Agricultural value chains development and smallholder competitiveness

This is happening not only in industrialized countries, but also in developing countries, including Sub-Saharan Africa where agriculture is dominated by smallholder farmers. Changes have been associated with income growth, urbanization, new diets with greater diversity in food consumption, and the emerging supermarket revolution. These changes are creating clear gains for consumers but also a new reality for smallholder farmers to which they need to adapt, implying a threat to their survival if they don’t and an opportunity for income gains if they do. The threat is that they will be displaced by imported foods and vertically integrated production systems in catering to domestic consumers. With smallholder farmers accounting for the vast majority of the poor, social implications of failure to adapt can be enormous, resulting in social disruption and mass migration. The opportunity is to access dynamic and remunerative markets that support the adoption of technological change, the diversification of production systems, investments in quality, and rising welfare standards. Key for opportunities to prevail over threats is smallholder inclusiveness and responsiveness to changing food supply chains, with particular emphasis on the role of producer organizations, contracting schemes, quality recognition and technology adoption.

On November 15 2018, FERDI organized in partnership with AFD a workshop in Paris on agricultural value chains and smallholder competitiveness.

This annual meeting on agriculture’s role for development, proposed by FERDI with the support of Alain de Janvry and Elisabeth Sadoulet, aims at providing an overview of the results derived from research in this area, and to study how it can improve public policies.

The objective of the workshop "Agricultural value chain development and smallholder competitiveness" was to explore how to include smallholder farmers from developing countries into new agricultural value chains, and how to use this inclusion as a modernization tool for this familial agriculture”.

The workshop was organized in two sessions – one on the impact of value chains on development, the other on measures to be taken to include smallholder farmers in value chains – and a round table gathering development stakeholders involved in this effort : the Avril Foundation, the Farm Foundation and Proparco from AFD.

The workshop brought together an audience of about forty people around the speakers:

• Christophe Angely, Ferdi
• Gaëlle Balineau, AFD
• Tanguy Bernard, Bordeaux University, IFPRI
• Catherine Bureau, Avril Foundation
• Christophe du Castel, AFD
• Marie-Hélène Collion, World Bank advisor
• Jean-Christophe Debar, FARM Foundation
• Vianney Dequiedt, Cerdi - Clermont Auvergne University
• Patrick Guillaumont, FERDI
• Alain de Janvry, University of California at Berkeley, FERDI
• Frédéric Lançon, CIRAD
• Raphaël Plihon,  Proparco
• Johan Swinnen, Louvain UniversityWorkshop feedbacks 

The workshop focused on determining the contribution of agricultural value chains to agricultural growth and to poverty reduction, and how smallholder farmers can be involved in these chains.

Why organize a workshop on this topic? 

As an introduction, Patrick Guillaumont (FERDI) reminded the audience of the upcoming publication of the World Bank's annual World Development Report. This report focuses on value chains, but without mentioning agriculture explicitly. However, for many years now, research and particularly that done by Alain de Janvry and Elisabeth Sadoulet tends to show the crucial role that agriculture can play in economic growth and poverty reduction in developing countries. In this context, excluding agriculture from a discussion of value chains seems to be an omission that should be remedied.

In what are the value chains “new”?

The agricultural and food sectors are undergoing deep and rapid changes in developing countries. Changes in the eating habits of an increasingly urban population and increases in domestic demand for high-value food products (processed foods, new consumption, etc.) are reforming value chains in developing countries, which are driven by consumer demand. The structure of value chains itself is changing with different levels of coordination and interaction between stakeholders, and with agro-industry and supermarkets taking an increasingly important place.

The challenge for agriculture in developing countries is double: to develop agricultural value chains to meet domestic market demand and remain competitive with imported products and, on the other hand, to include smallholder producers in these new value chains.

The stake for smallholders

Value chain development is a potential source of growth for the agricultural sector by contributing to the modernization and transformation of agriculture. Agricultural value chains can be a lever for growth and the reduction of extreme poverty if small producers can be included in value chains.

Contracts or wages from the chain stakeholders (suppliers, cooperatives, processors, etc.) offer smallholder farmers a promise of increased income or modernization. Contracts can be an effective instrument for accessing products and services that are not directly accessible through the market, such as inputs, credit, insurance, technical assistance, quality control, and price guarantees. Inclusion in a value chain therefore represents a strong opportunity to increase smallholder farmers’ standards of living, but inclusion is difficult for them: contracts are complex to define and to implement for both producers and trading partners.

How to promote the development of value chains and the inclusion of smallholders?

Several factors make an agricultural value chain potentially effective:

• Organizational capacity of stakeholders in the value chain (producer and interprofessional organizations)
• Ability to include and retain local producers
• Ability to find financing (e.g. investment funds)
• Ability to produce high value-added products (good quality product, with packaging, as part of a marketing approach with a business plan)
• Recognition of product quality (e.g. through certification). If the quality of production is important, recognition of this quality (other than through an uncertain and insufficient visual analysis) and its certification are essential to the effectiveness of a value chain.
• A secure market in terms of outlets and prices
• A developed domestic market

Several factors foster the inclusion of small holders:

• Their ability to become small investors
• Their ability to organize and negotiate
• Their ability to transform their farming methods while protecting their food security

However, value chains do not emerge spontaneously. Governments and donors therefore have an important role to play in terms of organization, initial investment, and regulation.

In the same way, inclusion of small producers in a value chain requires giving them the necessary assets in terms of land, work tools, and skills. Also in this context, the intervention of the government or development operators is necessary.

As a conclusion, 

The leverage capability of agricultural value chains development is still too underestimated by governments and development actors. This workshop provided an opportunity to address and debate a number of issues related to the development of value chains and, the inclusion of smallholder farmers. It is a vast subject, with great promises for both research and development programmes, and it deserves sustained attention.