Price as an outcome of negotiations between diverse market actors

African agriculture is one of the most misunderstood ecosystems, especially by investors and development organizations. There is a persistent tendency to force smallholder farmers into contract agreements when most of them have made up their mind about the pros and cons of such agreements. While informal markets continue to carry the day, investors, development actors and policy makers continue to cling onto out-dated contract farming models which condemn smallholder farmers into labourers.

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More than just supply and demand

While formal institutions still believe in the laws of supply and demand, such laws no longer call the shots in African food systems where borders no longer exist. Although commodity supply is important, profitability and sustainability result from many elusive factors. Part of the solution is careful characterization of the market and its actors. With the majority of smallholder farmers in developing countries shunning contract arrangements, unless when blackmailed through free inputs, informal markets are setting the rules of the game at different levels.

Farmers and vendors who exchange goods and knowledge in informal markets understand each other very well to the extent of getting into win-win pre-financing arrangements. This is contrary to views from some development actors which pretend to protect farmers from ‘middlemen’ when they will be  destroying hard-earned relationships that must continue to exist when donor life-support has disappeared.

The biggest group of buyers for farmers who sell in the farmers’ market are vendors who buy in small quantities for selling further in high density areas. A second cluster of buyers are traders with permanent stalls who have invested into trading particular commodities. Traders purchase in bulk and often deal directly with farming communities.  Measurements used in farmers’ markets signify the character of the market. When commodities come into the farmers market, they are in large measurements such as cardboard boxes, large plastic boxes (sandaks), 50kg bags and 20 litre tins for commodities ranging from butternuts and groundnuts to tomatoes. These measurements define the role of the market.

The fluid nature of informal food markets

While agricultural commodities come in bulk from farming areas, most buyers do not buy in bulk but in smaller measurements. This means the market uses different measurements to break bulk. All these nuances have a bearing on financing agricultural production. Where buyers bring commodities straight from production areas into the market, such volumes are stocked in the wholesale market for other informal or formal markets like processors.

The market pulls together a food basket from diverse farming areas. As it breaks bulk it mixes and matches commodities according to diverse nutritional needs. Individual buyers come to the market looking for specific food baskets which the market brings together. However, buyers rarely spend their whole budgets on single commodities. When commodities travel in bulk from one large urban market to another, the market where they travel to is responsible for consolidating food baskets for local consumers.

This fluid role needs to be understood as it influences consumption patterns. For instance, when the consumer budget gets strained, some commodities are rejected. That is how commodities are given weights in terms of whether they are necessities or luxuries. Commodities like lettuce, carrots, peas and fine beans are normally not produced in large quantities because they are sometimes considered luxuries not necessities.  A necessity is hardly substituted fully and that is why a tomato is always in the market because it is a necessity.  It has a marked price range. For commodities that are considered necessities, when demand is high, prices also tend to be high due to a built-in tendency by consumers to acquire appetites and tastes for particular commodities.

Significance of characterizing markets

Instead of focusing entirely on price, farmers and other value chain actors can benefit from characterizing and scoring markets in terms of availability, volumes absorbed by a particular market, commodity uses and price elasticity. Farmers markets can be high on price but score low because prices can fall below contract prices.  On the other hand, while in contract arrangements the buyer and price can be known before producing, the informal market can be always available and sometimes offering better prices due to competitive pressures.

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Knowledge already exists at different value chain nodes such as producer levels and market level.  How can this knowledge be pulled together to inform agribusiness models?  Processors and SMEs have raw knowledge still to be understood. If that knowledge is supported by that from the production side, it can become a bridge for resuscitating formal processing companies. Tracking volumes into markets also provides a framework for building consumption patterns in ways that speak fluently to prices. Commodities cannot be compared in isolation but in competition with each other. For the past six months, which 11 commodities were moving together and competing in the market and which one, upon entering the market, disturbed a necessity like tomatoes?

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

The power of an end to end view of agricultural value chains

Very few actors in African agriculture can see the entire value chain and its nodes. As a result, production activities continue to be based on guesswork. In most cases, some traders who have been in the marketing game for a long time have more knowledge about the value chain than farmers.  Many traders often pre-finance production and end up more informed about particular commodities. In knowledge-intensive value chains, most farmers are not keen to understand the whole value chain, preferring to have traders come and buy from the farm. While this practice has its own merits, a major shortcoming is that farmers are not able to get feedback directly from consumers.

Towards transparency in prices and volumes

In cases where traders assume the responsibility of relaying information between producers and consumers, producers may not get all the information needed for accurate decision making. That is why getting to the market and understanding the entire ecosystem is a worthwhile investment for producers. One big benefit from ICTs is reducing information asymmetry in ways that reinforce transparency in terms of volumes of commodities flowing into the market and changes in prices.

The following analysis is an example of decision-making information that is being collected and processed by eMKambo with the aid of ICTs in Zimbabwe’s informal food markets which handle more than 70 percent of locally produced food. The analysis focuses on potato supply in Harare’s major informal markets like Mbare and Lusaka-Highfield from January to October 2017. At peak periods, Mbare market alone handles more than 400 tons of potatoes a day.

In Zimbabwe potatoes are consumed in different ways – fried, roasted, boiled and baked. Processing companies also use potatoes to make potato crisps while most food outlets use potatoes to produce French fries.  A total of 641441- 15kg pockets translating to 9621.66t were supplied to Harare markets as shown below:

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Supplies usually come in three different sizes – small, medium and large. Price per pocket also differs with the potato size, the large being the most expensive pocket. Traders in the wholesale market also sell seed potato whose unit of measurement is usually a 5-litre tin. Chats/baby potatoes are also sold. Some  traders specialize on selling potatoes with defects that would have been damaged during harvesting.

Production sources

Tracking sources of commodities like potatoes is one of the challenges for producers and financial institutions keen to invest in agriculture.  Evidence shows a drastic increases in potato production in 2017 compared to other years.  This has been due to good and prolonged rain season, among other factors. An increase in the number of production areas also demonstrate the extent to which potato production is spreading around the country. It also means production information is becoming standardized and easily available. The top 5 potato suppliers were Mazowe, Beatrice, Harare, Mhondoro and Acturus, as shown below. Harare as a produce source includes some of the per-urban farms around the outskirts of Harare.

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While the average price has been $6 per pocket, the price ranges have been between $3 to $10 per 15kg pocket depending on quality, variety, size and source distance from  the market and supply versus demand at a given period.  The total estimated revenue generated by potatoes from January to October 2017 in the above mentioned markets was more than $6,584,475.69.   That is not a meaningless figure. Instead of producing blindly, modern farmers should insist on getting an end to end view of the market including insights such as the collective monetary value from staples like potatoes and different commodities.

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

When data and evidence become currency

Most of the information disseminated to African smallholder farmers and rural marginalized entrepreneurs is barely enough for progressive decision making. In most cases where price information for a particular commodity is provided, critical details are missing and these include diverse sources of the commodity, levels of competition, demand cycles and the type of people who consume or use that commodity.  For instance, in Zimbabwe and other developing countries, the production and consumption of butternut squash (cucurbita moschata) is on the increase. However, due to the absence of data and evidence, reasons for this trend are often hidden from producers and policy makers.

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Butternut squash belongs to the same family with the pumpkin, cucumber, gourd, watermelon and cantaloupe. These plants grow on a vine and are relatively easy to produce, especially in the right environment.  Production information is simple to find and standardize. What is often missing is the  picture for each commodity in terms of who is consuming the commodity, whether supply to the market is increasing or decreasing and reasons behind those dynamics. Data becomes currency when such details are generated and consolidated. eMKambo has made it its calling to align data with decisions.

Butternut Squash supply to Mbare market, Harare: January – October 2017

In Mbare agricultural market, the butternut squash is usually packed in bags known as Sassekas. Don’t ask what that name means, the agricultural market has its own lingua franca. A standard size of a Sasseka of butternut squash is 60kg. Traders who buy from farmers prefer to use the Sasseka as a standard unit of measurement for their transactions. It is becomes convenient to repack the butternut into smaller pockets. A total of 98 083.7 pockets of butternut squash were supplied to the market between January and October 2017. A standard pocket of butternut squash weighs 7.22kgs. Converted to sassekas, a total of 11 802.74 Sassekas were supplied to Mbare Market from January to October 2017.

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Major sources of the commodity

As shown in the chart below, Mutoko district was the biggest supplier of the butternut squash. The Harare figure is a combination of peri-urban production and volumes held by traders in Harare over a given period in which case Harare is presented as a supplier to the market. There are many cases where Harare traders buy squash butternut seed and other inputs which they extend to farmers. Such decisions are largely informed by data showing areas with potential for producing more and those that have reached their ceiling in terms of production capacity.  In the absence of such granular evidence, funding the production of butternut and other commodities is based on guess-work and wastes scarce resources.

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Price trends

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Butternut squash can be stored for a period of six months or longer and the taste is often superior when it is stored for a long period as compared to being consumed just after harvesting. Research and evidence gathered by eMKambo over the past five years has shown that the demand for butternut squash is high during the festive period. If you are producer or financier, it is important to know all these economic nuances associated with squash butternut before making an investment decision. This information can easily be compared with 2015 and 2016 in order to demonstrate trends.

The law of demand and supply states that all things being equal, when supply is low there is an increase in price and that when supply is high, there is a decrease in price. Evidence provided in the above graphics show that this law applied in 2017 except in April where both supply and price went down. In 2016 the same law applied in April, May, July and October only. Price was constant from January through to March where supply was fairly high. This demonstrates the extent to which, like all other markets, agricultural markets can be unpredictable. However, mastering other factors like consumer behavior, income levels and how food commodities compete and substitute each other can generate better insights.  Given the scarcity of resources, decisions have to be based on strong evidence.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

 

Why value chain actors should identify their most critical knowledge

From all the training, guidance and ideas directed at poor and marginalized farmers, it is often difficult for these actors to determine the most critical knowledge. As a result there is usually confusion between what is urgent and what is important. While the most important knowledge for smallholder farmers can be on how to enter new markets and sell their commodities, the most urgent knowledge may be on how to conduct a market research and not just rely on agribusiness gossip. Due to this challenge, most farmers end up conducting research while already on the market when a market scan should have been done first.

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Some of the most important but not urgent knowledge can be on how to set production forecasts. This assumes value chain actors have access to the big picture. Unfortunately, most African farmers do not have access to enough knowledge to be able to make concrete production forecasts. That is why gluts always alternate with shortages on the market.  As the planting season gains momentum, the most urgent knowledge relates to where inputs can be found and who is going to buy what will result from those inputs.

A case for structured ways of seeking and sharing knowledge

In the absence of structured ways of seeking and sharing knowledge, most developing communities cannot separate new knowledge from strategic knowledge which represents their community’s competitive advantage or core knowledge which accurately defines their community. The situation can be worsened by the presence of multiple organizations pushing different agendas in one community. One organization may be promoting water and sanitation as a single issue while another organization promotes small livestock production at the exclusion of all other socio-economic activities whose inter-dependence is more critical than be treated as isolated issues.

Important knowledge can simply be identified through talking to community elders who have seen many changes during their lifetime. While youth can have skills in capturing knowledge through digital technology, elders are the main sources of experiential knowledge, most of which cannot be manipulated through documentation. Where knowledge is siloed in different development actors in the same community, such knowledge is inefficiently used for the benefit of the community. Multiple and inefficient solutions continue to co-exist when consolidating solutions would save the community better.

20 percent of local knowledge which makes 80 percent of the difference

Most farmers may not remember knowledge they used to produce commodities last season because there have not been intentional efforts to capture what happened. Conducting knowledge surveys can reveal what communities are probably forgetting and cases where wheels are re-invented unnecessarily.  When value chain actors or community members are assisted to identify their critical knowledge, they become empowered to spend most of their resources on the most valuable knowledge unlike chasing every suggestion.

With the right capacity building initiatives, every community can identify 20% of its knowledge that can make 80% of the difference in terms of community development outcomes and better livelihoods. They can be able to figure out circumstances where rapid learning is needed as well as kinds of knowledge that already exist among all community members, only requiring sharing as opposed to creating from scratch. For instance, if almost every farmer knows how to grow maize, there is no point in wasting time and resources on field days that focus on maize production. On the other hand, where old knowledge needs to be standardized into community routines, ways of standardizing such knowledge should be cultivated.  For instance, knowledge on traditional basketry, livestock breeding and pottery can be lost to the future generation if not standardized and introduced into formal education systems.  Where local experts like herbalists or black smith are not able to share their knowledge because of its intensely tacit nature, young people should be identified and incentivized to under-study these experts.

Filtering local high value knowledge

High value commodities are often associated with high value knowledge that has to be managed in different ways from low value knowledge. An important part of filtering critical high value local knowledge is identifying barriers to knowledge sharing and devising ways of over-coming such barriers.  Some of the barriers can be invisible to local people but outsiders can be able to see those barriers and provide the necessary solutions.  Communities in many developing countries need skills in identifying what they need to know in order to avoid mistakes that if solved can move them out of physical and mental poverty.

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

 

How the market can convert agricultural commodities into career pipelines

Besides climate change and environmental degradation, a major challenge facing many African rural communities is migration of skills and talent to urban centres. There is no price for guessing who wins in the competition for talent between rural and urban communities. Building rural agricultural markets is one way of converting agricultural commodities and value chains into sustainable career pipelines for the young generation. Such a vision can be fuelled by rapid urbanization and the expansion of ICTs into formerly marginalized areas.

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Raising the banner of working together

The new era of big data and machine learning is inspiring a new culture of gathering evidence that can help in redistributing agricultural talent from urban to rural communities.  Through informal agricultural markets, value chain actors are being compelled to collaborate on a new scale and to work more closely with consumers.  It no longer pays for private companies to jealously guard their secrets, for fear of being beaten in the market.  Gone are the days it made sense for academic researchers to act like sole proprietors obsessed with individual achievements. Some of the best ideas and innovations can come from rural areas if the right conditions and incentives are availed. Policy makers and development agencies cannot expect to achieve rural development when technological knowledge and progressive ideas are locked in urban areas.

The role of data in nurturing trust and shifting incentives

Creating career pipelines and economic growth opportunities in rural farming areas may not happen without a culture of collecting data and turning it into reliable insights. While data can provide the much needed reality check on a continuous basis, such data cannot be found in a single organization or institution.  There is need for new methods, talent, capabilities and infrastructure for translating data into useful evidence. Without investment in talent and important capabilities, only a few people, mostly based in urban centres, will be able to manipulate data in ways that satisfy their own career persuasions.

People as the main knowledge assets

In addition to data, the fluid expertise of traders, consumers, retired farmers and other professionals is critical in ensuring rural communities become part of knowledge societies. However, experiences from working with diverse farming communities over the past few years have confirmed to eMKambo that people have different motivations for sharing or withholding knowledge. While there is a long-held assumption that field days are the best way through which farmers can share knowledge, many farmers are interested in what knowledge means to their own contexts and competitiveness as opposed to what it means to everyone. Many value chain actors share knowledge when sharing is the best thing to do.

A small proportion of farmers and traders share knowledge because sharing is part of their nature and so they can share proactively. There is another second group of farmers, traders and consumers who share knowledge when asked to share. This group can keep knowledge to itself until there is a clear demand for it. The last group comprises those who share when benefits of sharing are clear. As the entrepreneurship spirit catches up in many rural communities, is category is increasing. Paying attention to all these issues and categories is important, especially when trying to use agriculture and natural resources in helping communities to life themselves out of poverty and become consistent economic actors who see knowledge as a commodity for the future.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6