Value addition in horticultural supply chains
In most developing countries horticulture is performed by small scale farming families, e.g. in China an average farming family is allowed to work on about 1 hectare (104 m2) and 81% of Kenyan farmers hold less than 2 hectares of farm land. These farmers sell directly to consumers or to middle men or to wholesalers. Their bargaining power is almost nil, as their products are prone to rapid decay. They compete with their neighbours and the only distinction available is through pricing. If their crop fails they are bound to go hungry in the next season. On the other hand there is large scale farming which is controlled mainly by rich farmers who can invest in modern means of production and postharvest handling. Of the Kenyan farmers less than 0.1% hold farms over 200 hectares. They usually supply the large internationally operating retail corporations that demand a voluminous and reliable supply of products that comply to all the specifications of the importing countries.
Products are certified to various internationally proclaimed systems such as Global GAP, ISO9000 – 14000 – 22000, FQS, BRC, HACCP, Q&S etc. These certification schemes are mainly oriented towards adherence to strict food safety management practices, but some also tend to focus on sustainable production or even social and ethical production. The most important demand by large retail corporations is reliability in supply; quotas must be met on the date and time stimulated and must conform to agreed specifications. This situation creates a huge dichotomy between small scale growers and large scale growers. The large scale growers have considerable bargaining power, as they can cut out the middle men; some rely on their own exporting and logistic companies and sometimes even control shares in or have effective linkages with overseas marketing companies. They can create and capture value at an economically viable scale. The small producer is left to compete in a market where products are distinguished solely by offering a lower price than his competitors. Consequently, products do not qualify for the high value end of the market as they do not have all the necessary certificates as they are more often than not too expensive for small scale producers to access. So the question arises whether it is possible for small-scale producers to take part in the high value market of horticultural produce and products and how the S&T community in collaboration with governments and other stakeholders can support them in their efforts?
Penetrating the high value chain – Lessons from Egypt
A very positive example of small farmers taking part in the high value end of the chain is the SEKEM (The name SEKEM is the transliteration of a hieroglyph, meaning "vitality") group in Egypt. They started in 1977 by developing cooperation between growers for organic farming of vegetables and fruits. They developed training programmes for the farmers to elevate their knowledge of growing. They created exporting companies and certified all their growers in EUREP-GAP. Their packaging and logistics companies complied with all the FQS and BRC certificates and their produce is delivered directly to large retail chains in Europe. This took over 30 years, significant resources and investments in time and energy to achieve this goal. The CEO of LBRA (the organic cultivation company) Egypt, a subsidiary of SEKEM specialized in packaging and exporting to Europe, reported that one of his main problems was lack of knowledge in the local situation (personal communication). Whenever there was a problem extremely expensive consultants were flown in, demonstrating a reliance on external knowledge. But the basis of the success was the horizontal integration of producers into a cooperative and then linking an exporting and marketing organization to it.
High value addition is obtained by vertical integration in the chain, however vertical integration before horizontal integration is bound to fail, because the reliability of sufficient volume in the production must be assured in the first place. It was also very smart to focus on organic production as this market is still in development and the volumes required are not that high. Apart from that, organic allows a certain distinction in the market for consumers. Once the growers are united in sufficient numbers and prepared to work according to specifications, it becomes possible to convince seed producers to sell their prime material. However it would help very much if the country in question is a UPOV (International Union for the Protection of New Varieties of Plants) member and actually enforces the UPOV regulations. This would enhance the possibility to produce certified high quality propagation material for the area of interest, which would increase production and reduce risks of losing crops to infestations. Now most breeders are quite reluctant to send their best material to countries that are notorious copiers of plant cultivars. Let alone are they prepared to breed for that climatic and soil conditions out of fear that their investments in developing these new crops will be wasted by illegal reproduction of their plant material. Within this context it seems a contradiction that countries enforce the payment of high prices for high value propagation material, while the unlicensed reproduction has hardly any costs. However if they do not enforce the UPOV regulations there will be no high value propagation material at all. And that is where quality starts.
The following governance structures are recommended to help regional governments stimulate wealth creation in the horticultural industry for the benefit of small-scale producers:
- stimulate horizontal integration among producers – this is to create a situation where growers start seeing each other as colleagues instead of competitors. For only by uniting their forces can they become strong and large enough to reach quality and knowledge levels in order to become certified producers of sufficient volume and quality.
- stimulate knowledge transfer on a practical level – growers need to know what to do in order to produce sufficient quality and how to be able to link into the global supply chain.
- create a scientific (and extension – link to knowledge transfer above) culture that is committed to solving practical problems – many academic institutions in developing countries consider themselves to be too important to deal with the practical problems of the small scale farmers.
- create a stimulating environment for meeting local and export demand – government policies ; credit and financing mechanisms; innovation platforms.
- create an environment for stimulating interaction between industry, education and government – help small companies obtain intellectual property rights (IPR) on their inventions, subsidize public-private entrepreneurship where the IPR goes to the private companies.
- endorse the UPOV regulations – in order to obtain high value propagation material from well developed breeding companies and protect indigenous varieties that have a high value.
These are not easy to implement and need the commitment and perseverance by a large group of people over a long period of time, as can be seen from the Egyptian example. But the investments pay off in the end as suppliers can respond to and satisfy the local and export demand, i.e. consumer expectations both locally and international, for high quality products on a consistent basis.
Kamau, F.K. A Kenyan experience on R&D efforts linking crop and livestock improvement, NRM and human health. Ministry of Agriculture, Nairobi, Kenya.
Lunning P.A., Marcelis W.J., Jongen W.M.F. (2002) Food Quality Management, a techno-managerial approach. Wageningen Press. pp 323.