Valuing the ABCs of value chain

A farmer can produce a bounty and still be a poor farmer

Hone Mandefro

Alebel Andiye is a farmer living in the outskirt of Seqota, a small town in Wag Hemra Zone of northern Ethiopia. Sekota is a town recently connected by a 675 kms of asphalt road to Alem Ketema, another city in the north that provides market outlets to farmers in Seqota and its surrounding.

Currently Alebel and thousands of other farmers in the area are busy doing the mandatory soil conservation works to rehabilitate and preserve what is left of neglected and aggressive erosion that has washed the soil and left monumental gullies until two years ago. But that didn’t keep Alebel from increasing his agricultural produces all the more.

In an interview with this magazine at his farm, the camera shy Alebel (he says some people use pictures of countrymen for ‘bad reasons’) admitted that although the work of soil conservation has taken a toll on him and his farmer friends, his income from his agricultural products of potato and onion has “tripled” over the past three years mainly as a result of the big market in Alem Ketema that they are easily accessing thanks to the new road and irrigation works first introduced to the village by state funded agricultural extension workers. “I am irrigating my small land, which was destroyed by a gully only three years ago, and since three years am able to produce three times a year,” he says.

 A lot more than the money at hand

 Alebel somehow understands that the worth of his product is a lot more than what it’s fetching him today. What he doesn’t know is what goes on to his yearlong labor after he first sold it to the first trader either in his village or further in Alem Ketema. “I know that what I am earning is not the only value of money for what I am producing”, he says. That his products change hands and get different shapes, sizes and prices at least a dozen times before they reach the final consumers in Alem Ketema and beyond is of little concern to him as he takes no part of it.  Economists call it ‘value chain’ and insist the likes of Alebel must take the lion’s share in the process.

“The value chain refers to this range of activities that brings a product or a service from its conception to its end use in a particular industry,” says Ruth Campbell of ACDI/VOCA, an NGO working on value chain approach for economic development. 

 In most parts of the world the value chain approach and its positive impact on economic development has got, rightly, a popular acceptance in the past few decades.

In part such emphasize is the result of the global market system: almost all countries in the world are integrated to some extent into the global economy and have opened up their doors to it.

 None-existing in Ethiopia?

 Agriculture is the backbone of Ethiopia’s economy as coffee and oilseeds products remain the main sources of foreign currency. It is also the source of livelihood for more than 80% of the country’s near 80 million population.

Despite recent efforts by the government to develop large scale agricultural investments, small scale farmers such as Alebel, who produces approximately half metric ton of both onion and potato a year, remain the main source of agricultural products.

The government has also teamed up with various global organizations to work on improving the concept of value chain on various sectors such as textile and leather, value chain in agriculture products remained inefficient.

As it is, agricultural productivity in Ethiopia is below potential due mainly to “low input usage, limited availability of seed, limited familiarity with the variety of existing pulse types, and limited usage of modern agronomic practices,” according to a 2010 study on pulse value chain in Ethiopia by International Food Policy Research Institute (IFPRI). According to the study “the link between the producers and the export markets is weak, due to the large number of ineffective intermediaries operating in the value chain.”

The World Bank in its report as far back as 2004 on opportunities and challenges for developing high-value agricultural exports in Ethiopia warned that the risk of a complex marketing system that the kinds of farmers such as Alebel use significantly reduces the quality of the product; it also effectively terminates the relationship between the producers and the final consumers as the product changes hands between unaccounted middlemen before it reaches the final consumers.

Owing to that most marketing systems for agricultural products in Ethiopia remained traditional, feebly organized and characterized by poor quality and high cost of transaction. Market information is inaccessible either and limited to very few traders that continue to dominate the end market of most agricultural products.

Add to this is the financial pressure farmers have to deal with in the immediate post harvesting seasons that forces them to sell their products for prices far smaller than what would have been the actual price after a few months in wait. These are mostly fertilizer debts owed to the government that farmers are forced to pay soon after harvesting their products. A 2010 study conducted by USAID on staple foods value chain analysis in Ethiopia revealed that “60 percent of the total marketed volume is sold during the first three months after the harvest and another 25 percent in the next three months.  By the time prices peak, farmers are left with only 16 percent of the market volume. The maize that is marketed during the lean period is supplied by a few large traders, implying that the benefit from higher prices does not accrue to smallholders”. Although such pattern of marketing behavior is common in many developing countries, it “appears to be particularly severe” in Ethiopia.

 Break the vicious cycle

 As a gesture of good news the Technical Centre for Agricultural and Rural Cooperation, ACP-EU (CTA), an organization that prides itself of putting “priority on enhancing value chain governance and competiveness” across African, Caribbean and Pacific Group of States (ACP) regions is organizing an international conference on value chains development, which will take place from 6 – 9 November 2012 in Addis Ababa, Ethiopia. Such platforms have the capacity to provide solutions to mounting challenges faced by smallholder farmers to market their products.

But certain practical solutions need to emerge from the gathering. These include guidance on practical formations of farmers’ cooperatives and powerful lobby for availability of finances to smallholder farmers mostly from state banks and micro-economic lending institutions. It also helps to find ways in which the traditional middlemen can be integrated into an orderly trading system so they too can be part of a sound value chain system and not a threat to it.

For the small size of land that Alebel inherited from his family, (he refuses to reveal the actual size of his plot),  he is a hard working farmer producing a reasonably good quality and amount of produce. But the chances of earning his well deserving money will remain constrained by a malfunctioning market system that needs a little kick start to take off.

Alebel believes boosting his financial needs right from seed procurement till his final produce reaches the consumer will help him take his time to sale his products to markets even as far as Addis Ababa.

Infrastructure facilities must improve too. Alebel is happy for the newly built road that connects him with the market in Alem Ketema, but he often has to wait for a minimum of three to four hours to get the bus taking him there.