Enhancing Smallholder Farmer Access to Prime Markets Through Horizontally & Vertically Linked Collective Production & Marketing

Ephraim Nkonya – International Food Policy Research Institute

Raoul Herrmann – Germany Development Institute (DIE)

Anja Fasse, Leibniz University Hannover (IUW)

Stefan Sieber – Leibniz Centre for Agricultural Landscape Research (ZALF) e. V.

Khamaldin Mutabazi – Sokoine University of Agriculture, Tanzania

Introduction• Collective production, processing & marketing could reduce transaction costs,

increase farmers’ bargaining power and access to markets (Barham, J., & Chitemi, C. (2009). Collective action initiatives to improve marketing performance: Lessons from farmer groups in Tanzania. Food policy, 34(1), 53-59).

• One of Trans-SEC project’s activities is to build farmer-level groups (horizontal linkages) and linking such groups to processors, agricultural traders and consumers (vertical linkage)• In this presentation, we use the case of sunflower farmers in Tanzania to

illustrate the impact of horizontal & vertical linkage on food security• Tanzania’s Agricultural Sector Development Program (ASDP) II gives sunflower

edible oil a top priority crop in the central zone – which is semi-arid area.• ASDP II sets a target of edible oil self-sufficiency by reducing palm oil imports

by 50%.• Palm oil import accounts for 60% of domestic consumption (ASDP II).

Horizontal & vertical linkages

Farmer groups for production, processing, transportation, marketing, or other collective

farming activities

Trader groups for collective transportation, marketing, processing, grading, etc

Verti

cal l

inka

ge

Horizontal

Horizontal

SACAU has overarching role

in building horizontal &

vertical linkages – just as

cooperatives did

Case study regions in Tanzania: Dodoma & Morogoro

To consultation

Edible oil 4th largest import in Tanzania

Petroleum Transportation equipment

Tubes, pipes & iron

Edible oil Wheat Medicaments0

500

1000

1500

2000

2500

3000

3500

0

5

10

15

20

25

30

25.7%

7.3%

3.7% 2.7% 2.3% 2.0%

Six largest import commodities, 2011-2013

Import value (US$ million) Share of total import value (%)

Impo

rt v

alue

(US$

Mill

ion)

Shar

e of

tota

l im

port

val

ue (%

)

Source: extracted from UNCTAD

Opportunities for reinventing the horizontally and vertically linked smallholder farmers• Tanzania learnt hard lessons from history of interference with farmer

cooperatives – government direct participation in production & marketing is not efficient & does not work for the poor. The Tanzania agricultural policy (2013) spells out ambitious objective of Formation of viable and sustainable farmer organizations to strengthen their bargaining power and competitiveness (URT, 2013) by:

• Providing rural services such as information, inputs, credit and procurement of produce;• Collecting and disseminating marketing information to members;• Conducting membership education;• Providing training on technical and organizational issues;• Lobbying and advocacy on behalf of their members; and• Participating in the processes of policy formulation, program planning and implementation

Opportunities for re-inventing horizontal & vertical linkages (cont’d)

•Urbanization. By 2050, more than 50% of Tanzanians will be living in urban areas (UNDP 2014). • increasing demand for processed and high-value

agricultural food products – the supermarket chains are responding to this increasingly importing and buying locally • Growing demand domestic and international market for

agricultural produce

•Vertical linkages exist but they remain weak

Large & increasing demand for high value crops (vegetables, fruits, spices) in Tanzania

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

10

20

30

40

50

60

70

80

90

100

0

20

40

60

80

100

120

140

160

180

Total Vegetables Spices Fruits and nuts

Impo

rts,

raw

frui

ts, v

eggi

es &

spi

ces

(Mil-

lion

US$

)

Tota

l val

ue o

f im

port

s (U

S$ m

illio

n)

Source: UNCTAD 2012

Types of horizontal linkages among farmers

0.00

0.05

0.10

0.15

0.20

0.25

Prop

ortio

n of

farm

ers

Horizontal & vertical linkages & commercialization, Tanzania

Horizontal linkage

Vertical linkages Horizontal & vertical linkages

No horizontal linkage

No vertical linkage

0%

5%

10%

15%

20%

25%

0%

10%

20%

30%

40%

50%

60%

20%

4%

1%

Share with horizontal or vertical linkage Commercialization

% o

f far

mer

with

hor

izon

tal/

verti

cal l

inka

ge

% o

f far

mer

s com

mer

cial

ized

Source: NPS household data, 2012

Vertical and horizontal linkages of ag traders

No vertical Has vertical0

10

20

30

40

50

60

7060%

10%

24%

6%

No horizontal Has horizontal

Perc

ent

Source: Calculated from Trans-SEC ag trader survey, 2014

Does ag trader has agreement/contract with farmers/suppliers?

Has agreement? Yes Binding contract? Yes02468

1012141618

16%

4%

Perc

ent

Source: Trans-SEC ag trader survey, 2014

Creating horizontal & vertical linkages in Tanzania: The case of sunflower

Consultation with farmers – to determine their priorities

• Trans-SEC conducted consultation with farmers in Morogoro and Dodoma regions• To identify priority commodities for developing

marketing strategy.• Farmers in Dodoma, which is semi-arid with annual

precipitation of 300- 600 mm – selected sunflower

• Consultation with: • Processors to assess potential & constraints for

vertical linkages• NGOs promoting sunflower production & processing

to evaluate potential services that farmers in case study villages could benefit (e.g. improved seed multiplication - Quality Declared Seeds or QDS)) done by RLDC

• Government officials – to determine policies and strategies for edible oil development

Sunflower production vs processing capacity

Major sunflower oil press industries – producing double refined & vitamin A&D fortified oil

Miller Crushing capacity (000 tons)

% of total

Mount Meru Millers 360 86

Murzah 30 7

Uncle Milo 30 7

Total 420 100

Sunflower production & processing capacity of 3 major processors (million tons)

Palm oil import (mainly from Malaysia):• Accounts for 60% of edible oil consumption• Enjoys low or no import tax• Dictates edible oil price – hampering local production & processing

Total annual production Processing capacity0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9 0.8

0.4

Sunflower improved variety developed 30 years ago – with low yield & oil contentSunflower production & yield

• Record C (OPV) potential yield is only 1.6 tons/ha, with oil content of 34%• Hybrid varieties used in

Kenya yield is 2.5 tons/ha with oil content of 42%• Currently no sunflower

breeder20002001

20022003

20042005

20062007

20082009

20102011

20122013

0

200

400

600

800

1000

1200

0.00.20.40.60.81.01.21.41.61.8

harvested area, 000 ha Prod'n (000tons)Yield (tons/ha) Yield potential (tons/ha)

Prod

uctio

n &

har

vest

ed a

rea

Act

ual &

pot

entia

l yie

ld (t

ons/

ha)

Access to ag extension services & type of advisory services given

Type of advice

% of Population receiving advise

on…

Type of advisory givena

Agricultural production 7.76% 82%Agro-processing 1.37% 14%Marketing 3.07% 33%Fishing 0.23% 2%Livestock 2.06% 22%

Prevention of livestock disease 2.62% 28%

Institutional affiliation of price info providers

2% 0.5% 4%2%

18%

1%

36%

Government AEA NGO Cooperative/farmLarge-scale farm Radio/Television PublicationNeighboura refers only to farmers who received extension services

Weak technical advisory services on marketing and price info

What is the impact of horizontal & vertical linkages on •Commercialization & profit of sunflower production?

Impact of vertical linkage on sunflower profit

Sunflower, n

o verti

cal li

nkage

Sunflower w

/ verti

cal li

nkage

s & lo

cal v

ariety

Sunflower w

/ verti

cal li

nkage

s & im

prove

d varie

ty0

100200300400500600700

050100150200250300

86%

280%

Profit (US$/ha) Percent change in profit

Profi

t (U

S$/h

a)

% C

hang

e of

pro

fit

Impact of horizontal & vertical linkages on competitiveness of sunflower with other crops

Toba

cco

Padd

y

Bean

s

Gro

undn

ut

Sunfl

ower

w/ v

ertic

al li

nkag

es &

im

prov

ed se

eds

Sesa

me

Sunfl

ower

w/ v

ertic

al li

nkag

es &

loca

l va

riety

Swee

t pot

atoe

s

Sunfl

ower

Cow

peas

Sorg

hum

Mai

ze

Bulru

sh m

illet

0.01.02.03.04.05.06.0

All sunflower regions Semi-arid regions

Profi

t (00

0 U

S$/h

a)

5th 7th 10th

Impact of vertical linkage on weekly food consumption expenditure

With no vertical linkage with vertical linkage Percent change0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1.52

1.81

0.19

Foo

d c

on

sum

pti

on

exp

end

itu

re (U

S$)

Note: difference of consumption Statistically significant at p=0.05

Conclusions• Value chain approach could enhance commercialization, income, & food and nutrition security• Even without using improved sunflower varieties, vertically linking sunflower farmers with

processors will almost double their profit and increase sunflower competitiveness vs other crops in semi-arid areas.• The following create environment for re-inventing farmer coops with focus on food crops:• New ag. policy, Kilimo Kwanza & ASDP objective of enhancing horizontal & vertical linkages • Growing demand for high fruit & vegetables, livestock products, vegetable oil• Increasing edible oil processing capacity

• There is need for doing a comprehensive study to determine whether it is necessary for the government palm oil import tax in order to boost domestic edible oil production and investment in processing.• The Trans-SEC project will provide such information

• Based on the high cost of edible oil import there is need to increase investment in edible oil R&D.

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