Successes and failures of institutional innovations for improving access

to services, input and output markets for smallholder pig production

systems and value chains in Uganda

Alex Tatwangire (tatwangire@yahoo.co.uk)

Smallholder pig value chains development project, ILRI Kampala Office

“Workshop: In-depth smallholder pig value chain assessment and preliminary identification of best-bet interventions, Kampala, 9-11 April 2013”

Section 1

• Definition of innovations and innovation processes.

• Institutional innovations and the functioning of markets.

Section 2

• The nature of input and output marketing channels in Uganda.

• Pig farmers’ participation in different marketing channels.

Section 3

• Average revenue and costs associated with marketing channels

• Institutions that aim at improving access to services and markets

Section 4

• Institutional innovations recommended by different institutions:

• Successes

• Failures

• Major constraints in the implementation

• Way forward for the SPVD project

Agricultural Research for Development (ARD) in Africa- dominated by the traditional approach of linear research, extension and adoption that has failed to improve livelihoods especially those of the poor.

The SSA CP introduced an Integrated Agricultural Research for Development (IAR4D) approach to address the challenges of the traditional approach of ARD.

“limited impact of African agricultural research on the intended beneficiaries”.

When farmers and other value chain actors are not deriving gainful exchange in the market, it means that there are no ideal conditions of market exchange- , implying high transaction that create opportunistic behaviour in form of cheating and free riding.

Institutional innovations create good institutions that improve market exchanges- by minimising transaction costs at reasonable cost.

Innovation is a new way of achieving the tasks: a process that comes up with solution to problems in a new manner Encourages the need to experiment and develop market opportunities. Changes the way formal Research and Development (R&D) service providers

function in terms of behaviour and roles. facilitate efficient and equitable outcomes of economic development enhances fair interaction of independent actors along the value chain.

Innovation can be technological, institutional, or political: Technology innovation - about innovating the tools at our disposal- about

what we may use to achieve our goals. Process innovation - how we may achieve our goals more efficiently and

more quickly (changing the responsibilities and the perceptions of the people involved )

Institutional-about innovating who we are and why we are doing what we do.

An innovation starts as a concept that is refined and developed before application- to overcome main failures and constraints in markets.

Innovations may be inspired by reality requires: Research Development (up-scaling, testing) Production Marketing Use

Innovations respond to need and economic conditions: farmer cooperatives created in response to low prices

The process of innovation requires: the need to understand how existing institutions work, and

how individuals react in order to introduce activities and products that serve peoples’ need and that are sustainable economically and politically.

Informal institutions cooperative behavior sustained through reciprocal exchange

and repeated interaction e.g., informal credit markets, village markets, community

initiatives Conditions under which these work? Small setup costs, but rising costs as the number of

participants and geographical scale increase

Belief systems behavior that is driven by internalized ideas about what is

right morals, religion, ideology …

State institutions Cooperation achieved through “third-party enforcement” of

rules and contracts Implicit force of state punishment

Institutions are a prerequisites for markets :- minimise transaction costs, transmit information, mediate transactions, facilitate the transfer and enforcement of property rights and contracts, and manage the degree of competition.

Institutions are the norms, rules, and organizations that “govern” transactions:-mechanisms for mitigating the collective-action problems that lie at the heart of economic development.

Market institutions can be defined as rules of the game, enforcement mechanisms and organizations that facilitate market interaction, coordination, contract formation and enforcement

The poor are dependent on poorly functioning inefficient markets for the livelihoods.

Need well functioning markets that support competition, lower the costs of doing business, and provide incentives for trade and investment.

Issue/Market Failure Intervention

Unequal Access to Information •Public interventions

•Market Development / private participation (e.g. ICT, credit bureaux etc)

•Collective action and network development

•Excessive Costs and Risks of Transactions

•Coordination failures – no access to supply chains /hierarchies

•Indivisibility (minimum transactions sizes)

•Risk reduction

•Guarantees

•Value chain interventions

•Institutional innovation e.g. Contracting, Collective Action

•Market facilitation and Development

No public institution, NGOs, or private institution has had significant interventions to improve marketing of pigs and pig products along the value chain in in Uganda. Few organisations have been engaged with restocking and

formation of farmer groups - include: NAADS, World Vision, and Child Fund.

The formation of farmer groups has failed to generate the anticipated collective action.

NAADS has not attempted to promote the marketing of inputs and pig products:- no focus on traders, input dealers, and processors”

Other institution Include: the East Africa Diary Development Project (EADD), Foodnet, VECO, IBI-Trust, the Sub-Saharan Africa Challenge Program (CIAT-Africa, Agricultural Research Institute Kabanyolo, Africa Highlands Initiative (AHI), Huntex Industries Company Limited-Kabale, Kabale Local Government, NARO – KAZARDI, Makerere University, and ICRAF.

Focus is on organizing smallholders into farmer groups or producers organizations to overcome market failures and maintain their market position by:

acting collectively

become better positioned to reduce transaction costs for their market exchanges

obtain necessary market information

secure access to new tech­nologies

tap into high-value markets that allows them to compete more effectively with large farmers and agribusi­nesses.

Active producer groups or associations- a reliable way of improving access to output markets, inputs, services and in acquisition of skills that are vital for improved production and management.

Formation of farmer groups at village level:- village clusters represented on District/LG IPs

Lead farmers appointed by groups : to test, demonstrate or provide learning sites for alternative technologies

Producers linked to processing/major companies - so that they become contract growers.

Farmer groups sourcing inputs and marketing produce collectively

University students undertaking research - requested by local communities and the feedback of results to farmers

Seed loans by seed companies being repaid in kind with seed donations also being made to other farmers, pass-on-seed scheme

Sustainable intensification in smallholder dairy business though institutional innovative system (in this case, the “dairy hub marketing”).

New high-yielding crop varieties (cereals, legumes, and root crops) being selected tested and adopted by farmers in all Pilot Learning Sites (PLS)

Double bagging of grain to prevent weevil damage (from Purdue University)

R&D converting an indigenous sorghum porridge to a non alcoholic “Mamera” sorghum juice now sold in local supermarkets

Potato washing, grading, packaging using local materials and marketing in hotels and supermarkets

Increasing use of organic and inorganic fertilizer and basins- the development and sale of vegetable boxes by agro-dealers, contain seed, fertilizer and chemicals sufficient for 0.1ha with credit being available for their purchase.

Certain conditions need to be in place, if incentives for farmers to organize around marketing are to be created and sustained

Producer/farmer groups can simplify long marketing chains by connecting smallholders directly to markets, bypassing various marketing intermediaries.

Lack of credit and high cost of credit are major impediments for adoption. Limited access to information and sources of technology, higher cost of

inputs. Limited or no skills of the various players in the chain- a high learning cost Low quality agricultural produce, inadequate supply High transaction costs- high market risk and cash flow problems. Poorly organized market for crop and livestock products Domestic market for local foods, including pork exists, but is disorganized –

many players in the value chain Low participation of cooperatives, associations and farmer groups. Price variability, low volumes, lack of buyers, and low business skills. No standards for marketing products, linked with knowledge &

information Disorganized markets that can’t provide a win-win situation for all the

players in the value chain. Failure to transform the raw foods into some form of

processed, branded, easier to move and that can fetch better prices. Limited ability to transform our products to take advantage of our

infrastructure conditions.

Promote and enhance interventions that: Encourage systemic and institutional change- the use of market-based incentives to

leverage the “enterprise” contribution to development

improve governance and participation- mechanisms for improving access to operating capital; and effective strategies for risk management and enhancing the business skills of the Producer Marketing Groups.

Attract more direct participation from the private sector Build advocacy capacity and alliances with “change agents” Sensitize members on the democratic principles of participatory group

governance through elections Provide initial start-up capital to kick-start their operations, and to encourage

members to increase their registration fees for membership to raise the necessary minimum capital.

Encourage increased annual contributions to the PMGs by the membership. Train and equip PMGs with business skills to facilitate effectiveness and

accountability in running the PMGs as business enterprises. Register PMGs as legal business entities and not as self-help groups, which

restricts their ability to access essential business services. Enhance the ability of the PMGs to access working capital through access to

financial credit: - encourage formal financial institutions to extend pig inventory credit services to PMGs.