Appendix 2.6. Case study 6: mentorship alliance between South African farmers
3.6 Conclusions and recommendations
This research has attempted to identify factors influencing market participation choices among smallholder and emerging farmers in the Kat River Valley. Evidence from the research supports literature that pointed out that smallholder and emerging farmers usually use informal markets in selling their produce. Furthermore, there are some challenges in the market environment that discourage these farmers from using formal markets. The statistically significant variables, at 5% level are access to market information, expertise on grades and standards, availability of contractual agreements, existence of extensive social capital, availability of good market infrastructure, group participation and reliance on tradition.
The results suggest several ways in which smallholder farmers can actively market their produce. The findings suggest that an adjustment in each one of the significant variables can significantly influence the probability of market participation. That is, technological growth and institutional developments that affect such variables can help farmers improve participation and encourage formal market participation. Possible adjustment paths are explained in the Section 3.6.1 ‘Policy recommendations’.
3.6.1 Policy recommendations
With regard to the smallholder and emerging farmers’ marketing challenges revealed by the empirical results, policy recommendations can be suggested. This section gives a series of options that can be considered in South Africa, in an effort to help smallholder and emerging farmers reach their full potential.
Encourage collective action through formation and consolidation of farmer groups
Literature has revealed that agricultural produce is being distributed through organised marketing channels, away from spot markets. On the other hand, the study has shown that emerging and smallholder farmers have problems in accessing the formal markets individually, partly because of relatively small marketable surpluses, high transaction costs and problems in meeting grades and standards. Given such information, it is important to establish the suitability of collective action (in the form of farmer organisations or trade
associations) as an institutional vehicle for linking smallholder farmers to agribusiness supply chains. The public sector can promote collective action by creating a legal framework, which is favourable for registration and operation of farmer organisations. Collective action can be considered because it strengthens smallholders’ market position, bargaining power and lobbying power (Kherallah and Minot, 2001). In addition, fixed transaction costs can be borne by more shoulders, resulting in a decrease in individual costs. In addition, through shared knowledge, farmers can ensure market grades for produce, within the producer organisations. However, if collective action is not managed properly, it often leads to problems of free-riding and opportunistic behaviour, where some individuals take advantage of the coordination of others, without personally investing their efforts. These actions may be a disincentive to some members, which may result in failure to reach goals, and even in coordination break up (Olson, 2009). Farmer groups can only be successful is they are based on trust, honesty, mutual respect and commitment to the group (Masuku et al., 2003). This brings out the suggestion that when choosing group members, notably farmers who are working towards the same goal should cooperate. In addition, rules and roles within the group ought to be specified from the beginning, and effective governance and management practices adopted. Such practices, together with technical and financial support, and farmer training will help farmer groups develop into business-oriented entities.
Encourage farmer training
Some small-scale famers prefer sticking to traditional ways of producing and marketing, and often are excluded from dynamic formal markets. If these farmers have to become part of the formal agribusiness chain, intervention should start at an individual farmer level.
Farmers need to strengthen traditional knowledge with training, particularly, training in management and technical skills that are required by smallholders in order to master the commercial requirements of producing for a competitive market, and be able to manage business risks and product innovations. Even where small-scale farmers have formed farmer or trading organisations, training is important for modernising their value chain knowledge and for improving their management and business alliance practices.
Promote contract farming
Contract farming is important to both the farmers and the contractors because it ensures a market for produce and supplies to the contractors. However, to get contractual deals, farmers should be able to provide a relatively larger output. When smallholder farmers operate in producer groups, they may be able to increase their output and be part of the contractual deals. The public and private sectors can help to facilitate contractual arrangements, but the farmers have to be willing to cooperate. Once they get contractual agreements, an entrepreneurial culture can be developed, where farmers produce for marketing, rather than trying to market what they have produced. Again, it is critical to develop trust between the farmers and the contractors, even though it should be supported by legal compliance.
Farmers can gain trust by delivering the required produce in time and contractors can develop trust by paying the producers in time according to the contract conditions. Such an environment encourages marketing and is advantageous to both parties.
Ensure the availability of market information to emerging and smallholder farmers
It has been highlighted that access to timely market information is still a problem among the smallholder farmers. As such, market information should be consistently supplied to the farmers through both private and governmental organisations. In an effort to make information available, it is important to know the types of market information that is necessary for different markets or market segments, such as specific rules, pricing, grades and standards; and train the farmers on how to use the information. Of equal importance, is devising the ways of disseminating the information, in order to reach all interested smallholder farmers. When devising these ways, it is important to consider the non-homogeneity of smallholder and emerging farmers, in terms of education, location and the availability of communication assets. For example, radio programs conducted in different languages and farmer workshops can be considered for information dissemination.
Encourage value adding activities
The farmers indicated that they do not know the importance of value addition, which is the reason why they are not involved in such practices. Therefore, knowledge related to value adding should be disseminated to the farmers, because value adding can open up opportunities and increase the farmers’ profitability. It is important that the farmers, in cooperation with the private and public sectors, develop and initiate value-adding practices. Practices that do not need a lot of capital like packaging, cutting and drying can be considered by the farmers without outside help. The private and public sector can assist with training the farmers about value adding and provide financial assistance especially for the practices that require larger capital commitments, such as processing.
Invest in rural infrastructure
The public and private sectors, and Public-Private Partnership (PPP) can support the emerging and smallholder farmers through technical innovations. These may be in the form of investments in infrastructure such as improved roads, telecommunications and market-related infrastructure. Development of such facilities can reduce transaction costs and induce farmers to move towards a commercial agriculture system (Van Tilburg, 2005).
Local economic development programmes in South Africa can be used to support rural infrastructure development. In supporting infrastructure development through PPP, the roles of the state, and those of the private sector need to be defined clearly in all the stages of program design, implementation and funding. Use of funds also needs to be monitored
at all stages. The smallholder and emerging farmers still have to play a role to ensure that the infrastructural facilities are provided for them. They may form an association to lobby for and represent them.
Stimulate government support policies for the rural areas
The smallholder and emerging farmers in South Africa are facing unfair competition in markets, from the formerly supported commercial farmers. The smallholders have to compete for a market share with the commercial farmers who are already equipped in marketing. In addition, they are facing competition from internationally imported produce.
For example, due to subsidy policies in developed countries, cheap produce is imported into South Africa. In order to withstand both local and international competition, there is need for changes in policy frameworks and institutional arrangements in favour of the small-scale farmers. There is need for campaign for the elimination of trade distorting subsidies and the removal of barriers for agricultural exports from developing countries. The South African policy needs to be flexible and be able to support initiatives that work for small-scale farmers, in order to assist the small-scale sector. The state can also offer preferential access to markets for Farmer Organisations and small farmer trade associations.
Acknowledgements
This research formed part of the For Innovative and Regional Collaborative Project In support of the Small-scale Farmers Development (FIRCOP) collaborative research project funded by the Fund for Countries having Priority for Solidarity [FSP] of the Government of France, Grant Contract No. FIRCOP/GC/006/06. The financial support of this research is gratefully acknowledged.
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