A market is a process of exchange, facilitating trade and enabling the distribution and allocation of resources. Who benefits and who is left out in the market transactions is a perennial question. Smallholder farmers may not have access to markets or may not obtain a fair price for their products.
Most smallholder farmers in Africa regularly engage with markets, most frequently as consumers, often buying both higher-value complementary foods and staples., Yet, their engagement with markets as producers is limited. In Eastern and Southern Africa, the fraction of farmers selling staple grains is typically between one-quarter and one-third of smallholders. In theory, and to some extent in practice, smallholder farmers through market participation can increase their incomes, and hence invest in the education and health of their children, their farms or obtain other goods and services. Inclusive markets can in essence sustain rural livelihoods.
Inclusive markets allow farmers to benefit from increased production. But there are numerous instances where African farmers have invested in high quality seeds and other inputs only to find they are unable to sell their increased harvest. Sometimes demand in local markets is limited and can be overcome by selling to more distant urban and export markets where the demand is not only larger, but consumers may be willing to pay a higher price for quality products. On the input side, inclusive markets, such a provided by agrodealers, allow farmers access to affordable improved seeds and fertiliser packages tailored to specific soil types, and to farm machinery.
Smallholders represent the majority of all farms in Africa and produce up to 90% of the food in some countries, but they need better and more reliable connections to input and output markets. With Africa’s projected population growth, expected to reach 1.7 million by 2050, there are increasing opportunities for farmers to engage in and benefit from markets. The growing urban population and middle classes are already demanding more nutritious, varied and processed food, generating new jobs and entrepreneurial opportunities for farm households, rural communities and young people through expansion along the African agribusiness value chain.
At the regional and national level, urban demands for agricultural products are increasing, but the opportunities in intra-African trade remain unexploited. From 2007-2011, only 16.9% of African world trade in food and live animals and less than 15% of agricultural imports took place on the continent. There are also growing opportunities for smallholders to engage in international markets, though there are still substantial barriers and these opportunities are often only open to better-off farmers.
Although there is a spectrum of markets that provide new opportunities for farmers, there are also barriers and risks. Domestic markets in many developing countries are very poorly developed and farmers have limited protection against crop loss, price fluctuations or input costs. Getting timely and reliable market information about prices, volumes and desired characteristics of products is challenging, reducing the bargaining power of smallholders. Inadequate storage often forces farmers to sell produce at unfavourable prices or high input and transport costs may reduce or eliminate profits. Greater investments in road infrastructure and agrodealer networks can improve access to inputs as well as marketing opportunities. Farmers’ risks can also be reduced through participation in cooperatives, access to finance and through the use of insurance products.
To reap the financial benefits that ecological and genetic intensification can provide, farmers also need socio-economic intensification that better links them to inclusive markets where they can sell their crops and make an income. Reducing farmer risks to greater participation in markets can be accomplished with better access to credit, warehouse receipts and other storage systems, for example. Learning how to market products is as important as understanding the soil profile or planting an improved seed.
Linkages to markets can multiply and spread the benefits of growth for smallholders. Rising demand for labour and other farm inputs to increase production in turn can create more jobs downstream from the farm in processing, trading, transport and storage. Jobs are also created from consumption when smallholder farmers spend additional income on locally produced goods and services such as furniture, entertainment, food and drink and house improvements.
Efficient, fair, transparent and inclusive markets can offer many opportunities for expanding and improving livelihoods. Although many rural households are primarily engaged in agriculture, there are also many additional activities such as processing or transport that enable households to generate additional and more income streams.Inclusive markets are also the basis of rapidly developing agribusiness value chains that, if designed well, provide livelihood opportunities for smallholder farmers and rural communities more broadly. Between 2010 and 2050, the number of young people is set to increase in Africa from 126 million to 265 million. Currently more than 70% of the young live on less than US$2 per day and Africa’s urban labour markets are breaking under the pressures of migration of young people from rural areas into cities.
Developing agricultural markets can offer livelihood opportunities to young people in rural areas. Opportunities along the agribusiness value chain such as production or distribution of agricultural supplies; improving farming technologies and practices with the use of mobile networks; working in a commodities market; employment in processing, transport, marketing or retailing can offer more attractive careers to young people. Growth in smaller cities, towns and villages are also increasing can provides market outlets closer to farmers, providing new jobs along the agribusiness value chain.
Agricultural exports from sub-Saharan Africa are expected to reach US$20 billion by 2030 up from US$11 billion in 2000. Unfortunately, there are a variety of constraints that prevent the poorest farmers from accessing these markets. Prices can be volatile and the transmission of prices from international markets to the farm gate is poor. Smallholder farmers may be unable to pay for the transportation of their goods, or the transport infrastructure may not connect easily to markets or ports. In addition, high-value export markets tend to exclude smallholder production due to customs costs and higher process and product standards, such as GLOBALGAP, which requires investment from farmers to meet the standard. As a result, only a limited numbers of better-off farmers tend to benefit from supplying international markets.
Due to the barriers smallholder farmers face to integrate into international markets there is a growing focus on production for national and regional markets. The demand for high-value products that are currently imported could be satisfied by production and processing in country by replacing the circle of exporting raw materials and re-importing processed goods. For example, the Cassava Adding Value for Africa (C: AVA) project is working to promote the use of high quality cassava flour (HQCF) as a versatile raw material. C:AVA ensures a constant supply of materials, drives market demand, and builds market shares in Ghana, Tanzania, Uganda, Nigeria, and Malawi. Farmers are supported in production and processing through partnerships with NGOs and extension services. C:AVA hopes to improve the livelihood and income of at least 90,000 smallholder households, including women and disadvantaged groups.
National and regional markets will grow from US$50 to US$150 billion from 2000-2030, however, the creation of transparent and competitive national markets is crucial to greater involvement by smallholder farmers. Further, regional markets that can also offer opportunities to smallholders are hampered by overlapping and sometimes conflicting trade rules, but some regional initiatives spearheaded by the regional economic communities (RECs) are trying to overcome these challenges. The Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of West African States (ECOWAS) RECs are funding programmes to promote the integration of regional markets and raise the competitiveness of local products. COMESA is developing a regional processed foods sector strategy to accelerate growth in the sector by raising the capacities of private entrepreneurs. As part of the Comprehensive Africa Agriculture Development Programme (CAADP) process, ECOWAS has been at the forefront of developing and implementing Regional Agricultural Investment Plans (RAIPs) that address cross-border barriers to agricultural market development.
Market price fluctuations are normal, as markets should be responsive to changes in supply or demand. They can, however, cause significant concern and disruption when they move quickly, unexpectedly or drastically. Fluctuations are often caused by changes in the supply chain, such as population growth rate and shifts in dietary habits, which result in changes in the consumption of feed grain and food. Fluctuations can also be induced by harvest losses caused by bad weather, or market speculation. Whilst market price fluctuations can benefit farmers when the price for a crop increases, a sudden or drastic decrease that is insufficient to cover costs of production is a detriment. Without any protections, the result is insecurity and financial risk for all market participants.
Limited by insufficient information on market processes and prices, farmers are often at the mercy of buyers at the farm gate, who decide how much they want to pay for the crop. New communication technologies can help to get a better price for farmers, by rapidly delivering market price information and linking buyers and sellers. For example, Ghana-based technology provider Farmerline aims to empower 500,000 smallholder farmers in West Africa by 2019. Today 75% of Africans own a mobile phone, making it increasingly easier to reach those located in remote rural areas with timely price information or weather forecasts. Farmerline provides better communication channels for smallholder farmers through mobile phones voice services and SMS. Information such as farming advice, weather forecasts and inputs services can help farmers improve their harvest and access new markets and gets better prices for their crops.
Investments in infrastructure, such as roads, transport, and power can help farmers access markets where they may be able to fetch a better price than if they sold their produce at the farm gate. Roads also help farmers’ access input markets providing seeds, fertilisers and extension services. However, only 34 % of rural Africans live within 2 kilometres of an all-season road, compared to 65% in other developing regions. Lack of rural road connectivity constrains agricultural production: the cost of moving produce can be as high as $2.00 per ton per kilometre.
Inland transport represents 40% of the total cost of moving exports to their port of destination. With so many landlocked countries this is a multinational problem that must be confronted on a regional basis. The port-to-rail link is often inhibited by conflicts between rail and port jurisdictions. The lack of integration prevents effective operation of the container trade, as containers are loaded and unloaded in port areas, exacerbating congestion.
Prices are at their lowest when the market is flooded with crops after harvest. Therefore, farmers need access to facilities to safely and securely store their crops until the market prices are more favourable. There are currently 200 post-harvest loss innovations in use, but they are not widely available to smallholders. AGRA and the Rockefeller Foundation, through its Food Waste and Spoilage Initiative recently launched a project to test three innovative storage technologies: hermetic cocoons, metal silos and Purdue Improved Cowpeas (PIC’s) bags. The alternative is to invest in dedicated warehouses that clean, dry, fumigate and grade crops after harvest.
In Uganda, the warehouse AgroWays (U) offers transport, cleaning, drying, grading and storage to smallholder farmers at affordable prices. AgroWays (U) encourages farmers to organise into village associations with up to 60 farmers to collectively produce 5MT, the minimum amount required for pick-up at village aggregation centres. To prevent spoilage, the grain is collected within 2 days of harvest, taken to the warehouse in Jinga. Farmers gain mainly from reducing post-harvest loss, but also through direct price negotiation with buyers. Once a price is agreed, the farmers associations (or farmer as the case may be) are paid for the amount of grain deposited, less the warehouse charges.