IMPACT OF SYNDICATE MECHANISM TO FOOD VALUE CHAIN DEVELOPMENT ON THE PRODUCTION AND INCOME OF SMALLHOLDER FARMERS

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IMPACT OF SYNDICATE MECHANISM TO FOOD VALUE CHAIN DEVELOPMENT ON THE PRODUCTION AND INCOME OF SMALLHOLDER FARMERS

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Agriculture is one of East Africa’s most important sectors, with about 80percent of the population living in rural areas and depending on agriculture for their livelihoods (East African Community( EAC), 2015). Despite this, the region is categorized amongst the poorest in the world with more than 60% of the population living below the poverty line (EAC, 2015). Poverty here is defined according to the human rights approach, in terms of a range of interrelated and mutually reinforcing deprivations, and drawing attention to the insecurity, stigma, discrimination, and social exclusion. The manifestation of poverty includes: low income and productive resources sufficient to ensure sustainable livelihoods; hunger and malnutrition; ill health; limited or lack of access to education and other basic services; increased morbidity and mortality from illness; homelessness and inadequate housing; unsafe environments; social discrimination and exclusion; characterized by lack of participation in decision making and in civil, social and cultural rights (EAC, 2015). The East Africa Region is characterized by low agricultural productivity and thus food insecurity. The reasons for this are high populations, small land sizes, environmental degradation; poor marketing structures; inadequate access to information, poor physical and institutional infrastructure and inappropriate government policies, there-by hindering sustainable development of rural areas. The region also has diversity of farming systems, from the humid highlands of Uganda, the coastal areas of Tanzania and Kenya to the dry lands of Sudan and Ethiopia.

According to Shepherd (2007), there is considerable scope for adding value to agricultural production. He argued that, “NGOs and others sometimes approach agro-processing from a supply-led rather than market-led perspective. That is, they decide to promote processing because of an abundance of raw materials rather than because of a clearly identified market for the processed products. According to Louw et al. (2007), the smallholder farmers can only have market power if they form co-operatives, which should be established with the help of the government. His work shows that groups have the potential to secure better terms of trade such as better sourcing production inputs prices, lower transaction costs, and greater access to training and other services. Baloyi (2010) showed that considerable changes would be required in small holders farming operations if the economic benefits of increased incomes would be fully realized. These changes entail producing good-quality, high-value crops on a large scale and accessing high-value markets. This will only happen if smallholder farmers have access to comprehensive and holistic agricultural support services. There are several conventional approaches in value chain development. One of these is the clustering and network approach which focuses on a cluster manager or network broker facilitating business and cooperation relationships between member firms. Having established a basis for cooperation, demonstrated benefits, and built a momentum, the cluster manager or network broker withdraws leaving the system fully functioning and able to move forward without further support. Clustering and network approaches offer a framework for identification of existing clusters, and some basic analysis of cluster dynamics (Marieke et al., 2006). The process of analysis for intervention design tends to be generated through the intervention process itself. It is an approach similar to the cooperative-based in which the basis of their cooperation is tailored to achieving a purpose which can be inputs supply (seeds, pesticides, and fertilizers), irrigation and extension service.

The Value Chain Development (VCD) approach applies different types of innovations in the agriculture sector depending on the root cause of the problem in the specific location of study so as to competitively and sustainably increase productivity. The innovations had often led to agricultural growth, nutrition, food security and overall economic welfare of farmers, producers and marketers throughout the value chain. While it is recognized that low income and food security are critical to human development, issues of such have been addressed using different approaches, given adequate attention in prior agricultural development programs. Katalyst approach is an intervention that focuses on training of agricultural input retailers and the development of “embedded services” within the input supply chain. The approach undertakes activities notably in relation to soil testing and packaging. However, the approach stimulates training of agricultural input retailers and there was knowledge and information sharing within the distribution system. The underlying cause was low levels of knowledge and information in the market which is a key cause of poor productivity and was attributed to weak private sector capacities (Gibson, 2005). However the commitment to facilitate smallholder farmers in the market to do things rather than production was not there. In the Katalyst approach different role in intervention on the project was played, one of which was consistent with a future market vision in which other approaches have no role. This defined the boundaries for Katalyst intervention all aiming at increasing farmers’ productivity without an identified market.

The syndicate mechanism is a relationship or an association of at least two people, organizations, associations or governments with the target of partaking in a typical movement or pooling their resources for accomplishing a shared objective. A good syndicate improves efficiency and reduces transaction costs, through joint planning, monitoring, and mutual accountability (Friedman et al., 2014). The approach is more strategic because individuals pool their resources together; thereby the potential return on investment is increased. On the other hand value chain is defined as the full range of activities required to bring a product or service from conception, through the different phases of production, delivery to final customers, and final disposal after use. In the context of food production, these activities include farm production, trade and support to get food commodities to the end-consumer (Kaplinsky and Morris, 2002). Its existence in the aspects of food security enables agricultural goods, services or information to be passed on between different actors. The syndicate mechanism to value chain development is an approach that uses high quality knowledge and information on markets and demand characteristics to support market-driven formation of win-win business consortia, each anchored on an agribusiness SME as lead firm, and composed of sufficient actors along the entire value chain including the end market players linked to the final consumers. The adoption of this approach in value chain development enables actors, sell their surplus food commodities, and have access to efficient and reliable production inputs, common interventions that help to identify common problems among actors in the chain and a desired sustainable solution. The overall outcome of consortia is to attain tangible benefits in terms of economic performance and poverty reduction in the lives of the actors. The project recognizes that increases in agricultural productivity with a defined market will result in improved incomes of the farmers. This study seeks to assess and analyze the effectiveness of the consortium approach vis –a vis conventional-based approach in access to production inputs, finance, infrastructure, markets, foods value chain development on incomes of smallholder farmers. The finding is expected to reveal both the strengths, weaknesses; opportunities and threats (SWOT) for further development in the value chain. It will also proffer recommendations on further strengthen and up scaling of the project in value chain.

1.2 Statement of the Problem

In spite of the various approaches to value chain development in EAC, food and income insecurity is still a problem. The development of food markets in East Africa which is a vital aspect in achieving income and by extension food security is given very little attention in agricultural development program thereby limiting opportunities for enhanced incomes for the smallholder farmers, and good nutrition at prices that low-income earners in rural and urban areas can afford. One of the reasons for limited impacts in farmers’ income is because most projects/programs work in isolation focusing on one or two nodes of the value chain and not the entire value chain. Kilimo Trust Syndicate Mechanism to Value Chain Development (KTCA2VCD) is a holistic method that intervenes at all nodes of the value chain in a coordinated way to solve the challenges affecting the entire value chain towards delivering to a specified market. Food and income insecurity have been attributed to limited access to production inputs such as seeds, pesticides and fertilizers. Other constraints are poor access to production inputs, finance, a well structured, reliable and timely market information; small volumes of products of varied quality offered by individual smallholder farmers; and poorly structured and inefficient markets (Nyende, 2011). This has resulted in wastage of produce and low prices to smallholder farmers. There are several approaches that have been used to develop agricultural markets in East Africa. One of such approach earlier discussed is the co-operatives- based approach which has been extensively used in value chain development to access finance with the aim of to providing inputs supply for the production of the smallholder farmers. The approach has also helped to reduce transaction costs for smallholders and encourage more widespread participation in markets.

Accordingly in Kenya, evidence suggests that dairy co-operatives approach played a significant role in fostering dairy development, primarily by providing a stable market environment and delivering services to farmers. However, dairy co-operative development was heavily dependent on good co-operative management, honest and effective investment of resources and accountability to the interests of the farmer members. (Abdulsamad and Gereffi, 2016). In Rwanda, the diary cooperative- based approach however, was undermined because the general thrust of supply-side investment was not matched by market incentives. One of the major factors was the buying power and short-sighted behavior of processor firms (Makoni et al., 2014). Farmers are not paid quality based pricing, and their income was further negatively affected by the seasonal variations of milk prices (Land O’ Lakes Inc., 2012 ).The consortium approach is a new approach of food markets development that has been experimented in East African Countries. However, little is known about its effectiveness in easy access to production inputs and access to finance and markets. Therefore, this research will ascertain the effect of consortium approach vis- a -vis conventional approach in augmenting the income of the smallholder farmers

1.3 Objectives of the Study

To determine the effectiveness of the syndicate mechanism vis –a vis conventional approach on incomes of the smallholder farmers.

To determine the critical success factors for sustainability of the syndicate mechanism.

To investigate strengths, weakness, opportunities and threats of syndicate mechanism in improving incomes of smallholder farmers.

1.4 Research questions

What is the effectiveness of the syndicate mechanism vis-à-vis conventional approach on the income of the small holder farmers?

What are the critical success factors for sustainability of the syndicate mechanism?

What are the strengths, weaknesses, opportunities and threats of the syndicate mechanism in improving incomes of small holder farmers?

1.5 Significance of the Study

The adoption of the syndicate mechanism to food market development on smallholder farmers income is aimed at achieving inclusive agricultural productivity from all the actors in the value chain and increased income among small holder farmers which would bring about agriculture growth and improved nutrition status. The program recognizes that increases in agricultural productivity with a defined market will result in improved incomes of the farmers. However not much is known about the benefits of the consortium approach in comparison with the other conventional approaches in value chain development. The assessment was done on the production, post-handling process of the goods, easy access to high quality inputs, credit facility and the acceptability of their produce to highly competitive trading systems on the income of the smallholder farmers. The research work will ascertain the effectiveness of the approach in easy access to production inputs, finance and markets in augmenting incomes for smallholder farmers, the level of participation of women and youth in the project, document the success factors for the sustainability of the approach for up scaling in other projects and investigate, strengths weaknesses, opportunities and threats of the approach vis- a- vis conventional approaches.

1.6 Scope of the Study

The assessment was done on the production, post-handling process of the goods, easy access to high quality inputs, credit facility and the acceptability of their produce to highly competitive trading systems on the income of the smallholder farmers.

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