor project was initiated. This end markets. With USAID support, the Zambia Agribusiness one was �nanced by DFID and focused on improving food Technical Assistance Center (ZATAC) was established in safety management for small-scale farmers and their associ- 1999 in order to provide technical assistance, information, ated commercial exporters. An extensive program of training and �nancial intermediation to smallholders and agribusi- was introduced, targeting farmers, farm workers, and agro- nesses committed to working with small farmers. Agriflora chemical dealers. One of the objectives of the intervention viewed smallholders as a potential basis for expanding its was to facilitate EurepGAP certi�cation for the smallholder business—plus tapping into low-cost �nance. Therefore, outgrowers. In July 2003, Agriflora estimated that about one- in 1999 the company founded a subsidiary called Agriflora fourth of its outgrowers (121) had the potential to be certi�ed Small Scale (AFSS), with the objective of incorporating up to given their infrastructure, production practices, and existing 500 smaller producers into its export operations. record keeping. After several meetings, about half of these (64 farmers) actually signed on to pursue the certi�cation. Over a three-year period, ZATAC provided low-interest loans totaling nearly $240,000 to support smallholder farmer in- The ink was barely dry on these agreements when Agriflora vestments, especially in irrigation facilities. Japan’s Financial declared bankruptcy in early 2004 under the weight of mas- Sector Assessment Program (FSAP) �nanced most of the sive debt. After some considerable delay, Agriflora’s produc- farmers’ seasonal credit needs. Seven production sites tive assets were acquired by another company—Chalimbana were selected that already had cooperatives established. Fresh Produce. While this helped prevent a massive loss of JICA �nanced produce collection depots in each of these jobs—the estimated employment in the industry in 2004 was locations. 7,000—Chalimbana would not continue with the outgrower scheme. From the very beginning, this was a rather capital-intensive model. Zambia’s agro-climatic conditions necessitated the Agriflora had been serving as the farmers’ PMO for purposes investments in irrigation, in contrast with the typical pattern of the EurepGAP certi�cation. With its demise, an alternative in the Kenyan highlands where multiple rainy seasons and arrangement was needed. The existing two other exporting other conditions permit nonirrigated vegetable production by companies had their own large farms and were not gener- smallholders. Also, the very de�nition of “smallholder� was ally interested in sourcing from smallholders and managing rather liberal in the context of the ZATAC and other support. an outgrower scheme. In stepped the Lubulima Agricultural The Zambian small farmer targeted by AFSS and later initia- and Commercial Cooperative Union (LACCU). LACCU was tives was typically a government retiree who had invested in originally formed in 2000 as an informal grouping, largely land around Lusaka as part of his/her pension plan. Compared to negotiate with Agriflora and other buyers the prices and to Lusaka area residents as a whole, many such commercial other contractual terms of produce sales and inputs provi- farmers are in the higher end of the income scale. Their typi- sion. Now, LACCU would be formalized—with the support cal production of vegetables was on one to four hectares, in of a $300,000 grant from DFID—to take up the responsibil- contrast with the typical pattern in Kenya where vegetable ity of developing and implementing a EurepGAP-compliant plantings are generally on 0.1 to 0.2 hectares and, in some quality management system. Other donors followed the trail, schemes, are limited to a few hundred square meters. including the EU’s PIP program, which provided training and auditing services. The Agriflora outgrower scheme experienced some initial teething pains, with smallholder group output frequently Implementation did not go as planned. Depot sites were not not complying with the company’s volume and quality re- effectively maintained and fell below EurepGAP standards. quirements. Yet, incremental gains were made and by the Equipment and protective clothing went missing. Trained E C O N O M I C AND S E CT OR WORK 118 C H A PTER 7 staff moved on to more secure positions in the floriculture application of the principle of throwing good money after bad. industry. By July 2006, only 10 of the growers had received By then, it must have been clear to many that the sector was certi�cation. That was a smaller number than the combined in peril and what had been gained would probably not be suf- number of donors and local institutions that had been in- �cient to constitute a viable sector, or at least a viable small- volved in supporting these schemes. holder dimension to it. Instead, donors chose to plow ahead as if nothing had happened, identifying new challenges (on A couple dozen smallholder farmers were able to �nd a new top of the old challenges that had not been resolved) and re- outlet for their export production through LACCU. York Farm, sponding with new interventions that looked more and more then the leading exporter, agreed to enter into a contract with desperate as time passed. Just on the issue of EurepGAP LACCU in 2005, yet only for the supply of a limited amount compliance, donors spent more than $400,000 on what was of baby corn, which was perceived by the company as an initially targeting 450 farmers but ended up certifying only 10 easy crop to manage and less risky.120 An additional reason former civil servants-cum-commercial farmers. for outsourcing the production of baby corn is that it is rela- tively land-intensive and one of the main constraints faced And why was supporting these outgrowers deemed to be by York Farm is land (ACI 2005). It was widely perceived by especially critical for rural development and poverty reduc- development partners at the time, that EurepGAP certi�ca- tion, while the employment of 5,000 to 7,000 people on the tion would make the smallholders either more attractive to larger farms and in pack houses was not worthy of attention? the lead �rm or enable the smallholders and their cooperative Would not efforts to upgrade the skills and working condi- to export directly. Neither model proved functional. The new tions of these employees not have had a more signi�cant lead �rm made it clear that it wouldn’t make much difference impact? Maybe so, yet those employees fell outside of the to them. The cooperative was proving incapable of meeting terms of reference for multiple development assistance the company’s volume requirements (deliveries went up and projects, whose focus has been on smallholders and their down and rarely matched contractual speci�ed amounts) and commercialization. the smallholder baby corn was not being sold to the �rm’s most discerning clients. But, perhaps this experience was not a failure after all. Perhaps this period of trial and (mostly) error experimentation Additional efforts to �nd alternative market options for the gave rise to some considerable learning within the develop- smallholder farmers were made. For example, USAID, ment community about the scope and limitations of upgrad- through the Market Access, Trade and Enabling Policies ing smallholder horticulture to supply high-end supermarkets Project (MATEP) and Production Finance and Technology in Europe. Was this what donors did in Zambia? Did they Project (PROFIT), initially supported the implementation of subsidize experiments to discover the true costs of facilitat- an outgrower scheme to supply Freshpikt, a large processor ing new markets for smallholder farmers? While some donor beginning operations in late 2005. Yet, it was expected that initiatives give the impression of one scheme following an- LACCU would serve as the entry point for the contracting other over the proverbial cliff, there has evidently been some of about 200 smallholder farmers to grow sweet corn and learning going on, even if this is not widely shared. a certain variety of beans under irrigation (MATEP 2006). Under the scheme, Freshpikt arranged �nancing for inputs Many of the currently implemented donor programs are fo- through the donor-supported Agri-Business Forum (which cusing their horticultural attention on domestic and regional directly pays input suppliers), and assisted with technical markets, seeking scope for the participation of many more backstopping. This scheme also ran into severe problems, (real) smallholders in improved supply chains locally and in hence the transformation from a subsidized lead-�rm model providing raw materials for processors. Here, the foci are on to a subsidized cooperative model proved problematic.121 planting the needed varieties of produce, attaining consistent quality, and managing postharvest and logistical challenges. With hindsight, after the demise of Agriflora in May 2004, GLOBALG.A.P certi�cation is irrelevant for these close-vicini- the string of interventions by donors appears to be a clear ty market outlets. In Zambia more generally, efforts are being 120 Baby corn is considered to be a low-risk crop due to the �nal 121 Between 2006 and 2008 LACCU bene�ted from a $101,026 spraying taking place two months prior to harvest so that little, grant by the U.S. African Development Foundation (USADF) if any, residue from chemical treatment remains, and that is used to strengthen planning, management, and marketing ca- removed with the outer layers during the cleaning and packing pacity with the ultimate goal of capturing a larger proportion of process (ACI 2005). local and export market for fresh vegetables (USADF 2008). MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 119 made to improve the functioning of outgrower schemes in- Both then and some 40 years later, produce was sent volving hundreds of thousands of farmers, associated with in cartons and largely sold on a consignment basis. an array of industrial crops. Again, the emphases are on pro- Competitiveness was (and remains) based upon price, quali- ductivity enhancements, raw material quality, and generally ty, and supply consistency, the range of varieties offered, and improving ef�ciency and farmer returns. While all this may trust. Although not immune to the wider changes occurring seem to be somewhat traditional work, the prospects for its in EU fresh produce quality and food safety regulations, this sustainable success appear to be much greater than the so- trade segment has witnessed only minor adjustments in the called “innovative� schemes. ways companies manage their supply chains. While some mainstream supermarkets have sought to regularize a supply of certain Asian vegetables—and have sought out suppliers CASE 3: SERVICING EUROPE’S ETHNIC FOOD who can meet their requirements for product traceability and MARKETS: TALES FROM KENYA, UGANDA, AND production system oversight (or certi�cation)—this pattern is GHANA not widely found in the supply chains that continue to spe- While wealthier European consumers have long been inter- cialize in ethnic produce. ested in exotic fruits, vegetables, and spices from distant Over time, similar wholesale markets (or individual wholesal- sources, with advances in production and logistics, many of ers) in the United Kingdom have also taken on the importa- these products became mainstreamed in trade and European tion and distribution of produce servicing other immigrant/ food distribution over time. Examples include pineapple, ethnic communities, including those from West Africa and mango, papaya, and kiwi fruit. Over the past few decades, the Caribbean. In Holland, Denmark, and Germany, selected many European countries have experienced changes in the companies have developed specialized businesses servicing composition of their population as a result of immigration a range of immigrant/ethnic communities. As observed in the and other demographic phenomena. This immigration has United Kingdom, these distribution channels also continue to taken many forms, including individual guest workers (who feature a predominant competitive focus on price and prod- frequently remained and subsequently brought other family uct quality, with only limited attention to pesticide residues members), migrations of families and larger communities and other matters that have concentrated the attention of from former colonial areas, and movements of displaced EU regulators and entities such as GLOBALG.A.P. Ethnic or socioeconomic refugees. The immigrants have brought or specialty vegetables have only rarely been the subject with them their traditional diets and eating patterns. In some of pesticide residue monitoring programs carried out by EU countries, they have also substantially influenced mainstream agencies. food consumption, especially through the emergence of much more diverse out-of-home eating options. This mini case study highlights selected experiences of African countries in servicing Europe’s ethnic fresh produce With many �rst-generation migrants retaining their traditional market. In keeping with the broader theme of this paper, food preferences and with the mainstreaming of some spe- emphasis is placed on efforts to upgrade pertinent supply ci�c items into broader national consumption, there emerged chains, based on smallholder farmers, to service this market a signi�cant trade in “ethnic� or “specialty� fruits and veg- (or, technically, these markets). etables. The earliest and still largest element of this trade centered upon several wholesale markets on the outskirts of London and a few cities in the British Midlands area. These Kenya: Trendsetter but Now a Declining Player wholesalers serviced specialty retailers (and caterers) who, As noted above, the trade in ethnic produce to Europe in turn, were servicing a rapidly expanding U.K. immigrant was started by a half dozen Kenyan companies between population from South Asia and East Africa from the mid- the mid-1960 and mid-1970s.122 These were family-owned 1960s onward. A trade in so-called “Asian vegetables� de- companies whose proprietors were generally second- or veloped, with supplies coming predominantly from Kenya third-generation Kenyans with family origins in South Asia. but supplemented from elsewhere. This trade typically Most of these companies had been involved in farming and/ involved family-af�liated companies trading in a broad array of chiles, leaves, gourds, and other types of vegetables. In fact, this trade comprised more than two dozen varieties of vegetables, catering to the dietary preferences and norms of 122 More details about the early origins and evolving structure of the different ethnic groups of South Asian origin. Kenyan Asian vegetable trade can be found in Jaffee (1990). E C O N O M I C AND S E CT OR WORK 120 C H A PTER 7 or domestic produce wholesaling before entering the export By the mid-1990s, Kenya’s Asian vegetable trade had con- business. Some of the companies had their own farms; tracted somewhat (to 8,500 to 9,000 tons per annum), as an most developed nascent outgrower schemes involving a array of new competitors entered the market for individual combination of smallholder and medium-scale farmers. The products (India and Cyprus for okra, several countries for chil- medium-scale farmers generally grew those crops requiring es) and as rising airfreight rates reduced sales margins and a bit more investment (e.g., in wire tressles) yet less labor. led many of the leading companies to focus their expansion Production centered in or around irrigation schemes that had efforts in higher value legumes, prepared vegetables, and cut been developed earlier about half-way between Nairobi and flowers.123 This trend has accelerated with more and more Mombasa. competition eroding Kenya’s once-dominant market share for a range of specialty vegetables. While some innovations were When outgrowers were involved the companies provided introduced—including distinctive varieties for certain types seeds and some limited technical advice and then dropped of vegetables—the overall trend has been downward, and off cartons just before harvest time. Basic visual qual- in recent years Kenya’s Asian vegetable trade has been on ity norms were applied and these were checked for in the a volume similar to that attained in the mid-1970s. Very few boxed produce before the exporters’ truck would accept Kenyan companies continue to specialize in this product line and load the produce. Payments to farmers were made on a and only a few of Kenya’s largest fresh produce companies re- cash or weekly basis. Relationships were loose rather than tain a toehold in this market—seemingly more out of respect contractual. Loyalty was a scarce commodity and farmers to their company’s founders than for commercial purposes. typically sold to multiple buyers. Yet, with many of the Asian vegetable varieties having only limited alternative local out- Over the course of the 2000s there were multiple and gen- lets, farmers needed to retain some regular ties to selected erally unsuccessful efforts to modify the traditional modus companies. Produce was collected by open-air trucks and operandi of selected Asian vegetable supply chains in Kenya taken to simple warehouses where some additional quality in order to supply prepackaged produce to mainstream grading was done and cartons were clustered together for European supermarkets and comply with the latter’s more individual consignments and buyers. Several companies con- stringent requirements for produce traceability, pesticide signed the produce to companies in the United Kingdom that residue limits, and production system certi�cation. One were af�liated by familial ties; others shipped through a few company that hadn’t diversi�ed out of this product line importer/wholesalers. drew upon the support of PIP to implement a scheme to upgrade the supply of some 300 outgrowers via intensi�ed This line of business grew steadily and by the mid-1970s, training, chemical spraying services, pesticide residue test- Kenya was exporting about 5,000 tons per year of a basket ing, and signi�cant upgrades to the company’s pack house of 25 Asian vegetables, with okra, karela, and eggplant being structure and management. Some technical improvements the most important items. Many new companies entered the were made, yet the company was ultimately unsuccessful in trade although most were short-lived, and the early pioneers developing an expanded line of prepacked Asian vegetables continued to dominate this trade, even though several of as the price premiums (and other services) it could offer them began to diversify their businesses to green beans and farmers were apparently insuf�cient to earn their loyalty and other higher unit value commodities. commitment.124 Over the subsequent three decades, little changed in the mo- A second example involved a seemingly innovative business dus operandi of Kenya’s supply chains for Asian vegetables. concept—a joint venture between an NGO, a leading export- Through the mid-1980s, this trade expanded (peaking at just ing company, and farmers. This was the creation of VegCare over 10,000 tons in 1986) and began to service specialty veg- in 2004.125 VegCare grew out of two origins: etable distributors on the European continent. In the mid- to Earlier work done by CARE under an IFAD-supported late 1980s, approximately 3,000 farmers were supplying this Small Rural Enterprise and Agri-Business Promotion segment of Kenya’s fresh produce trade, with some diver- Project (REAP), dating from the late 1990s. CARE si�cation of growing areas beyond the original sites. While in the 1990s it became increasingly common for the leading export companies to enter into more formal contractual (and 123 This stage within the evolution of Kenya’s horticultural trade is service provision) arrangements with their outgrowers, this examined in Jaffee (1995). was not the norm in the Asian vegetable channels as over- 124 The company invested some 50,000 euros in this upgrade ef- fort, with this sum being matched by PIP. seas sales remained largely consignment/commission based 125 The VegCare story was derived from interviews with key play- (rather than involving prenegotiated prices). ers in 2008. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 121 had organized several hundred smallholder farmers exporter’s needs and led prevailing market prices to far ex- into groups and provided links to credit and other ceed the exporter’s contracted price, resulting in widespread service providers as well as fresh produce distribu- farmer side-selling. While the company wanted to be the ex- tion companies—including domestic wholesalers and clusive outlet for the scheme’s production, farmers wanted supermarkets. A range of fruits and vegetables were to retain the option of selling through alternative channels. supplied. Farmer groups were expected to graduate Insiders refer to a “clash of cultures� within the partnership, from being self-help groups to commercial private with the company adopting a strictly commercial posture, entities. A central management unit coordinated the while farmers had already grown used to donor grants and project and took on many marketing functions. Some an NGO’s willingness to market produce of any quality. The dif�culties were encountered in meeting sales com- upgrading pressures came suddenly, even while many of the mitments and in the accumulation of farmer debts. participating farmers were unsure about the (prospective) CARE was also bearing much of the commercial risk bene�ts. While a limited number of farmer groups attained in an environment of variable prices. GLOBALG.A.P certi�cation through a QMS established by Continued challenges faced by one of Kenya’s leading VegCare, the joint venture ultimately failed to meet the ex- fresh produce exporters to ensure continuity in its pectations of any of its stakeholders and was brought to a supply of Asian vegetables and to facilitate upgrades close at the end of 2006. Follow-up measures were taken to in pertinent supply systems to enable it to sell this link VegCare with other exporters and domestic buyers. produce to mainstream European supermarkets. This company had already substantially diversi�ed beyond Ghana—Addressing Basic Constraints to Sustained Asian vegetables (which accounted for only 5 percent Industry Growth of its sales by the mid-2000s), yet retained a subsid- Ghana developed a relatively small horticulture industry dur- iary working in this product line. It has the potential ing the 1990s, on the basis of airfreighting of pineapples and of developing a line of cleaner Asian vegetables that later also vegetables. Yams, chiles, and a wide range of veg- might differentiate its product in the market. etables serving ethnic populations, constitutes the bulk of Ghana’s vegetable trade to the EU, particularly to the United VegCare was formed as a joint venture with CARE having a Kingdom. Vegetable exports have made some gains during 70 percent share and the company a 30 percent share. The the last decade, increasing from 12 million euro in 1999 to CARE shares were supposed to be taken up by the partici- 17 million in 2009.126 Exports of yams have been showing pating farmers over time. The new entity was to work with a positive performance, while in the segment of “other some 450 farmers. The entity would provide commercial ser- vegetables,� exports have been in decline in the last years, vices to these farmers and sell their produce on a pro�table moving from nearly US$10 million early in the 2000s to about basis, primarily to the partner exporter but also to others. US$6.8 million in 2009, and from 6,700 tons to 4,700 tons Production systems were to be upgraded to ensure compli- during the same period—a much lower volume than the esti- ance with both GLOBALG.A.P and the Ethical Trade Initiative. mated countries’ potential of 8,000 tons/year (Jaeger 2008). By dealing with one coordinating entity, the exporter hoped to substantially reduce its transaction costs when sourcing In 2005, the number of exporters taking part in vegetable Asian vegetables from smallholder farmers. Several do- export in Ghana was estimated to be over a hundred, with a nor agencies would support this scheme. In 2004, USAID leading exporter accounting for 25 percent of export volume provided a $450,000 grant through its Global Development (Sefa-Dedeh 2005).127 Smallholder farmers account for the Alliance. Subsequent support was provided by DFID, GTZ, bulk of supplies of vegetable exports, although reliable data the Rockefeller Foundation, and PIP. on the number of smallholders who are suppliers of vegeta- bles for exports, regularly or irregularly, are lacking. Producer/ VegCare’s operations were never smooth. The technical capabilities of its management unit did not meet the high standards of the exporting company and were inadequate to support farmers who were being asked to make some 126 The country’s vegetable exports experienced a short boom in 2008, reaching 34 million euro, particularly due to positive in- considerable changes in their production practices. The ternational prices for yams, one of the leading country’s export company’s strict quality requirements exceeded what CARE products—exports of yams were estimated at almost 9 million euro in 2008. and the involved farmers had been used to. This initially re- 127 Only 34 vegetable export companies were listed in the export sulted in high rates of product rejection, which discouraged directory in 2008, which might indicate some concentration in farmers. A subsequent drought lowered supplies below the the sector or rather the informal nature of the business. E C O N O M I C AND S E CT OR WORK 122 C H A PTER 7 buyer relations are very loose, and exporters have not been found little backup from the �rms and the producers/industry able to win farmer loyalty and thereby control “side selling.� associations. A few efforts were also made more broadly, for Farmers constantly report buyer reliability and trustworthi- example, in terms of setting grade standards and delivery of ness as a main problem in their transactions.128 Yet, although some training on production practices to farmers. there are certainly a number of speculative buyers, there are a number of structural industry constraints that explain, to an Thus, with the failure of the attempts to strengthen produc- extent, the lack of buyer’s reliability. er/buyer coordination, development support to this industry has most recently focused on addressing broad constraints. Exports of vegetables have grown without signi�cant invest- For example, improving export logistic infrastructure comple- ment, or indeed support; with the success relying more on mented by support to strengthening farmer organizations either the airfreight cost advantage or trading connections. and training on GAPs, drive most of the recent projects. Therefore, problems of access to quality seeds, lack of irriga- Signi�cant investments are planned and/or are under imple- tion, appropriate inputs, absence of appropriate structures mentation to improve overall logistic infrastructure for pro- to serve as points of product aggregation, poor packing and duction and exports, which will also bene�t the vegetable packing facilities, lack of adequate storage and cool chain sector.131 facilities, and so forth, are some of the structural and fun- damental constraints faced by this industry. These aspects Past investments in this industry have lacked a core of lead have been aggravated by the level of uncertainty that charac- �rms that would drive its modernization and development terizes market transactions.129 to prepare itself to address future compliance challenges.132 However, while recent donor investments are very much- Efforts to Upgrade Asian Vegetable Supply Chains needed developments, a great part of the future success of Efforts to upgrade Asian vegetable chains have been the Ghana vegetable industry to sustain growth and support scattered; the most signi�cant ones were led by USAID, a shift in market orientation toward more demanding mar- through the Ghana Public-Private Partnership for Industry kets relies on the capacity of the �rms to shift from their Development Program (GHPPP), and the TIPCEE program. current role as consolidators to quality manager exporters. The latter was implemented under an approach that focused Skills and sound management capacities of �rms are needed on developing linkages between farmers and nucleus �rms/ to support this shift, and although there is little evidence that exporters, with a few pilot initiatives undertaken by the proj- those capacities are currently in place, they may well come ect, aimed at professionalizing the vegetable export industry from foreign or new investors interested in pursuing oppor- through producer/buyer coordination models. Under these tunities as a result of better enabling factors and comparative models, production upgrades included the provision of qual- advantages offered by the country, or at least, as a reactive ity seeds, establishment of irrigation infrastructure, adop- response to strict demands for compliance. tion of better practices, and so forth.130 Yet, these initiatives 130 Examples included the attempts to create a smallholder-based 128 In Ghana, from a total of over 400 Asian vegetable growers production hub linked to a lead company to produce high-quality interviewed in 2008 as part of this work, 36 percent reported chiles, okra, and baby corn; an organized scheme with other that buyer reliability was a serious or very serious problem, and company to produce corn; and a pilot program on okra, for ex- only 48 percent considered the buyers relatively trustworthy. In port purposes, with the two main vegetable associations—the comparison, farmers producing for local markers scored better Vegetable Producers and Exporters Association (VEGEAP) and results (Sean et al. forthcoming). This factor may be one of the the Association of Vegetable Exporters (GAVEX)—facilitating main reasons that farmers exit Asian vegetable production—for different services to small-scale producers, including the link to example, 8 of 19 former Asian producers interviewed as part of the export company. this research in 2008 indicated they had switched to producing 131 For example, the Export Marketing and Quality Awareness only local crops, mainly due to problems with exporters or their Programme (EMQAP), in implementation since 2007 and �- agents, including failure to pick up the product or returned later nanced by the African Development Bank, covers important than agreed upon, changes in the agreed volume they were will- components of improved logistic infrastructure and continua- ing to purchase, or the price they were willing to pay, and being tion of demonstration farms in each region on better production dropped by the buyer/exporter, without a particular reason. practices and GAPs. Agricultural-related investments through 129 Exporters mentioned the lack of cold storage as critical, high- the Millennium Development Corporation are also focusing on lighting several incidents in a six-month period where product production and export infrastructure. was lost due to lack of cold storage at the airport; adding that 132 This has been the case of the vegetable exports (peppers and airfreight uncertainty, inaccessible �nancing, and lack of good eggplants as well as other products) from the Dominican Re- quality seed compounded these problems and further de- public, which have been subject to increased oversight on pes- creased the competitiveness of exports. ticide residues from the EU authorities. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 123 Uganda: Late-Comer and Still Struggling still others have exited the fresh produce trade and instead During Uganda’s post-conflict period, several Government of sought niche markets for dried fruit. Uganda (GoU) and development assistance efforts sought Almost all of these upgrading or market repositioning strate- to revive and diversify the country’s agricultural exports as a gies have been supported by GoU and/or development as- means of accelerating growth, reducing poverty, and lower- sistance efforts, of which there have been many. Figure 7.2 ing �scal vulnerability associated with the country’s extreme provides a summary of these interventions. The most promi- level of dependence on a single export commodity—coffee. nent of these efforts have been the ones initiated by the GoU Particular attention was given to the development of trade in and the EU’s PIP, which are briefly summarized here. fresh fruit and vegetables.133 Uganda appeared to be blessed with a favorable climate, ample natural resources, and a In 2004, the Ugandan government re-restructured its sup- plentiful and inexpensive labor force to underpin a successful port to export horticultural development, with a focus on horticultural export thrust. GLOBALG.A.P compliance, via support under an Export Production Villages (EPV) program. The aim of the EPV was to Despite multiple interventions during the 1990s, the industry improve the skills and capacities of organized farmers to sup- attracted few investors with signi�cant �nancial and mana- ply export markets. From 2004 to 2006, a total of 23 export gerial capacity. Many technical experiments and demonstra- villages (covering 1,314 farmers) were trained on different tion plots had been done, but few translated into commercial aspects of compliance with the GLOBALG.A.P protocol, and activities. Hence, by the early 2000s—after a decade of de- on the importance of group cohesion. Training was delivered velopment assistance and government support—Uganda’s by multidisciplinary teams from different public institutions. horticultural trade remained very small—with a free on board In so doing, the EPV brought together the capacities of the (FOB) value of a few million dollars—and seemingly fragile, different public institutions supporting the sector, promoting with weaknesses at all levels in the supply chain, limited ca- cohesion and common targets. Typically, the training was pacity for collective action, and relatively few individual suc- conducted over a three-day period and held on a lead farm- cess stories at the commodity or �rm level. Both then and er’s premises. The EPV envisaged establishing an inspection subsequently, this export trade has been highly fragmented, and traceability system, and working toward GLOBALG.A.P with large numbers of very small companies (exporting one certi�cation for each export village. Resource constraints, or a few tons per week) and perhaps two dozen companies however, soon served to limit the scope of the EPV such that operating on a regular basis. With little commercial invest- none of these aspirations materialized, and even the farmer ment, most supplies have come from smallholder farmers, training had to be curtailed toward the end of 2006. generally loosely organized by individual exporters. Through PIP, 23 companies with links to some 1,650 produc- The bulk of Uganda’s small horticultural trade consisted of ers bene�ted from training and technical assistance in areas various types of peppers and other vegetables servicing related to food hygiene, traceability, and integrated pest the U.K. markets for Asian vegetables and other specialty management (IPM) systems (see Table 7.2). The project sup- produce. While Ugandan �rms continued to struggle with ported companies in their attempts to shift market orienta- very basic supply and logistical bottlenecks, by the early tion and/or comply with market requirements by achieving to mid-2000s some of their European buyers began asking certi�cation with respect to GLOBALG.A.P (i.e., levels 4 and questions and applying subtle pressure on their Ugandan 5). Twelve additional companies that received support from suppliers to undertake and demonstrate improvements in PIP were directed at markets for noncerti�ed products in the production and pack house hygiene as well as broader qual- European Union (level 3). Aggregate PIP support to Ugandan ity management. While operating from a position of relative companies totaled about €776,000, suggesting an average of weakness and low pro�tability, many Ugandan fresh produce €35,000 per company.134 exporters have taken steps to adjust in an evolving market and regulatory environment. Some have sought to upgrade their outgrower production practices, pack house operations, 134 Through the partnerships established, PIP covered the cost of training and technical assistance, traceability software, labora- and associated documentation. Others have sought to repo- tory analysis, and occasionally the establishment of demonstra- sition themselves in the market for organic produce; while tion plots for IPM. A company’s �nancial commitment mainly included the costs associated with the logistics of training and the implementation of recommended practices. PIP generally 133 A more detailed review and analysis of Uganda’s horticultural did not support investments in infrastructure and logistics as- export development experience is provided by Diaz Rios et al. sociated with internal company training events or for their out- (2009). growers. E C O N O M I C AND S E CT OR WORK 124 C H A PTER 7 FIGURE 7.2: Framework of Recent Interventions in the Uganda Horticulture Sector Compliance with standards Level 1 Level 2 Level 3 Level 4 Level 5 IDEA NAADS NAADS/VEDCO EPOPA PIP PIP EPOPA PIP MAAIF UNIDO CordAid FAO-UNCTAD Technological improvements for Improving market linkages in added value: dried fruit and exporting markets processing for local and exports in specific segments and improved CBI/UEPB Baseline for market participation markets NAADS/UNIDO/EU-BUDs Strengthening exporters’ organizations competitiveness PIP/IDEA/FAO/DANIDA/Others - Formation of farmers’ groups - Production methods -Expansion of production areas NAADS/VEDCO -Distribution of seeds IDEA/MAAIF/NARO/UEPB Infrastructure: electricity, roads, etc. WORLD BANK, UNIDO, etc. Source: The Authors. One of the main characteristics of the program was its cost- assistance program. The training for inspectors of the sharing basis; yet, progress in the implementation of action Department of Crop Protection of the Ministry of Agriculture, plans was highly dependent on the capacities of the compa- Animal Industries, and Fisheries (MAAIF) has had into mixed nies to undertake the investments required. For example, a results. As of mid-2008, no database of approved pesticides training session could not be delivered if the company did not had yet been created, and regulatory oversight of pesticide provide transport and food to the outgrowers that were at- distribution channels remained weak—despite the greater tending. This is a major factor explaining the quite signi�cant awareness among staff about the key issues and challenges. variation in the progress of action plans among companies After nearly two decades of GoU and development assistance that received support, as only half were �nalized by the end support, Uganda’s horticultural export sector remains small, of PIP in 2008. Additionally, out of nine companies attempt- having only a marginal presence in the EU market and featur- ing to achieve GLOBALG.A.P certi�cation, only two obtained ing few modern supply chains. The total value of the trade it, plus there was uncertainty regarding the capacity of even remains in the range of $6 to $8 million per year. Between those companies to sustain certi�cation. 1,500 and 2,500 smallholder farmers are either regularly or Bottom-up models have also been piloted, through the in- volvement of business service providers or the engagement TABLE 7.2: Broad Themes of Assistance Provided by with cooperatives/associations. For example, in Uganda ef- PIP Program forts were led to help a small-scale producer association to ACTIVITY NUMBER OF COMPANIES become GlobalG.A.P certi�ed through the engagement of a Diagnostic 21 service provider in charge of marketing services and techni- cal assistance. As presented in Box 7.1, this initiative faces HACCP 16 considerable challenges. General technical support 16 Pesticide analysis 10 Through PIP, some support went to strengthening broader ser- Microbiological analysis 10 vice capacities, including the capacities of regulatory authori- Soil analysis 1 ties and a private laboratory, and to train and engage a cadre Pre-audit 8 of local professionals to take on training and advisory services. According to the PIP �nal evaluation, the program trained 29 Pre-GlobalGAP option 1 2 Ugandan consultants, with about three-fourths of these still Pre-GlobalGap option 2 7 providing advisory services to the horticultural sector, either Pre-Organics 1 on a commercial basis or under some other development Source: Diaz Rios et al. 2009. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 125 BOX 7.1: Hot Stuff: A Cooperative-Based Approach to Supply Upgrading in Kasese, Uganda Since the late 1990s, several interventions have sought An array of assistance has been provided to hot pep- to foster a cooperative-based vegetable export venture per producers, including the �nancing of a tractor and located some 400 km west of Kampala in the Kasese of a revolving fund for farmer inputs, repair of the as- region. Initially, a USAID-supported project helped to sociation’s cold truck to reduce postharvest losses, and experiment with the production of alternative vegetable provision training to farmers. In 2005, with the support crops within a previously developed irrigation scheme. of PIP, the association also embarked on GLOBALG.A.P This led to the development of a small trade in hot certi�cation. However, several problems delayed its peppers, tied to a buyer in the Netherlands. When the achievement, in particular an outbreak of bacterial wilt USAID support came to an end, the Dutch buyer con- in 2006 and 2007, which practically wiped out the coop- nected the farmer cooperative to CordAid, which made erative’s production. Other problems experienced were available funds for further investment in the scheme high postharvest losses and dif�culties ensuring avail- and for technical assistance. ability of cargo space. Under the program, a local consulting �rm provided tech- While 131 hot pepper producers have bene�ted from nical advice and training to farmers but also assumed continuous institutional support over more than a de- crucial packing, logistical, and marketing functions. An cade, only a subgroup of 32 of these farmers obtained interesting characteristic of the business model was GLOBALG.A.P certi�cation. The cooperative faces its expected �nancial sustainability, as it should provide signi�cant ongoing technical and �nancial challenges, suf�cient funds to pay for the technical assistance and including starting the repayment of loan obligations, the other services provided by the consulting �rm. Thus, it maintenance of GLOBALG.A.P certi�cation, and ensur- was expected that the grant and loan provided by the ing the sustainability of the services provided by the donor—nearly 0.25 million—would support initial proj- consulting �rm after the end of the project. ect activities, including the costs of technical assistance, but that in the medium-term, 80 percent of technical assistance costs would be funded through income- generating activities. Source: Diaz Rios et al. 2009. irregularly involved in supplying some two dozen (mostly them from reinforcing and following up the training struggling) exporters. The future prospects for this trade do provided to farmers. not look especially bright, although this remains a priority of In supporting standards compliance, efforts involving the GoU. There is arguably much greater potential (and con- great leaps forward are unlikely to have high success sumer bene�ts) in focusing future support to better develop rates. Ugandan �rms were mistakenly encouraged supply chains for the domestic and regional markets. to move their supply chains and systems to become compliant with/certi�ed to GLOBALG.A.P and other Several lessons can be drawn from Uganda’s recent stringent standards when, for the most part, their experiences: buyers were not requiring (or rewarding) this. From The fragmented structure of its industry and very the base they were operating at, this necessitated a small size of most individual companies greatly limited transformation of their entire business without tan- its absorptive capacity for development assistance. gible assurances of bene�ts. Program subsidies can With limited exceptions, increased awareness and help to offset some of the initial upgrading costs, yet knowledge—brought about through training and the �rms are left with the recurrent costs of running a technical assistance—have not been translated into more complex supply chain. In the Ugandan case, and improved practices along the value chain as Ugandan perhaps more generally whenever small- and medium- companies have lacked the �nancial resources to sized enterprises (SMEs) are involved, a more gradu- make the needed upgrades in physical facilities or ated and incremental process of management system hire the staff to implement improved management and commercial practice upgrades seems more systems. The companies’ thin structure has prevented appropriate and potentially sustainable. E C O N O M I C AND S E CT OR WORK 126 C H A PTER 7 Both GoU and donor programs in the 2000s may have USAID—each initially concentrated on enhancing the overall devoted too much attention to standards compliance enabling environment for trade. Yet, there was also room for issues and too little attention to the more fundamental supporting the supply response to policy reforms. For ex- constraints facing the industry. Fundamental limita- ample, 20 percent of the nearly US$80 million investments tions remain in relation to applied research, technolo- made by the USAID’s Trade and Investment Project (TIP, gy transfer, access to �nance, and SME management. 1991–98) were expected to support the capacity of �rms to Dedicated programs focusing on standards compli- export. Innovative efforts were made by donors to support ance (and even more narrowly on certi�cation) are not production expansion, using both the capacities of lead �rms likely to be successful in the context of emergent or to integrate smallholders and the bene�ts of farmers’ collec- immature/struggling industries. tive action. USAID/TIP’s broad support to nontraditional export develop- CASE 4: SHIFTING MARKET PREFERENCES ment applied a graduated approach to enterprise develop- PARTIALLY DERAIL GHANA’S PINEAPPLE ment, consisting of providing direct assistance to �rms with INDUSTRY different levels of readiness to engage in exports, and classi- Background and Industry Take-Off �ed as �rms A, B, or C.135 The Trade and Investment Reform The production of pineapple in Ghana dates from the 1940s Program (TIRP, 1998–04), TIP’s successor, was implemented and was helped by the establishment of a government-man- via a commodity chain approach, with a component spe- aged canning factory, built in 1957, aimed at supporting the ci�cally targeting horticulture development. The approach to economy after independence. From the mid-1980s onward, support �rms under TIRP relied on the so-called “push-pull� the Government of Ghana (GoG) initiated a number of invest- approach, by which a limited number of lead �rms were to ment programs to rehabilitate basic agricultural services, cul- be selected for assistance to push them to a higher level minating in the formulation of the Medium-Term Agricultural of performance and international competitiveness. In the Development Strategy in 1990, which included support for process of increasing their production and revenues, these agriculture export diversi�cation. Financial incentives were �rms were expected to develop links with small producers given to growers producing pineapple for export as a way and, in effect, pull them into the production and marketing of reducing dependence on cocoa, the country’s dominant chain. Thus, the establishment of links between producers export crop. and �rms was to be central to the enterprise development strategy of TIRP. Institutional support was also provided to The World Bank supported the government’s efforts via sev- industry apex associations for improved service provision. eral investments, including the Ghana Diversi�cation Project This, together with the push-pull approach, was supposed to (1991–98), through which support to the pineapple sector expand the impact of the program well beyond the few �rms was provided for production expansion, international market that could be reached directly. penetration, and construction of roads in selected areas. Pineapple production expanded rapidly during the mid- to While the industry’s level of exports grew steadily, reaching late 1980s, reaching an estimated 10,000 tons by 1990. A 54,000 tons in 2004, the bulk of the growth was attributable small export trade in airfreighted pineapples began. By 1993, to expanded production on exporter-owned larger farms, as a group of exporters established a pilot pineapple plantation, well as the contributions made by small producers linked to which resulted in further expansion of the industry. By 1999, Farmapine (see below). Attempts to strengthen exporter- production had expanded to nearly 35,000 tons. The develop- smallholder links advanced little. Each of the lead exporters ment of sea freight capacity drove down freight costs and had their own farms, yet typically sourced from smallholder facilitated the expansion of exports, which reached nearly farmers for between 25 and 40 percent of their volume re- 26,000 tons, valued at €16 million by 1999. Collaborative quirements. But the relationships with these smallholders efforts in logistics and other areas led to the formation of an industry association in 1995, the Sea-freight Pineapple Exporters of Ghana (SPEG). The embryonic industry also developed a small trade in fresh-cut pineapple, prepared fruit 135 A-level �rms were ready for immediate assistance in �nding trade and investment opportunities; B-level �rms required tech- salads, and pineapple juice (Danielou and Ravry 2005). nical and/or managerial assistance to prepare them for trade and investment opportunities in a reasonable period of time; The two largest donors supporting nontraditional export de- and C-level �rms were willing to take the steps necessary to velopment in Ghana during the 1990s—the World Bank and prepare for trade and investment opportunities at the time. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 127 typically remained loose, without seasonal contracts or quality fruit. Yet, in 1996 it began to ship a newly developed technical assistance and rarely involving the provision of variety called MD2 that was considered to have a sweeter inputs. Most smallholders were approached on an ad hoc taste than the dominant variety then being traded (and grown basis when exporters received an order or wanted to send in Ghana), the Smooth Cayenne. MD2 had bene�ted from a consignment to Europe.136 A limited few became regular an extensive combination of research and development, sup- outgrowers, qualifying for credit or other forms of support ply chain improvement, and marketing initiative by a leading from the exporters (Yeboah 2005). multinational company. This pattern of procurement was a mirror image of the The introduction of MD2 proved to be an enormous success basis for export sales. Most Ghanaian pineapple was sold in the European market. Costa Rican exports to the EU in- into Europe on a commission/consignment basis without creased from 100,000 tons in 1999 to nearly 640,000 tons by pre-agreed prices. Suzuki et al. (2008) found that the qual- 2009. Similarly, Ecuador, with an insigni�cant trade of around ity rejection rates of exporters for smallholder produce was 1,000 tons in 1999 has become the second leading supplier closely linked with ups and downs in market demand, sug- to the EU market, exporting about 54,000 tons in 2009. In gesting that exporters use the complementary procurement contrast, Ghana’s export volume in 2009 (29,000 tons) was from smallholders as a mechanism to transfer market risks to little different than its level of trade a decade earlier. During such suppliers while protecting the revenues from their own this period, Ghana fell from being the second to the fourth farms. The strengthening of links between exporters and largest supplier of pineapple to the EU market. producers thus became the central focus of the USAID Trade and Investment Program for a Competitive Export Economy The varietal shift from Smooth Cayenne toward MD2 Project (TIPCEE), over the 2004 to 2009 period. Attempts pushed the Ghanaian industry to revisit its basic factors of were also made by donors to open more stable export oppor- production and restructure its supply chains. Adopting MD2 tunities for small farmers through a farmer ownership-based has meant substantial changes in production practices—in- export model, yet, as will be noted below, that effort proved cluding use and methods of irrigation as well as strict fertil- quite challenging and was ultimately not sustainable. ization programs. Major upgrades have also been needed in postharvest infrastructure and in logistical arrangements. A An Exogenous Shock Undercuts Ghana’s Position in the more effective cold chain from the �eld to the port has been EU Pineapple Market needed. Relative to traditionally grown varieties, the MD2 Up until then, Ghana’s pineapple export industry had devel- has proven to be more knowledge- and capital-intensive to oped with comparatively little investment production, posthar- manage. vest, and logistical infrastructure. Its bases for competitive- And, other changes were afoot. Ghana’s traditional outlet ness consisted of low labor costs and low freight costs, with had been the so-called discount segment of the northern no particular market or consumer preference for Ghanaian European market—a channel focused �rstly on price, but pineapples.137 These advantages would soon be undermined also calling for consistency of supply and quality. Buyers in by measures taken by Ghana’s competitors. Costa Rica was this market segment had put little pressure on the Ghanaian a long-standing supplier to the international pineapple mar- suppliers to upgrade production and pack house controls to ket, although it was noted for supplying relatively cheap, low- address matters related to pesticide residues, hygiene, and other food safety matters. Yet, by 2004 major supermarkets in several European countries were pressuring suppliers 136 Fold (2008) describes the process as follows: “The exporter in- spected the �elds to estimate the number of harvestable pine- to comply with the EurepGAP standard, covering risk iden- apples that met the importer’s contract speci�cations, usually ti�cation and management and requiring full traceability of in terms of the degree of sweetness and size. If a deal with sourced product. The expectation in Ghana was that demand the smallholder was agreed, the exporter took care of all suc- cessive handling, from ‘de-greening’ the suitable pineapples, for EurepGAP certi�cation would soon be articulated by their harvest, cleaning, grading (according to size), packaging and buyers servicing the discount segment. This would neces- transportation to Tema terminal, together with pineapples from sitate additional investments and changes in management the exporter’s own farm. Pineapples left in the smallholders’ �eld were either sold to local juice-manufacturers or petty trad- practices (and intensi�ed record keeping) on the farms ers who sold them on local markets.� owned by the exporters. Given the very loose relations 137 In 2008, daily rural wage rates were between $1 and $1.50 in exporters had with smallholders, it wasn’t evident how the Ghana, compared with $10 in Costa Rica. Sea cargo from Ghana to most European ports takes a few days vs. 12 days or longer production changes and exporter oversight functions could from Central/South America to Europe (Jaeger 2008). be applied for those channels. E C O N O M I C AND S E CT OR WORK 128 C H A PTER 7 BOX 7.2: Farmapine—A Nice Concept Yet Unsustainable Results During the 1990s, TecnoServe was supporting the es- currency and the purchases of imported inputs had to tablishment of pineapple grower cooperatives in Ghana be paid at far more expensive prices. As a result, the as a way to aggregate product and enhance farmers’ typical farmer was generating a crop yield suf�cient to collective capacities to access services and export repay only 50 percent of the original input loan value. markets, and to overcome poor experiences from their These problems were compounded by poor manage- participation in outgrower schemes. With technical sup- ment of the company, and dif�culties achieving produc- port through the TIRP/USAID program, an exporting tion volume targets and matching quality speci�cations. company—Farmapine Ghana Limited (FGL)—emerged The company experienced high product rejection rates, from the merger of �ve small-scale producer coopera- widespread farmer side-selling, and the accumulation tives and two private medium-scale exporting compa- of debts among its suppliers/members. By 2004, the nies. The company was established as a limited liabil- company was no longer viable. While designed to be a ity company, with the �ve pineapple cooperatives (164 model of farmer ownership, in practice the participating farmers with an average cultivated area of 1.9 acres) farmers contributed to and understood little about the holding 80 percent of the shares and the two exporters company’s business decisions. each holding 10 percent shares. The company received its original capitalization of US$1.4 million through a In late 2004, in an effort to restore member con�dence, government loan from the Agricultural Diversi�cation a new management team was appointed and mea- Project (ADP), funded by the World Bank, to be repaid sures taken to restructure the company. Membership over a seven-year period including a grace period of increased to 300 and the company’s improved �nances three years. The exporting companies were expected helped it widen its sources of �nancing. Farmapine’s ex- to bring experience, equipment, and market-end links to ports recovered during the subsequent year. However, the new commercial entity. the apparent recovery would not be enough to ensure its �nancial viability. During the �rst years of operations, the company was a success from the perspective of accessing exports Nevertheless, several donor-supported initiatives sought markets—it soon became the second largest pineapple to help Farmapine members to gain EurepGAP and fair exporting company in Ghana, reaching about 6,000 tons trade certi�cation and/or convert production to the MD2 in sales in 2002. However, since the commencement variety. Planting material was imported by a local NGO of its operations, the company faced severe teething and provided to Farmapine members, but this turned problems. According to a World Bank report (2001), it out not to be the MD2 variety. Subsequent arrange- was clear that to be viable in the long run, the company ments were made to provide proper planting material, needed to quickly increase the volume of its opera- yet lack of capital prevented the farmers from applying tions, cut back on its management costs and sort out proper techniques. Production continued to decline. The the problem of compensation to the two former export company shut down its operations in November 2006 companies. An additional problem was the massive de- and its assets were auctioned off in June 2007. valuation of the Cedi after January 2000, which resulted Source: WB Report No. 22439 (2001). Yeboah 2005; Danielou and in a contraction of the working capital provided under Ravry 2005; Moss and Donu (no date). Interviews with former Farmapine farmers and managers, March 2008. the loan to farmers. The loan was borrowed in foreign Industry Response to Emerging Challenges and the typical pattern of exporters relying upon their own Ghana’s pineapple export industry has featured relatively farms for the bulk of their supply, should have facilitated the high rates of concentration among relatively few �rms. For relatively rapid take-up of EurepGAP and the MD2 variety example, in 2000 the leading �ve companies accounted within the industry. EurepGAP did not seem to be a problem. for 72 percent of export volume. By 2008, the top seven By 2004, according to a survey undertaken under the Ghana companies had an 80 percent share. This concentration, Horticultural Public-Private Partnership Program (GHPPP), 16 MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 129 out of the 24 farms that accounted for over 72 percent of Trade Ltd. and by 2007 it was exporting about 15,000 tons of the total exports in 2003 had GLOBALG.A.P certi�cation and MD2 and 3,500 tons of Sweet Cayenne. Several companies 8 farms also had fair trade certi�cates (Sefa-Dedeh 2005). sought to differentiate themselves by targeting the market And, by 2007, almost all leading exporters were already for organic and Fair Trade pineapple, with mixed results. GLOBALG.A.P certi�ed. Other �rms shifted into other product lines, including mango. Companies that had been relatively more reliant upon small- MD2 conversion did not proceed as smoothly. One company holder supplies were very adversely impacted as the pace of had started the conversion process in 1999, and several oth- smallholder conversion to MD2 was very slow. Many smaller ers began in 2002. Yet, by 2004, only about 225 hectares (of exporters simply went out of business. The farmer-owned total national plantings of nearly 10,000 hectares) were un- company that had been established with development assis- der the MD2 variety. And, much of these plantings involved tance in the 1990s—Farmapine—collapsed during this time agronomic and postharvest practices little different than for (box 7.2). Sweet Cayenne, despite the rather different characteristics of these varieties. No sense of urgency was apparent. In fact, the success of MD2 in Europe seemed to come as something Development Community Response of a surprise to the Ghanaian industry. A consumer survey Figure 7.3 illustrates the range of donor-supported interven- undertaken by GHPPP in 2004 highlighted no signi�cant pref- tions in Ghanaian horticulture during the past decade. For erence between MD2 and Sweet Cayenne and concluded a high proportion of these investments, the focus was on that the introduction of MD2 should not come at the expense export horticulture and value-addition. Many of these invest- of other varieties in Ghana (Sefa-Dedeh 2005). ments were formulated to address overall constraints to product quality and reliability in the supply. However, with In 2006, Del Monte of�cially launched its “Honey Gold� increasing demands for quality, safety, and traceability, and brand in Europe, based on deliveries from Latin America. the need to accelerate conversion rates of variety, several Consumers quickly shifted over to this product and Ghanaian programs incorporated strong support to the pineapple ex- exporters suddenly found themselves with sharply reduced port industry. orders. One set of companies merged to form HWP Fair FIGURE 7.3: Framework of Recent Interventions in Ghana Horticultural Sector Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 compliance with market GTZ/MOAP GTZ/MOAP PIP PIP PIP High focus on requirements MCA MCA GTZ/MOAP GTZ/MOAP USAID/TIPCEE IFAD IFAD USAID/TIPCEE USAID/TIPCEE GTZ/MOAP ADRA WB/HEII WB/HEII MCA MCA MCA IFAD IFAD EQMAP EQMAP Export-related infrastructure (WB-HEII, MCA/EQMQP) Strengthening exporters’ associations in specific segments and improved (GTZ/MOAP/TIPCEE) Baseline for market participation competitiveness Strengthening exporters’ associations (GTZ/MOAP/TIPCEE) Infrastructure: electricity, roads Development of financial services Regulatory frameworks MCA/TIPCEE/WB/IFAD Source: The Authors. E C O N O M I C AND S E CT OR WORK 130 C H A PTER 7 For example, the World Bank–funded Agricultural Services project sourced some 5.7 million plantlets of MD2 variety Subsector Investment Project (AGSSIP, 2001–07) was from tissue culture laboratories and then some 75 farmer originally designed to strengthen producer organizations and groups (900 farmers) were assisted to establish nurseries. public institutions, yet in 2003 it was restructured to allow While the availability of (subsidized) planting material certain- strong private-sector participation and support the develop- ly increased, the lack of technical knowledge among farmers ment of nontraditional export crops. A new component was proved to be a major bottleneck in effective adoption. added—the Horticulture Export Industry Initiative (HEII)—to address the challenges faced by the sector. For pineapple, A survey of 400 farmers carried out in 2008 as part of this support would be given to upgrade sea- and airfreight termi- research program found very mixed experiences. Nearly 30 nals, construct farm-level pack houses, and make available percent of the sample had ceased growing pineapple. Only MD2 planting material 26 percent had fully converted over to MD2, with the remain- ing farmers growing a range of other varieties. The analysis The USAID/TIPCEE project was designed with a strong hor- of survey results found that none of the demographic factors ticulture export focus, later also concentrating on domestic considered—age, education, household size, and influence value chains. In pineapple, the project concentrated on qual- in the community—could explain MD2 conversion patterns. ity upgrades including the promotion of product standards, Yet, many of those who did convert seemed to have had supporting the development of inspection protocols for the more regularized relations with particular exporters. industry, and introducing geographic information system Nevertheless, smallholder farmers do continue to have mar- (GIS) mapping. EMQAP, funded by the African Development ket outlets for other varieties, including in the local market, Bank (ADB), includes the establishment of demonstration for processors, and a continued small trade in farm ripened farms for the application of Good Agricultural Practices and airfreighted Smooth Cayenne (Jaeger 2008). While Ghana’s other related support. The Millennium Challenge Corporation pineapple export volume to Europe declined sharply in the large program in agriculture includes support for postharvest mid- to late 2000s, overall production does not seem to and cold chain infrastructure. have declined, suggesting higher take-up by processors in During the mid-2000s, PIP was a major donor supporting the domestic market and also within West Africa. The pres- compliance with food safety and traceability requirements. ence of these channels may have contributed to the low rate It worked with 23 pineapple companies (18 of them small), of conversion, with farmers less willing to take the risks of which, in aggregate, had some 600 smallholder outgrowers. adopting the new variety. The collapse of Farmapine and the Many of the companies that were supported by PIP had al- negative experience of its members when introduced to a ready obtained EurepGAP certi�cation on their own farm(s). wrong variety may also have limited smallholder interest to Attempts were thus made to support a few exporters to cer- make adjustments. tify their outgrowers. Yet, this was not generally successful. In the current precarious market environment, the near-term Given the prevailing situation, PIP devoted considerable re- success of Ghana’s pineapple industry should probably not sources to assist the industry with its most pressing need— be measured by how inclusive it is in providing opportunities to convert to MD2. Complimentary support was provided in for the engagement of small-scale producers in the supply training and in GPS mapping. of fresh pineapple to conventional or more differentiated With the industry struggling to reorient itself, smallholders EU markets. A more appropriate metric would relate to the were supported to achieve compliance with GLOBALG.A.P capacity of the industry to regain and maintain sustained and to convert over to MD2. For example, TIPCEE/GTZ growth, and to provide opportunities for many stakeholders, and HEII implemented a pilot program to provide training, including farm and pack house workers. The industry faces defray costs of investments needed to upgrade operations, a persistent challenge in realizing economies of scale and in and more generally support �ve farmer groups to achieve delivering a product of consistent and reliable quality. GLOBALG.A.P certi�cation. The expectation was that once certi�ed, these farmers would be more likely to sustain the CASE 5: INTRIGUED BY THE BUZZ, STUNG BY market channels for their pineapple. This proved temporary, THE RESULTS: ADVENTURES WITH UGANDAN and over time, the certi�cation of such farmers has lapsed. HONEY Conversion to MD2 was supported mainly through absorb- Honey has been one of the persistent donor (and NGO) “dar- ing the costs of the planting material (“suckers�). The HEII lings� as a result of its natural properties and potential tie-ins MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 131 with natural resources management, SME development, and households engaged in semisubsistence farming and cot- livelihood improvements in remote locations. Only a small tage industries (Wilson 2008). Rates of poverty are among subset of honey sector interventions have focused on formal the highest in Uganda. Thus, since the mid-1980s, numer- supply chain development and compliance with regulatory ous NGOs (for example, CARE Canada, Oxfam, Action Aid, requirements or market standards. We examine in the fol- Accord, World Vision, and the Red Cross) and donors (for ex- lowing pages one such set of interventions. ample, the Food and Agriculture Organization of the United Nations [FAO], Austrian Development Cooperation, the This case study of Ugandan honey presents an example of German Development Service [DED], African Development (failed) attempts to achieve wholesale upgrading of a type Foundation [ADF], USAID’s Africa Project Development 1 value chain directed at local markets to assured compli- Facility [APDF], and Investment in Developing Export ance with the regulatory and market requirements of export Agriculture [IDEA] project) have invested in the diffusion of markets of type 3 or 4. While Uganda has essentially been improved hives (most notably the Kenya Top Bar Hives—KTB), successful in achieving compliance with EU standards, it has establishment of collection centers and re�neries, demon- never actually exported commercial consignments of honey stration farms and workshops for hive construction, and the to the EU markets. More pervasive problems in integrating training of farmers. Further, there have been more elaborate honey producers into upgraded and quality-governed value initiatives for the development of the apiculture sector, for chains have thwarted the best efforts of the private sector, example the Plan of Action for Apiculture Promotion and Ugandan governments, NGOs, and multiple donors. Development in Uganda (UHA 1997). The success of such interventions, however, has often been compromised by Ugandan Honey Production the inability of farmers to access credit, lack of training in appropriate harvesting and postharvest handling practices, Honey production has long been practiced in Uganda and, and the vagaries of informal markets (see, for example, in some parts of the country, especially the West Nile, is an Commonwealth Secretariat 2002). Thus, the adoption of important source of livelihood for rural populations (UEPB improved hives has often been out of sync with efforts to 2005). A string of assessments pointed to a plentiful sup- establish linkages with processors, such that honey produc- ply of honey (see, for example, UHA 1997; UEPB 2005; ers have often been disappointed with the �nancial returns. Commonwealth Secretariat 2002; ADF 2005), with one esti- Thus, signi�cant rates of abandonment of hives have been mate of up to 9,000 tons per annum. Yet, data on honey pro- observed—both in the aftermath of sector interventions in duction remains unreliable, with most estimates of annual the mid-1980s to mid-1990s, and more recently. production much lower, at between 300 and 600 tons. In a 1997 census, 70,192 households were engaged in hon- Local Markets for Honey ey production, with 876,279 traditional hives, constructed There is a vibrant local and regional market for honey in of bamboo or out of wooden logs, of which 757,262 were Uganda. Honey is traded on local informal markets, predomi- colonized (UHA 1997). In addition, there were an estimated nantly for use in brewing. There are also substantive informal 16,105 improved traditional hives, of which 11,871 were exports to neighboring countries, notably to Sudan, Tanzania, colonized. These data highlight how the use of traditional and the DRC. Typically, beekeepers or honey collectors sell hives largely remains the norm, with very limited penetra- their honey to local traders who amalgamate the supply tion of improved traditional hives (such as the Kenya Top Bar) (�gure 7.4). The honey is purchased by urban dealers who and, especially, frame hives (such as the Langstroth). Honey separate the honey and wax, package the honey, and sell hunting, involving the collection of honey from hives in the it direct to consumers or to retailers. The wax is normally wild, also remains widespread. Where improved hives have discarded. Honey has been traditionally sold in used jerry been introduced, this has been largely as a result of devel- cans and recycled mineral water bottles, although new plas- opment projects providing free or subsidized access to the tic containers are becoming more common (Wilson 2008). In technologies. 2009, formal market prices were typically USh 4,000 to 5,000 per kilogram. These relatively high prices reflect both vibrant And, there have been many such projects. There are long- local demand and the constrained supply of honey due to the standing efforts to enhance the productivity of honey pro- persistence of traditional production methods. duction in Uganda, predominantly as a means to improve rural livelihoods among small farmers. Honey production is In recent years, formal markets for honey have been estab- concentrated in the West Nile region, with the majority of lished, through both supermarkets and stores dedicated to E C O N O M I C AND S E CT OR WORK 132 C H A PTER 7 FIGURE 7.4: Honey Value Chain in Uganda The Allure of Exports Historically, Uganda has had no presence in international Domestic markets for honey, with the exception of some informal Production trade with neighboring countries (see above).138 A succes- sion of reports and strategy documents, however, examined Imports the potential for Uganda to establish substantial exports of honey (MSE Consultants 1994; UHA 1997; Commonwealth Secretariat 2002; GoU 2004; ADF 2005). These culminated in the drafting of the Uganda Apiculture Export Strategy Formal Trader Processing in cooperation with the International Trade Centre (UEPB Sector 2005). Informal Formal The EU consumes around 22 percent of global honey produc- Processing Domestic Export Market tion, with consumption increasing over time as a result of Sector Market increasing concerns about health and honey’s position as a natural product that is perceived to have therapeutic proper- Informal Domestic ties and a healthier alternative to sweeteners such as sugar Market (CBI 2006). The EU is far from self-suf�cient in honey, with Source: The Authors. imports accounting for around 50 percent of consumption. Major suppliers have included China, Argentina, and Mexico. Uganda was seen as being well-situated to exploit emerg- apicultural products. Initially, supermarkets sold imported ing niche markets for honey in the EU, including varietal and honey, but have increasingly stocked locally produced honey organic honey (UEPB 2005). that tends to be positioned at the lower end of the market. The supermarkets are supplied by �ve local formal sector At a time when honey imports to the EU were booming, the processors, who typically purchase directly from produc- exclusion of one of the most important importers was seen ers (�gure 7.4). Some of these processors are commercial as opening up market opportunities. In 2001, China exported companies and others are NGOs and/or producer organiza- over 375,000 tons of honey to the EU. However, the detec- tions. Such relations are critical, since the formal sector has tion of residues of the antibiotic chloramphenicol in multiple historically been a residual market, absorbing surpluses from consignments of honey in 2002 resulted in the imposition the informal sector in times of high production. In 2009, im- of restrictions that acted to curtail Chinese exports. In 2006, ported honey was typically priced at USh 8,000 to 12,000 per similar measures were applied to exports of honey from kilogram, while locally produced honey was sold in the range Brazil, which was found to lack an approved residue moni- USh 7,000 to 8,000 per kilogram. toring plan. These restrictions led to price increases in EU markets, making these markets even more attractive to po- Local markets for honey can be characterized as of type 1 tential Ugandan exporters. At the same time, negative media and type 2, according to the classi�cation de�ned in Chapter attention threatened to jeopardize the reputation of honey 3. The main quality criteria are color and smell, both of which as a natural health product among EU consumers. Thus, can be readily assessed at the time of purchase. There is honey importers were on the lookout for suppliers with a little or no concern about ash content and or smoky taints product that was of reliable quality and could maintain natural due to traditional methods of harvesting; these are consid- credentials. Uganda might have a competitive advantage in ered normal and not an issue given that the predominant use this context, given that antibiotic use in honey production is of honey is brewing. Most Ugandan honey has a dark amber virtually nonexistent in the country. color. While local supermarkets pay more attention to the consistency of quality than do informal markets, their main concerns are the continuity of supply and the integrity of the packaging. There is little evidence that the Uganda national honey standard, itself based upon international standards 138 This is not to say that exports abroad have never occurred. For example, MSE Consultants (1994) cites reports of two com- and covering a range of quality criteria, is either widely ap- panies exporting 11 tons of honey to the United Kingdom and plied or enforced. Germany in 1993. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 133 Export Market Requirements of Ugandan honey were tested, the results showing that only In order to export honey to the EU, a country must obtain 40 percent of samples met the EU standard for HMF and only prior authorization from the European Commission. Under 20 percent met the standard for diastase number (Kabasa et Council Directive 96/23/EC, the EU requires that imports of al. 2003). Over a three-year period, Uganda: all animal products from Third Countries are subject to an Put in place a national standard and legal framework approved monitoring plan covering banned veterinary sub- that was compatible with EU requirements stances, authorized veterinary substances, and environ- Established a Competent Authority—the Animal mental pollutants, which for honey predominantly means Husbandry Department within the Ministry of residues of pesticides and antibiotics. When requesting ini- Agriculture, Animal Husbandry, and Fisheries—to be tial approval, a Third Country must demonstrate that it has responsible for the implementation of these controls an appropriate legal framework in place, an appropriately Designed and began implementing a residue moni- structured Competent Authority, accredited laboratories to toring plan, involving the annual collection of honey undertake the analysis, and an of�cial sampling procedure. samples and their laboratory analysis The results of this monitoring plan have to be presented to Facilitated the upgrading of testing facilities, namely the European Commission annually to demonstrate changes in the privately operated Chemiphar laboratory, and in levels of contaminants, with the implication that approval international accreditation of the laboratory to export honey to the EU is renewable on an annual basis. These measures were undertaken with the funding and The of�cial compositional and quality standards of interna- technical support of the Shell Foundation and United Nations tional markets, including of Codex Alimentarius and the EU, Industrial Development Organization (UNIDO). Uganda was stipulate a range of parameters including moisture content, approved for the export of honey to the EU in March 2005 solid residues (for example ash), microbial contaminants, (Commission Decision 2004/432/EC), one of only �ve coun- chemical residues, invert sugar, sucrose, hydroxymethyl- tries in sub-Saharan Africa (SSA) to achieve this.139 furfural (HMF), and diastase activity. Among these param- eters, the greatest challenge for Uganda is complying with Parallel to putting in place a reliable system for quality moni- maximum HMF levels; the level of HMF tends to increase toring and standards assurance, investment was needed in rapidly after harvesting in hot and humid conditions. Both modern production facilities if Uganda was going to obtain the Codex and EU standard require that the HMF content of and maintain a toehold in the European market. Thus, in 2002 honey after processing and/or blending is not more than 40 a private limited company called Bee Natural Products (BNP) mg/kg. However, in the case of honey of declared origin from was established with a vision of targeting the EU market. countries or regions with tropical ambient temperatures, a BNP borrowed and invested $600,000 in a modern facility less strict limit of 80 mg/kg is applied. Importantly, however, in the West Nile region, with a capacity to process 600 tons industrial buyers tend to apply a stricter standard regardless per year.140 of origin, which can be as low as 10 mg/kg. There are also local European market requirements covering 139 The costs of implementing the residue monitoring plan have color, flavor, and so forth. While there are signi�cant differ- not been trivial. Doing the initial tests and setting up the rou- ences in consumer preferences across EU member states, tine system cost $40,000, while subsequent annual costs have been $26,000. This would certainly have been manageable had the general preference is for clear honey with a mild taste. there been a successful export industry that might have paid There are signs that preferences are changing, however, fees to �nance this program. Yet, exports have not occurred with monofloral varieties (for example, acacia) becoming and the Component Authority has struggled to maintain the program. Thus, it has often failed to submit the results of the more popular (CBI 2006). monitoring plan on time. Evidently, the European Commission has tolerated this to date, since Uganda remains on the list of Establishing Formal Sector Honey Exports countries approved to export honey to the EU as of June 2010 (Commission Decision 2010/327/EU). In the face of the EU’s restrictions on China’s honey exports 140 According to the investor, the scale of the factory was based in 2002, the perception in Uganda was that to access the upon the �ndings of the Commonwealth Secretariat study of EU market the �rst order of business was to test Uganda’s 2002, which indicated that some 850 tons of honey was pro- product for compliance with EU standards and to put in place duced in the immediate vicinity of the factory. Yet, it seems that this estimate reflected local availability rather than local produc- a residue (and broader quality) monitoring program to assure tion, with the bulk of supplies actually originating in Southern compliance over time. This, in fact, was done. Many samples Sudan and Eastern Congo. E C O N O M I C AND S E CT OR WORK 134 C H A PTER 7 BNP then set about building links with local honey producers underlying economics of the improved hives seemingly by providing training in production techniques and support- remained marginal for farmers. In 2006, several additional ing access to improved hives. However, this proved more schemes were introduced. One, involving the Development dif�cult than anticipated, and the company soon ran into lo- Finance Company of Uganda and a DANIDA-supported pro- gistical and �nancial constraints. Due to poor production and gram, featured the leasing of hives and other equipment to harvesting methods, up to 80 percent of the honey initially beekeepers. Another, supported by the Export Promotion of procured did not meet the company’s quality speci�cations. Organic Products from Africa (EPOPA) project, involved an When the company sought to provide improved hives on effort to purchase and sell organically certi�ed honey. BNP credit, little of this (or the honey) was recovered as high rates hoped that the latter program would enable it to pay a pre- of side-selling took place among producers. BNP faced a situ- mium price to farmers and thus retain their loyalty. EPOPA ation in which local (informal) markets were offering higher covered a large part of the training and certi�cation costs for prices and without concern for the presence of ash or smoky this initiative. The initial goal of this scheme was to certify smells in the honey. In its �rst year of operation, BNP pro- 2,000 honey producers. Yet, after 18 months this program cured 80 tons of honey. With widespread farmer side-selling was curtailed due to limited progress and broader �nancial and with the company facing liquidity constraints, this fell to problems being faced by BNP. Only 195 producers achieved 11 tons in its second year. All of this honey was sold locally. organic certi�cation by December 2007. In its �rst year of operations, BNP sourced honey from some 2,700 farmers; only a few hundred farmers supplied it during BNP’s production never exceeded the level (80 tons) that it its second year. achieved during its �rst year of operations. Nearly all of its production was sold locally, with limited exports within the Clearly, developments were not going as planned. In an ef- region and a consignment or two of bulk honey sent to the fort to reorganize its supply base and induce both technologi- United Kingdom. Despite repeated attempts by government cal change and product quality improvements among farm- and donor agencies to throw BNP a lifeline, its vicious cycle ers, BNP turned (in 2005) to the GoU’s National Agricultural of low production, �nancial problems, and dif�culties in main- Advisory Services (NAADS) for support. NAADS resources taining farmer loyalty persisted. In January 2008, BNP went �nanced local private service providers that, in partnership into receivership, having not repaid its original investment with BNP, organized farmers and provided training in im- loan. The company has subsequently been resurrected, proved beekeeping practices as well as proper honey collec- having shed its �nancial obligations. The new company is tion.141 Carpenters were trained to construct improved hives. focused on the higher value segments of the domestic and NAADS implemented a scheme to provide these hives and regional markets. harvesting kits to farmers, with the repayment to be made via the sale of honey to BNP. In parallel, BNP obtained direct Synthesis support from UNIDO to strengthen the quality management The case of Ugandan honey exports to the EU, on the one system at its processing facility.142 hand, presents an example of successfully complying with relatively strict of�cial requirements, namely the implemen- Some gains were achieved, with BNP producing some 67 tation of an approved residue monitoring plan. On the other, tons of honey in 2005–06 and with its rejection rate from it highlights the challenges faced in bringing about wholesale suppliers falling to the 10 to 15 percent range. Still, BNP changes in the structure and modus operandi of the value was struggling to compete with the local market, and the chain for honey, such that it is directed at type 3 or 4 rather 141 The postharvest handling of honey is critical for establishing and maintaining quality. Given that processors tend to purchase 142 Various efforts have been made to establish organizations that honey in bulk during harvest periods when the price is at its can represent the interests of honey producers, act as the lo- lowest, there is considerable scope for quality deterioration if cus of technical assistance programs by NGOs and donors, and storage facilities are inappropriate. Notably, the temperature at even facilitate honey marketing. Donors—for example, USAID which honey is stored is critical for the control of HMF levels. through its IDEA project—have supported this process. Cur- These initiatives have included efforts to promote the use of rently, three organizations coexist—the Uganda Honey Asso- protective equipment and smokers rather than burning hives, ciation (UHA), Uganda Honey Beekeepers (UHB), and Uganda dedicated equipment and utensils, proper storage practices, National Apiculture Development Organization (TUNADO)— and squeezing or centrifuging the hives rather than boiling the which are variously engaged in providing training to producers, honey. Thus, training has been provided alongside efforts to or- supplying improved hives, operating processing facilities, and ganize honey producers into groups that can share equipment, so forth. All of these organizations are weak and remain reliant and so forth. on donor funding. MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 135 than type 1 markets. Here, the substantive efforts by NAADS Indeed, some evaluations of the honey sector in Uganda (for and BNP, with signi�cant donor support, have evidently example, EPADU 1993; Commonwealth Secretariat 2002) failed. were rather skeptical of the scope for establishing a substan- tive and sustainable export sector, or at least suggested that The shift from type 1 value chains even to those only of type local markets present a logical �rst step in the development 3 or 4 will always be dif�cult. This is even more the case of the honey sector. Some larger-scale support programs, when producers are located in remote areas and with little or such as USAID’s IDEA project, questioned whether viable no past experience selling to formal value chains. For most exports of honey could be established and maintained. While producers in Uganda, honey was a sideline activity, although some support was provided to the honey sector in the early one for which local informal markets were lucrative, paid in years of that project, these were soon abandoned. Other cash, and had little or no quality requirements. Many pro- donors were not deterred by BNP’s early teething pains. A ducers had been cheated in the past by buyers that claimed range of different schemes were put in place to induce tech- they would “make them rich,� and so understandably they nological changes and strengthen supply chain links. Some were skeptical. The fact that BNP could not even match the innovative elements went into the design of these schemes. prices on the local market perhaps meant that its efforts Yet, this didn’t matter. Subsequent developments brought were doomed from the start. Certainly, it did not have deep out fundamental flaws in the underlying commercial proposi- enough pockets to weather the inevitable teething problems tion that many of these schemes sought to support. It took and to implement a system of procurement and oversight the receivership of the lead �rm six years of (painful) lessons that could supply suf�cient supplies of honey in a manner to sink in. that achieved assured compliance. An undoubted critique of the efforts to establish honey CASE 6: OVERCOMING COMPETITIVE exports to the EU, which is now recognized by BNP, is the CHALLENGES VIA ORGANICS CERTIFICATION: UGANDA’S “SUCCESS� failure to prioritize the upgrading and organization of honey production as the �rst step. It is noteworthy that the EPADU Over the past two decades, a rather signi�cant industry study (1993) of the scope for Ugandan honey exports high- featuring organic production, certi�cation, and trade has lighted the need to organize the value chain for honey to emerged.143 The global market for certi�ed organic food and ensure that orders can be ful�lled on a continuous basis drinks was estimated to have a retail value of $46 billion in before embarking on a serious export program. Instead, 2007, this being triple its value at the beginning of the de- BNP initially invested in a high-grade processing facility and cade. A range of organic principles and standards has been the implementation of a QMS. This facility never operated developed, at national, regional, and international levels, with anywhere near its capacity. The sequencing of these efforts a system for third-party certi�cation of production systems was evidently wrong. Unless the more fundamental and tra- and with regulations on the use of an organic label. The larg- ditional problems of production and marketing are sorted out, est markets for organically certi�ed foods and beverages exporters never even get to the stage of achieving assured are the United States and the EU, although signi�cant mar- compliance. kets are also emerging in India, China, and elsewhere (Van Elzakker and Eyhorn 2010). A more fundamental question is whether Uganda should have been aiming to export honey to the EU at all. Evidently, For developing countries, the international market for certi- there are vibrant local and regional markets, both within the �ed organic produce offers some appeal due to the poten- informal and formal sectors, which pay comparable (if not tial for realizing either higher or more stable prices than for much higher) prices than exports to international markets. conventional commodities and/or simply being able to differ- Perhaps BNP never stood a chance competing with local entiate one’s supply and secure reliable access to favorable informal market traders who had little concern over the qual- ity of the honey they purchased and paid good prices. In 2005–06, the local prices paid for honey in remote locations 143 The International Federation of Organic Agriculture Movements (IFOAM) de�nes organic agriculture as “a production system in northern Uganda exceeded the landed cost, insurance, that sustains the health of soils, ecosystems and people. It re- and freight price (C.I.F.) prices for Chinese honey in Europe! lies on ecological processes, biodiversity, and cycles adapted Despite having an attractive storyline of linking remote, poor to local conditions, rather than the use of inputs with adverse effects.� Most consumers understand organic produce to be beekeepers with Europe’s honey market, it doesn’t seem that which is produced without the use of chemical fertilizers that BNP ever had a viable chance to play out its vision. or pesticides. E C O N O M I C AND S E CT OR WORK 136 C H A PTER 7 supply chains. For some product lines, organically certi�ed yet what was needed was the development of internationally produce has commanded substantial price premiums at retail acceptable management information systems—by purchas- level, with a (small) proportion of this being transferred back ing companies—to provide the oversight and assurance that through supply chains to farmers. And, for some developing certain practices are/are not applied on these farms. Hence, country producers, the costs and challenges of converting an organics industry could be started from scratch through from conventional to organic production may be relatively management efforts made by processing and trading com- modest if limited or no use is being made of synthetic agro- panies—supported by development organizations. chemicals. This short case study summarizes the experience of Ugandan Uganda is generally considered an African success story in organics development since the mid-1990s, highlighting the terms of the development of certi�ed organic production and roles played by development assistance interventions, char- trade. According to data provided by various sources, Uganda acterizing the evident gains and shortcomings, and drawing is the world’s leader in terms of the number of producers some selected lessons. engaged in organic production—over 200,000 farmers, equal to nearly 16 percent of all registered organic producers Origins and Overview of Development Assistance worldwide (IFOAM and FiBL 2010). Nearly 300,000 hectares Efforts of agricultural land are currently organic certi�ed in Uganda. Uganda’s organics industry dates to the early 1990s, when In the early 1990s, Uganda’s trade in organic produce was a Swiss consultant formed a joint venture with a Ugandan nonexistent; by 2008 this totaled some $25 million. Organic investor to export organic fruits. A second initiative, undoubt- product exports have been developed for a range of products, edly having a stronger impact on future developments, came including coffee, cotton, cocoa, sesame, vanilla, and various from a Swedish textile company, which requested support fruits. Uganda’s organics success has been built upon heavy from SwedeCorp to initiate a project on organic cotton in support from international development assistance. northern Uganda. An emerging market opportunity, com- Uganda is richly endowed with natural resources, has a very bined with large areas of cultivated land (due to conflict) and favorable climate, and has a topography that enables a di- the absence of traditional use of chemicals by the farmers verse pattern of agriculture. Uganda has also had a troubled there, provided the bases for the scheme. An initial pilot proj- history, with extended periods of social conflict in regions or ect showed promise and this gave rise to EPOPA, a broader major parts of the country. In many parts of the country, there umbrella program funded by the Swedish International has been limited development of physical infrastructure and Development Cooperation Agency (SIDA). EPOPA’s initial limited spread of agricultural technologies. Although much operations were to cover Uganda and Tanzania for a period progress has been made in recent years, Uganda is still one between 1995 and 2000. of the world’s lowest users of fertilizers and pesticides.144 During this initial phase I period, seven organics projects tied A recent promotional campaign advertised Uganda as to a lead �rm were implemented, with three focusing on cof- “Gifted by Nature.� Past patterns of agriculture have also fee and two each for cotton and cocoa. Five of the schemes made much of the sector “organic by default.� That is, the were still in operation by 2000, with some 24,000 farmers absence of use of purchased inputs for many crops has then participating in Uganda. Phase II of EPOPA was started rendered much produce and production areas organic ac- in 2002 and was implemented through 2008. The program cording to prevailing standards. In other countries, farmers sought to greatly diversify the portfolio of Uganda’s organic normally need to go through an extended and costly process export products and the number of individual subprojects of converting their farms from conventional to organic prior increased to 20. During EPOPA’s second phase, efforts to getting certi�cation. In Uganda, no such conversion was were also made to go beyond project support to individual necessary (or has involved modest changes for some crops), companies to also support the development of a Ugandan organics promotional organization and of local service supply companies. 144 While Uganda has one of the highest soil nutrient depletion rates in the world, it has one of the lowest rates of annual in- During the 2000s several other donors entered the Ugandan organic fertilizer application—only 1.8 kg per hectare (Namaazi organics space. For example, beginning in 2003 USAID’s 2009). According to MAAIF and MFPED, in the year 2000, the Agriculture Productivity Enhancement Project (APEP) began use of chemical pest control was practiced by only 10 percent of farmers (reported by Nkonya and Kato 2001). to support selected organics ventures through a matching MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 137 grants fund and, later, through direct support for organic establishment costs for organic cotton growing in northern producers of cotton, sesame, and other crops in northern Uganda. The package of support for organics schemes under Uganda. Producers and exporters of organic fruit have most other programs was more limited. variously bene�tted from interventions supported by the EU, DANIDA, UNIDO, and DED. ADF has supported initiatives for Grower certi�cation and maintaining well-functioning ICSs organic vanilla and sesame. In many of these cases, the tar- were the dominant foci of most assistance efforts to com- geted industry (and companies) was experiencing problems panies. Comparatively little attention was given to training competing in conventional product markets, due to either for farmers to improve their farm management or raise their higher costs (associated with Uganda’s land-locked position), productivity. This has been highlighted as one of the major not having distinctive quality attributes, and/or being un- shortcomings of EPOPA, while the application of farmer able to meet the volume requirements of more mainstream group certi�cation has widely been recognized as a landmark buyers. achievement of the program in East Africa, with replicable effects elsewhere. While there have been some short-lived bottom-up inter- During its phase II, there were attempts to increase attention ventions focused on certifying farmer group production and to on-farm activities beyond the mere focus on certi�cation, encouraging them to market (and sometimes process) their including through using lead farmer demonstration plots. produce directly, most donor support related to organics in However, support to farmers was expected to come mainly Uganda has taken a lead �rm approach. Active exporters from the lead companies themselves—with the capacity to have either applied for support or been approached by the do so varying greatly from company to company. During its various schemes. The companies generally have had a preex- second phase, EPOPA provided support to a broader range isting outgrower system with smallholders and have sought of SMEs seeking to break into the organics market. Many of to have those farmers/production areas certi�ed as organic. these companies had very limited technical staff and their The companies’ farmer support and supervisory structure ability to provide advisory services to their outgrowers was would often need strengthening, through training and the either infrequent or nonexistent. There is no systematic pro- development of improved record keeping. In fact, the de- gram of agronomic research applying organic principles and velopment and implementation of Internal Control Systems approaches in Uganda. (ICS) became the centerpiece of support, together with the (partial) coverage of certi�cation costs by the projects. In al- Some efforts were made to support broader institutional ca- most all cases, the starting point was a situation of organics pacities related to organics. For example, during its second by default, in which little or no change was required in farmer phase, EPOPA supported the establishment of standards- practices to attain organic certi�cation. In many cases, organ- related services (national certi�cation bodies TanCert and ics by default remained the operative mode. UgaCert in Tanzania and Uganda, respectively), and provided support, together with the Dutch Humanistic Institute for The level of project subsidy and the intensity of training and Development Cooperation (HIVOS), to the National Organic technical assistance varied over time and between different Movement of Uganda (NOGAMU)—established in 2001, projects. For some subprojects EPOPA provided a broad through the initiative of a small number of lead �rms—aimed package of support including that for business development, at strengthening platforms for advocacy and the provision of company staff selection and training, farmer mobilization services to the organic sector. and extension, subsidy for farmer inputs, setup of tree/ crop nurseries, development/revision of ICS, cost-sharing More recently, other donors have joined EPOPA in providing of initial certi�cation costs, market surveys and buyer con- support to the organics sector through enhancing elements tacts, participation in trade shows, and mediation for trade of the enabling environment for compliance. To illustrate, �nance. One of the �rst achievements of EPOPA was the the work of the United Nations Conference on Trade and application of the (farmer) group certi�cation concept in East Development/International Trade Center (UNCTAD/ITC) and Africa—substantially reducing certi�cation costs per grower the United Nations Environmental Program (UNEP) has or scheme—and negotiating with international certi�cation had a more regional focus, with an emphasis on sector ad- bodies. Because the organics support was part of broader ini- vocacy, supporting market expansion, ful�lling knowledge tiatives on postconflict economic development, both USAID and information gaps, creating platforms for consensus and Deutsche Investitions und Entwicklungsgesellschaft building and policy dialogue, and pushing for harmonization mbH (DEG) �nanced land-clearing and other signi�cant of standards. On the latter, the development of a regional E C O N O M I C AND S E CT OR WORK 138 C H A PTER 7 East African Organic Standard (EAOS) represents a signi�- to develop organic cotton in the north of the country and cant achievement, in terms of regional cooperation between also to have farmers build in other crops in their rotations several interested stakeholders. Within a broader perspec- (including sesame and sunflowers) that would also be sold in tive, UNCTAD has advocated for the integration of organic organic markets. Uganda’s conventional cotton was not com- agriculture within national policy frameworks in East Africa. petitive, yet market opportunities for organic cotton were In Uganda a multistakeholder process is currently developing evident. However, many of these schemes have collapsed an organic agriculture policy. in recent years as a result of competition among companies (with farmers side-selling), continued low yields among farm- Achievements and Status ers, pest management problems, and other issues. The case of the organics development in Uganda has been In relation to coffee, one company began working with EPOPA highlighted as a success story in terms of the achievements in 1997 and continued that relationship for several years, with of NGOs, donors, and private actor efforts to expand certi- some considerable expansion of its outgrower system. Only �ed production. Uganda’s reputation for clean agricultural one additional company pursued organic coffee certi�cation products has been touted as a huge bene�t, and this reputa- with EPOPA support, although a few other companies have tion was one of the arguments made against the proposal entered this space in recent years, on a small scale. A lack of of Uganda’s Ministry of Health to reintroduce household remunerative price premiums, complications in marketing or- and localized use of DDT (dichlorodiphenyltrichloroethane) ganic coffee, and increasing demands for other sustainability as a means of combating the country’s huge problem with certi�cations (e.g., Rainforest Alliance, UTZ Kapeh—known malaria. On the surface, certain numbers look impressive, in- currently as UTZ Certi�ed, may explain the limited replica- cluding the estimated number of organic producers, although tion. An additional aspect is the issue of oversupply—that that number may be an exaggeration.145 Organic product ex- is, more organic coffee (and sustainable coffee in general) is ports have increased from virtually nothing in the mid-1990s produced than is actually sold (SSI 2010). to more than $20 million per year in the late 2000s. A national certi�cation body received accreditation and was able to pro- Initiatives aimed at expanding the portfolio of exported vide services locally, with a pool of professionals from local organic products have had some success in opening up institutions, private service providers, and company staff markets for differentiated products, yet with only a limited acquiring skills to support the needs of the sector. Yet, it is outreach and replication effect. For example, in cocoa, ac- not evident that these efforts have had any transformational cording to EPOPA data, there are over 7,000 farmers under impact on Ugandan agriculture or trade. Organic produce ac- a company organic scheme. Despite this company’s favor- counts for less than 2 percent of Uganda’s total food and able results, there have been few followers. In the case of agricultural trade. Coffee currently accounts for the large ma- sesame, the sector has experienced an interesting dynamic, jority of Uganda’s organic export earnings, yet organics have with signi�cant export growth during the last few years. The accounted for between 1.5 to 2.5 percent of the country’s to- main innovation in this sector has been the introduction of tal coffee exports in recent years. Due to the limited changes an improved variety, which has signi�cantly increased farmer in production practices brought about under most organics yields. Entry into the organic vanilla market was seen as a programs, the footprint of more productive and sustainable possible rescue line in the face of depressed international practices still appears to be shallow. prices for conventional vanilla. Yet, only limited sales have occurred. Several other efforts were made to diversify ex- What about replication and sustainability? In the case of ports of organic exports into value-added products, including cotton, the success of the pioneer �rm was replicated by a instant coffee, honey, ginger in syrup, and so forth. These larger company, with the target being to achieve large-scale had little success, due to varied reasons (e.g., strong local impact. By the mid-1990s, several new players came on to demand, weak �rm capacities to sustain the investments the Ugandan cotton organics scene, including a few major required, lack of commitment of the exporter, high-costs of multinational companies. Very ambitious plans were laid out packaging materials, etc.). Overall, the most signi�cant contribution of programs sup- porting organic-certi�ed production, in terms of expansion 145 EPOPA’s support included companies that had an aggregate and replication potential, has undoubtedly been the learning of 87,375 farm outgrowers, 85 percent of which were grow- ing cotton, coffee, and sesame. Most of the organic cotton that has taken place at the enterprise and service provider schemes have collapsed in the past three years. levels in the establishment of platforms for certi�cation (ICS), MA K ING TH E GR A D E C A S E S T U D IE S : UP GRADING OF HIGHE R- VA LU E “N ONTRA D ITIONA L�EX PORT PR OD UC TS 139 easily adapted to other certi�cation programs and with po- Broader evaluations have reported mixed results. For ex- tential to bring into compliance large numbers of producers. ample, the evaluation of EPOPA highlighted that the uptake In the view of some of the companies, organic-certi�ed pro- of organic farming methods—including measures to increase duction has brought positive changes in terms of streamlin- soil fertility—was generally quite limited, and that the overall ing value chains—the �eld operations set by companies have impact in the production systems has been less than expect- put farmers in direct contact with the buyer (or its representa- ed—“Not so many farmers increase their productivity in a tive). Requirements for traceability and chain of custody have dramatic way, even if there were such examples. Expansion pushed for vertical coordination and support for some level of of the cropped area seemed to be a more favored response famer organization, in some cases leading farmers to assume to improved market conditions� (EPOPA 2008). Observations new roles as middlemen (company brokers) and extension in terms of gains on biodiversity, soil management, and other agents. There is an apparent better flow of information about critical parameters associated with organic management quality requirements and prices with some buyers buying in indicate very little difference between traditional farms and the production regions, eliminating risk and assuring quality. those involved in the certi�ed organic schemes. Delivering Some companies report getting better-quality raw materials those types of outcomes was not the objective of the for which they can justify a better price. interventions. However, in quite a few cases these relations are still very Broader evidence, beyond the data associated with the weak and marked by a lack of commitment by both buyers best performing schemes, allows for the following general and farmers. Developmental/private efforts have focused on observations: the positive market impacts of organic-certi�ed production, with much less emphasis on its potential to catalyze on-farm The challenges of organic production vary among crops improvements. In those cases in which changes have been and industries. The schemes under examination by DIIS sought in farmer practices, this has been motivated by a researchers were not confronted with signi�cant agro- need to raise product quality. For example, drying/fermenting nomic challenges. In the case of coffee, only Arabica coffee of coffee and cocoa represent major challenges for achieving was analyzed, and therefore, no answers were provided as compliance with downstream buyer requirements.146 to what happened in the context of plantations facing the challenge of coffee wilt disease (most commonly affecting Robusta coffee). Also, the scheme was certi�ed both as Bene�ts to Ugandan Smallholders organic and UTZ certi�cation and therefore it was dif�cult Several (limited) attempts have been made to understand to isolate the effect of organic certi�cation on farm income the bene�ts accruing to Uganda’s farmers from these various and coffee marketability. For crops facing higher agronomic initiatives. One study examined the experiences associated challenges, overall low pro�tability, strong competition be- with three schemes supported by the EPOPA program—for tween buyers and lack of alignment between private and Arabica coffee, fresh pineapple, and cocoa/vanilla—with data government objectives—as in the case of cotton—the ex- collected during the 2005–06 season.147 The authors report- periences have been less successful. In pineapple, part of ed increased revenues and apparent increased yields for the the success has been the buffer effect provided by strong sample of participating farmers interviewed. The schemes domestic and regional demand for conventional pineapple, they examined had involved some farmer training elements, allowing farmers to market the pineapple that does not ful- leading the authors to conclude that “certi�ed organic farm- �ll quality requirements (mainly required size) through local ing in Uganda is more pro�table and realizes higher yields channels. than ‘organic by default’ systems� (Bolwig and Gibbon 2008). Many farmers participate, but only some bene�t from the premium. There are clear differences between schemes in terms of active scheme participants, average quantities of product delivered by the farmers to the organic buyer, 146 For cocoa, the cycle of preparation for fermentation, fermenta- and average premium from the organic crops. The dif- tion itself, and subsequent drying takes, on average, 13 days from harvesting. Similarly, processing coffee to the standard ferences in ratio of farmers participating in the schemes required by the buyers takes 1 to 3 weeks, depending on the and those actually delivering are even more pronounced weather, with the main constraint being cash for hiring labor and equipment. Cash constraints push farmers to sell in unpro- across crops (Table 7.3). This is due to many reasons, as cessed forms (Gibbon 2007). noted in box 7.3, with requirements for quality being an 147 Bolwig and Odeke 2007; Gibbon et al. 2009. important factor. E C O N O M I C AND S E CT OR WORK 140 C H A PTER 7 TABLE 7.3: Participation of Farmers in Different Schemes Supported by EPOPA TOTAL SHARE OF SHARE OF NUMBER OF VALUE VOLUME FARMERS NUMBER OF (%)—US$25 (%)—10,700 IN THE FARMERS SALES/FARMER PRODUCTS MILLION TONS SCHEMES DELIVERING DELIVERING ($) Coffee 40.8 37.9 26,779 22,246 20* 374* 139 Sesame 4.6 6.4 20,000 7,800 63 Cotton+Sesame 19.7 21.7 27,000 16,000 138 Cocoa+Vanilla 26.0 21.6 7,141 4,180 626 Fruits 7.2 9.9 2,630 307 1443* 2616* Vanilla 0.4 0.2 1,003 731 13* 76* Sub-Total 98.7 97.7 84,553 51,264 Total projects 100.0 100.0 87,356 54,385 * Data for different projects funded by the program. Source: Calculations based on data presented in the �nal report of the EPOPA program (EPOPA 2008). BOX