CHAPTER 2. EVIDENCE FOR FORAGE SEED PRODUCTION
2.13 Inclusion of smallholders in seed value chains
The value chain looks at all the processes, players along the value chain and their relationships along the value chain. Key activities, key partners, key resources and cost structure create value on the production side, whilst customer relationships, customer segments and distribution channels create value on the marketing side.
Smallholder farmers are faced with a number of challenges in progressing from being subsistence farmers to being commercially oriented. These challenges include limited production and marketing information, limited resources to venture into commercial production, limited access to inputs (planting materials, livestock breeds and associated veterinary drugs), poorly managed farmer organisations, low production levels that do not attract large buyers and poorly developed infrastructure. The farmers also face challenges with value chain players who operate at a different level than them, have larger product volumes, large value transactions, have a higher negotiating platform and better knowledgeable about how the market is organised (Wiggins et al., 2011).
Companies prefer to deal with large farmers and organizations that have non-farm assets, have irrigation facilities and produce large volumes (Shenggen et al., 2013). They have little support from the government, although they support in food security (Sperling and Maguire, 2010). This scenario leaves the smallholder farmers facing challenges that include transaction costs, limited knowledge, limited market intelligence, low negotiating platform, low product volumes and quality, among others. Farmers are utilizers as well as producers of seed and they can be easily integrated into the value chains. They play a pivotal role in the production and supply of seed (Hare et al., 2013) produced from their small pieces of land and from crops meant for feed and food or cover crops.
Inclusion interventions endeavour to address some of these challenges faced by smallholders (Shepherd, 2016).
Unfortunately, agribusiness development is viewed as not inherently pro-poor, thus there is need to stress the importance of inclusiveness so that the poor can also benefit. Private sector view smallholders as risky and therefore, shun away from dealing with them. There is need for government to support the private sector so that they (private institutions) can involve the smallholders in sustainable participation in value chains (FAO, 2012).
Smallholder farmers have the perception that value creation can offer options to upgrade them in an environment where many inclusive value chains aim to develop the whole value chain.
To ensure success in value chains that involve smallholder farmers, it is vital to ensure that all farmers are aware of what happens along the value chains, the risks involved and that they agree to what they are getting
themselves into and they participate freely. On the other hand, failures can be associated with ignorance, lack of information and transparency, inadequate funding and lack of commitment from stakeholders.
A number of strategies have been proposed for the inclusion of smallholder farmers in meaningful business models with the aim of creating value out of their activities (Guidi, 2011; Chapoto, Mabiso and Bonsu, 2013;
Zhou, Minde and Mtigwe, 2013). Key considerations for success have been noted these include the driving forces for inclusivity, policies, processes involved, farmers’ socio-economic environments and benefits to be derived from such involvement. From such strategies, models have been developed that take into account smallholder farmers’ capabilities, environmental circumstances and potential to benefit the farming activity.
Farmers have been involved in production of crops that are easy to market and have high value (FAO, 2015;
Shepherd, 2016) through approaches that include out grower schemes, contract farming and joint ventures and these have yielded various levels of success (Zhou et al., 2013). Contract farming has had varying levels of success among smallholder farmers for the different farming enterprises including crop seed production. Such engagements have not resulted in improvement in farmers’ livelihoods (Mwambi, Oduol, Mshenga and Saidi, 2016), as there are other factors that need to be addressed such as policies and conditions governing the contracts. Various other authors (Wiggins, Argwings-Kodhek, Leavy and Poulton, 2011; Hartwich, 2012; FAO, 2013; Briones, 2014; Wiggins and Keats, 2014; Thorpe and Maestre, 2015) have suggested approaches to engage smallholder farmers in value chains.
These include:-
Lead-buyer approach – an organization sources produce from farmers for the market with support from development agencies for technical advice and provision of inputs (Hartwich, 2012).
Contracting - a firm engages smallholder farmers to produce a crop with specifications of quality and forward price (FAO, 2013; Briones, 2014; Wiggins and Keats, 2014). Input scheme maybe included in the contract. However, success of the contract depends on both parties adhering to the terms and conditions and meeting contractual obligations if they are favourable.
Farmer groups and cooperatives – Farmers are engaged in groups or cooperatives and all members are equally liable to meeting the conditions (Wiggins and Keats, 2014). This reduces transaction costs and information flow is easy, although group dynamics may derail all efforts of the group.
Public-private-producer-partnerships – this involves agreements reached between business entities and government to fund and support production by farmers, thus there is sharing of experiences, risks and responsibilities among the partners (Thorpe and Maestre, 2015).
Lundy et al. (2012) also mention that engaging smallholder farmers in sustainable inclusive markets involves different strategies that include:-
Producer-driven - these are mainly composed of farmer producer groups, producer associations.
Farmers benefit as stable relationships are developed with buyers, traders and processors, thus assuring them of stable markets and income generation. However, for smallholders, such models are mostly initiated by development organisations with support of donor agencies and their sustainability is dependent on continued support and participation of farmers.
Lead firm (Market-driven) approach - is a model where buyer looks for products from producers and sets standards and quantities to buy. In this model, the market is assured and this may also involve contract farming where buyer and producer agree on terms and conditions in the contract. However, there are instances where producers may practice side marketing, especially when they feel the contract prices are lower than elsewhere, when in dire need of cash or when terms and conditions are not clearly explained.
Intermediary-driven - is a model where traders, wholesalers or processors have an upper hand in transactions and help to ease transactions costs for both producers and buyers. Middlemen also help to convey important information between the parties. Such a model is important where the market is price sensitive. However, in most cases, smallholder farmers tend to benefit less as a result of factors that include limited knowledge on market requirements and standards, transactions involved, low product volumes and less organised groups.
The ethical agent model - The agent has an oversight role, that is, plays a mediation role by engaging both the producer and the buyer along the value chain. The ethical agent should employ innovative approaches to stakeholder engagement and creating a conducive environment for dialogue and resolving any conflicts among value chain actors for the benefit of all. However, such roles may be costly and both producers and buyers may not be able to take up these initiative, thus leaving this to development agencies who may also be limited in reach. Also exit strategies by the agent need to be set clearly for the initiatives to be sustainable.
For any of these to be successful, farmers need to be prepared to do business and participate in the value chains.
This is in the form of capacity building, creating an enabling environment and support services with well- established communication systems that are easy to understand (da Silva, Baker, Shepherd, Jenane, 2009).
Ability to succeed is dependent on transaction costs, resource endowment level, decision making, economic, social, political shocks and access to services (Anand and Sisay, 2011). In engaging smallholder farmers, participatory approach and trust, among other factors, are paramount, coupled with accountability, transparency and sharing of risks (Guidi, 2011), thus creating a shared value among stakeholders (Porter and Kramer, 2011).
Capacity development, infrastructure and other resources are essential to ensure adoption, improved production and change in practices by smallholder farmers (Alemu, 2012; Alemu, 2015; Welu, 2015). It is important that farmers participate in markets as this enables them realise income and gain employment (Ngqangweni, 2000).
However, gaps still exist which raise questions as to why smallholder farmers still do not participate that much in value chains. Wuepper and Sauer (2016) mention that besides offering technical advice to farmers, extension and other advisors should also be involved in social networks and raising the aspirations of the farmers to succeed in farming. Mwambi et al., (2016) also argue that such engagements are enterprise dependent, besides resources that the farmers has access to, as different operational modalities have to be formulated to benefit all parties.
However, smallholder farmers are limited as they cannot meet market standards in both quantity and quality even though Guidi, (2011) hypothesises that participation of smallholder farmers in agriculture-related value chains can reduce poverty and improve livelihoods. Inclusion of smallholder farmers along value chains is not a one size fits all. Strategies employed need to consider a number of factors including the resources, capabilities the farmer and external support to be offered. Besides low production capacity, limited access to resources and credit, they are faced with social factors within their communities, some of them that hinder improvement in production (FAO, 2013; Sjauw-Koen-Fa, Blok, and Omta, 2016). For sustainable economic development to have a positive impact, rural farmers should be involved at every point along the pathway. This will involve setting up supporting structures in the form of policies that consider rural development and full participation of rural farmers, financial services, technologies and an enabling environment (Shenggen et al., 2013).
In developing a business model, Osterwalder (2010), advocates for the Business Model Canvas (BMC) which has nine building blocks which include key partners, key activities, value proposition, customer relationship, key resources, distribution channels used in the value chain, customer segmentation, cost structure and how revenue is generated within the business. This requires understanding of the whole value chain, actors present and their roles, supply processes, and existing threats and opportunities (Lilleso et al., 2011; Wanyama et al., 2011; Welu, 2015). Only after this can a relevant model be developed that applies to that specific customer and relevant support services offered. The BMC is suitable to development of forage seed business models as the sector is unique, enterprise is not like the usual food crops and market particular customers (Figure 2.4). Of particular to note is where the smallholder farmers are involved who depend on ward-based extension services and that of development organisations. Nurturing of seed producers maybe intense and might take longer than anticipated in the initial instance.