Small-holder farmers should take their rightful place in agricultural value chains

Tea farm in Mau, Kenya. Photo courtesy Patrick Shepherd/CIFOR

After water, Tea is the world’s most popular drink with over 70,000 cups drunk every second. Humans love it so it is not surprising that Iran accepted, in a barter deal, a repayment in Ceylon tea from Sri Lanka for a US$251 million oil debt owed to it. This human ‘love’ though, wanes out somehow when we talk about the share of incomes of the actual producers, the small-holder farmers down the value chain whose toil ironically is the groundswell of this ‘love’. Recent data from the International Institute for Sustainable Development (IISD) speaks to this. Up to 8 million small-holders from Africa and Asia are responsible for 70% of global production of tea. Many have barely earned above the World Bank’s poverty line of US$1.90 per day for poor countries in the recent times. This is not just the struggle of tea farmers; it is the untold story of many small holder farmers around the world who are integrated into unfair global agriculture supply chains trade regime. For those in Africa, the least said, the less depressing.

Numbers have always amused me but what numbs me is to learn from a University of Wageningen paper that has sketched the struggles of cocoa farmers in Ghana and Cote D’Ivoire and their counterparts growing tea and other crops in Kenya. Summarizing datasets from different studies and evaluations, the researchers conclude that only 10% of smallholder tea farmer households in Kenya earned above US$1.90 and 20% and 25% for Cocoa farmer households in Ghana and Cote D’Ivoire respectively.

Now these statistics are intriguing and I am sure asking about how we got here will be a fair question. ‘… sometimes we throw them away because of lack of market…’ is a sober expression of concern by a farmer’s child in one of the agricultural baskets of Kenya with whom I closely exchange ideas on agriculture supply chains. I believe this concern is in sharp contrast with those of powerful agriculture companies on the forward end of the value chain who celebrate profits; cashing in, thanks to the sweat and toil of the poor farmer. At this point a little more statistical evidence will put this into perspective. With only 3 multinational companies controlling about 20% of the global tea market, you can be assured that inequality, the basis of the call for the people’s vaccine as we face a ravaging pandemic in our world today, is not a problem with Covid-19 vaccines alone. Large pharmaceutical firms with technological dominance have used this to maintain advantage in richer countries while constraining vaccine production and access in poorer countries at a time the world needed them more. The agricultural value chains spin right into this struggle. At the heart of this are intermediaries or so-called ‘traders’ who have capitalized on anonymous transactions and auctions of about 70% of global tea production affecting pricing for tea farmers for so long. Traders are able to do this because they have many options of sourcing, switching between producers and driving down prices.

For those directly employed by large chains, labour rights and wage under-payment are of concern too but just like corruption attempts must be made to expose it lest it lingers on. One such attempt to unearth these issues is the work by the Sheffield Political Economy Research Institute (SPERI) through the Global Business of Forced Labour, a research firm focused on supply chain issues in tea and cocoa value chains. In their 2018 report, after talking to thousands of tea and cocoa workers as well as business and government workers in Ghana and India, they came to the conclusion that employers systematically paid less than required wages to tea workers in the case of India. For Ghana, complex financial calculations were used to undercut workers through wage deductions for inputs provided to cocoa farmers. Building the evidence and highlighting the issue must not be the end but rather provide a means to other actions such as citizen activism.

Other attempts that readily come to mind are Oxfam’s Behind-the-brands initiatives; Fairtrade certifications and Rainforest Alliance certifications. All of these aim to support supply chain sustainability and living income standards of accountability in the food and beverage industry around the world. The task at hand is sadly overwhelming and demands consistent advocacy, reparations, national conversations on trade rules and huge financing to scuttle the inequalities and unfairness especially given that compliance to these standards by multinational is not 100%. Could reparations play a critical role in addressing this value chain onslaught? About 90,000 hectares of land belonging to Kipsigis and Talai clans in Kericho, Kenya are reported to have been taken by British colonialists decades back. Today these lands are tea plantations owned by western multinational companies and on these plantations descendants of the usufructs can hardly boast of a fair share of the pie. They seek reparations and the United Nations supports that course. With origins of this supply chain inequality going back in time, it is safe to say that the issue is as enduring as it is structural and governments and multilateral lenders ought to take an active role.

Have countries taken steps to address fair wages with some pockets of success? From a cursory check notable are Ghana and Cote D’Ivoire’s direct interventions on cocoa. Ghana and Cote D’Ivoire produce about 70% of the world’s US$100 billion cocoa output and secured a US$400 per tonne differential above the floor price for farmers from the 2020/21 season. This was borne out of bilateral negotiations and collaboration between the two countries in a unique farmer premium labeled ‘Living Income Differential’ which piqued industry’s interest as the ‘OPEC’ of cocoa. The implication of this premium according to the 2020 Cocoa Barometer report was a 28% increase in farm gate price per tonne of cocoa in Ghana to US$1,837 and by 21% in Cote D’Ivoire to US$1,840. As farmer cooperatives are encouraged generally to beef up price of farm produce, the role of governments can be strategic with quick returns in the medium to long-term as has been the case of Ghana and Cote D’Ivoire. As celebrations greeted this deal little expectations of fallout in the supply chain were discussed until it was alleged that some cocoa companies like Hershey and Mars avoided purchases of beans from Ghana and Cote D’Ivoire so that they will not pay the agreed premium. Subsequently Ghana and Cote D’Ivoire pulled out of the sustainability programmes of these companies. There were also some debt-related effects which came about especially when Covid-19 broke out. In July, 2020 the International Monetary Fund (IMF) raised concerns about risks of the initiative to the net operating losses of the Cocoa sector regulator in Ghana, COCOBOD. Low international demand for the cocoa because of a high price meant that the surplus had to be refinanced by the government because of an accompanying debt which stood at about 2.5% of GDP at the end of 2020. Who would have thought that an attempt to correct unfairness in global trade will hurt the economy? Is this cost worth it? Whichever way this is viewed, these lessons are critical for cocoa, tea and other crop-producing countries in Africa as policies and measures are conceived to improve lives of small holder farmers.

Avocado is also another crop where small holder farmers have faced stiff supply chain struggles. As the world’s third largest producer of Avocado, this text deliberately pivots Kenya’s experience. Over 70% of production is led by small-scale farmers and they face a similar challenge as tea or cocoa farmers. Constantly they are faced with exploitative behavior of middlemen whose activities limit good prices for produce. If food security was anything to go by, I would be extremely worried but in relative terms this crop is witnessing some decent growth. Yield quantities as seen below, are quite steady over a five year period although farmer incomes remain generally and relatively unfair.

Generally production hikes are recorded from between 2015 to 2020 in part because compared with tea and eucalyptus; many farmers consider having better prices in avocado farming. With this growth in size and recognizing the opportunities to integrate into the export market, the government of Kenya is supporting grower schemes that connect avocado farmers to buyers. It is not clear if this is a sure way to guarantee higher prices for farmers but is a considerable effort. In a study targeting 790 smallholder Avocado farmers, it is observed that nearly 39% earnings are recorded by farmers participating in export markets who also had the benefit of technical expertise exchange; were engaged in contract farming or an out-grower scheme, cooperative and got support from farmer groups. We must note that the fairness or otherwise of producer price connects very closely with market dominance and monopoly. As small holder farmers in Africa, how to break away from the control of this dominance is an unanswered question that is relevant to the agriculture landscape. Leadership from government as seen in the Living Income Differentials initiative between Ghana and Cote D’Ivoire referenced earlier could be carefully considered as one of the ways to assert calls for fairness in agriculture from farm to fork.

Investment will be a catalyst to revolutionize small-holder farmer income protection in Africa. Existing models prioritize farmer capacity enhancement; access to markets; contract farming and the like with the assumption that once these indicators are positive, small holder farmer livelihoods and incomes will appreciate. The missing links though are what I label as the ‘externalities’: the turbulent market space driving prices up and down; a middleman syndicate that mostly shortchanges small-holder farmers among others. To manage these state and multilateral investment options including equity funds must provide a sustained mix of products with a long-term focus. These should be angled in a way that fosters export promotion, farmer extension services, tailored research and development etc with a core business of insulating small-holder farmers from these externalities. Here I will reference a number of investment funds on the African continent. The Africa Agriculture and Trade Investment Fund (AATIF), a public private debt and equity financing mechanism with interest in agriculture value chain investments is an instrument to explore. Upfront investments from as low as US$3 million to a high of US$15 million, small-holder entities could secure better incomes for farmers when tailored properly. AgDevco is a similar mechanism supporting small holder farmers with similar instruments as AATIF. I carefully selected major investment funds on the continent and mapped them by selected investments in the table below. What I find is interesting. Although ‘Africa-tailored’ they are not wholly African when looked at closely. The real funders behind such instruments are mostly of western origins. African governments and private sector entities can and must take up this challenge to fill the void.

Investment FundAmount InvestedAfrican CountryInvesteeCommodity invested inFunding Sources (selected)
AgDevcoUS$6.9 millionGhanaBabator Farming CompanyRice, Maize, soya and GroundnutsVarious including UKAID
Africa Agriculture and Trade Investment Fund (AATIF)US$5 millionZambiaMount Meru MillersSoya, Sunflower and CottonEuropean Union; Federal Ministry for Economic Cooperation and Development, Germany
Agri Business Capital (ABC) Fund€1 millionKenyaApolloFinancial & farm support services to small holdersEuropean Union; Swiss Agency for Development & Cooperation; Luxembourg Aid & Development
Author’s construct (2021) of selected Agricultural investment Funds in Africa

Probably demanding but rewarding as it can be, exploring agricultural social franchising is one way to chart a means to income independence as small holders. Social franchising essentially combines commercial models of business and social goals of alleviating poverty in a way that promotes scalability and profitability for actors within the franchise. In agriculture Farm Shop is an example in Kenya where agricultural inputs; service extension, trainings services have made it possible for franchisees to run modern retail points among others. Similar models are notable such as with the dairy business, Fan Milk in Ghana and Babban Gona which extends investment support to small holder farmers in Nigeria. These models have the potential to guarantee better market opportunities and ultimately higher incomes and financial independence for small holder farmers in the long term. State policy reform in this area could trigger this in scalable proportions.  

We can say that whoever sets the standards gets to the shape the rules of engagement on compliance and its implication for farmer incomes. All the major agricultural value chain standardization efforts are mostly from the global north. Existing ones such as the Good Agricultural Practices (GAPs) and FAIR Trade certifications have hardly had a sustainable influence on compliance of private sector players when it relates to equitable distribution of wealth and farmer income protection. While demands for higher standards for the produce of small holders is expensive and can put undue pressure on their profits, small holder farmers must strive to stay above average performance and maintain homegrown standards for intra-African trade. Recently, a shortage in imported potatoes affected sales of potato fries as reported by global food chain KFC in its outlets in Kenya. The argument is that local potatoes have not been cleared per the chain’s quality assurance standards. Neither the public outcry following this nor the reality of KFC’s concern is the subject of this write up but rather the implications of the opportunity cost of external sourcing on the potential incomes of 800,000 small holder potato farmers on Kenyan soil. Whichever way this is looked at, standards within the supply chain must be looked at closely to close the existing gaps in agricultural value chain income inequalities. What is needed is targeted state leadership and progressive policy and private sector investment. Through these, real progress could be made for the poorest of farmers on the continent.   

2 thoughts on “Small-holder farmers should take their rightful place in agricultural value chains

  1. A well researched on article. Thanks for the insights Francis. And more thanks for being the small-scale farmers’ mouthpiece.

    Like

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