Innovative Institutions, Public Policies and Private Strategies for Agro-Enterprise Development

The following sections are included:

• CONTENTS
• PREFACE
• ABOUT THE EDITORS
• ABOUT THE CONTRIBUTORS
• ACKNOWLEDGMENTS
• INTRODUCTION: INNOVATIVE INSTITUTIONS, PUBLIC POLICIES AND PRIVATE STRATEGIES FOR INCLUSIVE AGRO-ENTERPRISE DEVELOPMENT

The importance of linking small-scale farmers to lucrative markets to improve livelihoods and food security in developing countries is well established (Singla et al., 2011). Increased agricultural productivity by small-scale farmers contributes to household food security while marketed surplus sustains livelihoods and contributes to food security in both rural and urban areas. Market access, however, remains a major impediment for most small-scale farmers in developing countries (Chamberlin and Jayne, 2011). Promoting horticultural production and marketing is widely seen as an effective strategy for improving income and nutrition for smallholder farmers with relatively modest investments. The objective of this chapter is to analyze alternative institutional mechanisms that strengthen smallholder horticultural farmers' access to lucrative markets in South Africa.

First, the chapter provides a rationale for intervention within South Africa's food security and development objectives. Against this background, the chapter discusses the socioeconomic, structural and historic challenges faced by small-scale farmers trying to access lucrative markets. Not unique to South Africa, the challenges include low volumes, poor quality, seasonality in supply, poor food safety and traceability, high transportation costs, limited value addition, lack of business culture, poor market information and limited track record. Evaluating solutions, the chapter classifies institutional innovations that improve market access for smallholder farmers into two distinct categories: push versus pull strategies. Focusing primarily on the farmer, push strategies (such as micro finance institutions, collective action, training and extension) primarily seek to address the challenges faced by smallholder farmers at farm-gate level while taking the market as given. By contrast, pull strategies (such as market information systems, contract farming, alternative food networks fresh produce markets and preferential procurement) focus on creating lucrative opportunities in the market. The chapter maps the market access challenges against the institutional innovation in the South African context.

To illustrate the above, the chapter employs three case studies of institutional innovations — Abalimi Bezekhaya (Western Cape), Umbumbulu Agri-Hub (KwaZulu-Natal) and Westfalia Estate (Limpopo) — each offering alternative business models that link farmers to markets. Using two criteria, rural–urban linkages and uniqueness of mechanism, the cases were chosen to demonstrate different market access strategies that were recently implemented in South Africa. Successful mechanism to sustain smallholder's market access in South Africa requires a combination of both push and pull strategies. This chapter closes with a look at these three peripheral issues that are important to smallholder market access in South Africa.

In recent years, compliance with international food safety and quality standards, such as GlobalGAP, has become increasingly important for farmers in developing countries supplying high-value markets. Adoption of the GlobalGAP standard is challenging and external support by exporters, donors or other support agencies is often necessary to enable small-scale farmers to adopt. While the factors influencing GlobalGAP adoption have been analyzed in several studies, the impacts of the standard on smallholders' livelihoods remain less clear. This study for the first time presents a panel data analysis of the effects of GlobalGAP certification on net household income (NHI) and producer prices, using a sample of 214 farmers in the Thai horticultural sector. We find that the impacts of GlobalGAP certification differ depending on whether farmers are organized in producer-managed or exporter-managed certification groups. In the producer-managed groups, GlobalGAP certification has led to significantly higher prices and to significantly higher NHIs. In the exporter-managed certification groups, however, the effect of GlobalGAP certification on both prices and NHI is insignificant. Our results suggest that monetary benefits of GlobalGAP adoption do exist, but in cases where exporters finance GlobalGAP certification, those benefits are not passed on to farmers.

Understanding the complexity and strength of innovation networks that disseminate knowledge about agriculture is important because these innovation networks allow actors to integrate needs, actions and results when public and private actors cooperate. The study shows that Conservation Agriculture (CA) farmers are central to the networks as a whole, both in terms of information seeking and information gathering. Moreover, when the study focused on a micro network, it was demonstrated that these CA farmers are key actors and play an important role for diffusion of CA. Ancient agricultural knowledge shapes the way farmers ultimately apply the principles of CA: Minimal soil disturbance (no-till) and permanent soil cover (mulch) combined with crops rotations. CA is conceived as a system developed with and for farmers. This study was conducted in West-Central Mexico. The analysis involved a two-stage stratified sampling statistical model, oversampling for CA farmers from a state census of farmers growing sorghum and maize. The findings in this study add evidence to the idea that network analysis is important as a helpful tool when there are reduced resources and time. Finally the study shows the efficiency and efficacy of network analysis as a strategic methodological tool to design, operate, follow up, evaluate and control social public policies.

Current literature on farmer participation in dynamic agri-food supply chains focuses predominantly on one kind of inclusion based on individual farmer characteristics. Relatively less attention has been devoted to spatial selection. This chapter contends that exclusion can often be based on geographies and the precise nature of exclusion has important implications for the level at which public policy interventions should operate. This study investigates multiple sources of farmer exclusion in contract farming schemes involving agro-processors and farmers in five commodity sectors in southern India, including broiler, cotton, gherkins, marigold and papaya. Using data on 822 farmers, collected through surveys conducted between 2007 and 2010, this chapter decomposes the likelihood of inclusion into two components, spatial selection and farmer selection, to examine the pattern of exclusion across the different commodity sectors. The study finds that geography matters and that firms regularly select communities spatially over a geographic domain before choosing a portfolio of farmer–suppliers, implying that sorting across farmers is relevant only within the chosen geographies of procurement. Further the chapter discusses the implications for public policy relating to contract farming in India, especially pertaining to agroprocessing clusters and agro export zones.

This chapter focuses on the inherent challenges in collective action and the institutional arrangements or regulations that hold market-oriented farmer groups together. It operationalizes the measurement of the capacity to contain these inherent challenges by mapping the presence and effectiveness of internal rules and regulations, related to mechanisms of price-determination, payment systems, quality controls, task delegation, etc. Using data from 38 farmer organizations in Bolivia, we show that this capability is strongly correlated with the performance of the group. We illustrate the relevance of learning and experimentation to develop these capacities, and how the policy constrained room for maneuver to do so. We conclude with the importance of policies and legal frameworks that facilitate this search for effective solutions to agency dilemmas in collective marketing, and stress the importance of differentiating between market-oriented and community-oriented farmer organizations.

Even before the crisis outbreak in 2008, there was a pressing problem affecting both advanced and emerging economies: unemployment. The financial crisis first and the fiscal crisis later have put even more pressure on this issue, leading on many cases to social discontent.

Opportunities in green economy development exist that can offer ways of addressing this problem and provide new solutions. This chapter focuses on identifying successful experiences in Mexico in which social innovation becomes a key element in developing new skills and highly productive alternatives, mainly, in the green sector.

By studying social processes of innovation, this research can help understand the ways in which cooperative social innovation among different economic sectors and social groups can be enabled. Following the literature and as a result of case analyses of successful community development experiences, it is possible to identify five key elements that successful practices have in common: First, creativity, as the starting point to generate a new or novel output; second, value, created when an innovation comes as a solution to a problem; third, a collaborative atmosphere, which fosters individual initiative and cross-pollination; the fourth element is individual expectations, including individual initiative and tolerance for mistakes, which encourages individual effort. Finally, networking based on self-organized special interest groups with informal, horizontal structures, objectives and tasks — these groups tend to have formal leadership and small budgets and are driven from the “grassroots” and/or previous community projects.

In most cases, there are few financial incentives to endorse social innovation, so individuals and organizations have also developed quite interesting recognition instruments to engage new participants and to guarantee their sustainability.

In sum, this work adds to the literature that links social innovation and entrepreneurship, and aims to help build a blueprint towards designing successful development strategies based on this particular type of innovation, by carrying out a systematic compilation and codification of particular cases, in which it has been identified, in Mexico.

Sweet sorghum is a C4 plant with high photosynthetic efficiency producing high biomass with sugary stalks in a short time (4 months) under rain-fed conditions. The stalks can be crushed to make juice, which can be fermented to produce ethanol or boiled to produce syrup. The syrup can be converted to ethanol or to food grade quality syrup to be used as sweetener by the food industry. This chapter highlights income generating opportunities for smallholder farmers from sweet sorghum cultivation and processing through small scale agro-enterprise. This pilot project was conducted by ICRISAT by establishing a Decentralized Crushing Unit (DCU) at the village level to crush sweet sorghum stalks, extract juice and boil it to produce syrup to be used for various industrial uses (ethanol and food). The bagasse (fiber left over after crushing) was used as livestock feed or as fuel. The benefit–cost ratios (BCR) for the options explored indicate that a simple value addition in the form of chopping sweet sorghum stover provides the highest BCR of 2.56, though the sustenance of the agro-enterprise depends on the availability of multiple feedstocks like maize and sorghum stover for optimum capacity utilization and profitability. This is followed by syrup production for the food industry. The establishment of small scale enterprises will pave the way for micro-entrepreneurship at village level and enhance income and employment opportunities, in the process reducing rural poverty.

This study evaluates the performance of food processing clusters and their role in the development strategy of the food processing industry in India. We focus on two major cluster development initiatives of the Government of India: one, a food park scheme of the Ministry of Food Processing, and two, a special economic zone (SEZ) policy of the Ministry of Commerce. While analyzing the performance of these initiatives, the study adopts a comprehensive framework which covers not only the quantitative measures of investment, employment, and production but also qualitative indicators such as dynamism of the parks and backward and forward linkages with the rest of the economy, regional economy and cluster-induced benefits. The analysis is based on interviews with chief executive officers of the selected parks, officials of the Ministry of Food Processing and developers of selected parks and SEZs. It is complemented by secondary data based analysis. The study shows that overall the schemes have failed to generate critical mass of economic activity and their achievements have been unimpressive, apart from a few exceptions. It concludes that implementing successful, large-scale industrialization programs involving private participation requires of policymakers a long-term vision, strong commitment, a pragmatic and flexible approach, and dynamic learning and institution building.

The success of small agricultural producers in meeting the challenges of exporting high value products may be enhanced if interactions with intermediaries and market institutions support basic human needs. We use self-determination theory from social psychology to identify and examine the factors that support producer autonomy and competence in their relationship with the market, focused on their specific relationship with intermediaries. Focus groups were conducted with producers of trout and quinoa in Peru and rice, broccoli, passion fruit in Ecuador. Questions focused on producer interactions with intermediaries and include questions on dispute resolution, quality standards, price formation, market information, and the terms of their informal or formal agreement with intermediaries. These focus group interviews were translated and transcribed by native Spanish speakers from Ecuador and Peru and coded by the authors using Nvivo 8. The conceptual framework developed for coding facilitates examination of how support for competence, autonomy and relatedness is associated with market structure and the effectiveness of underlying institutions. Producer expressions of competence and autonomy are associated with the realized ability to make choices of intermediaries, clear and observed quality standards, and are further enhanced by higher levels of market knowledge. An NGO played a significant role supporting the competence, autonomy and relatedness of quinoa producers.

Ethiopia's agriculture-led industrial development strategy (ADLI) stipulates that smallholder-led commercial transformation of agriculture is vital for the social and economic development of the country. The improving productivity and market success (IPMS) of Ethiopian farmers project is intended to demonstrate market-oriented transformation of smallholders in Ethiopia. This five-year project, operating in 10 districts distributed in four Regional States, follows innovation systems perspective and value chains framework, and participatory commodity development approach in identifying and implementing various interventions. Action research is an integral part of the project designed to draw and synthesize lessons for scaling out and up of successful practices. This chapter presents syntheses of the results and lessons of the development of institutional support services in promoting market-oriented dairy and livestock fattening to transform smallholder farms into rural agro-enterprises. Major conclusions and implications include: (1) the traditional production and technology focused extension service approach is inadequate for market-oriented agricultural development; market-oriented extension service is required; (2) provision of market information in various forms, facilitating virtual or physical linkages of producers with buyers, and formal and informal collective action for produce marketing increase bargaining power of farmers; (3) different input supply systems including community-based, farmer-to-farmer, the private sector, cooperatives and the public sector can be appropriate and effective for different value chains; (4) creating linkages between producers, input suppliers and other value chain actors is an important part of value chain development and a task for the extension service; (5) market-oriented agricultural development is a continuous and dynamic process that requires different types of interventions at different stages of development; (6) community-based insurance for small ruminant fattening enterprises can be successfully developed, benefiting especially female-headed households; and (7) credit systems to support small-scale commercial livestock production and agribusinesses can be successfully used to boost production and the supply of inputs and services.

In general, sustained agricultural productivity, growth and poverty reduction require an enabling policy environment that encourages private sector investments in input, output and financial markets. Using South Africa's maize milling industry as a case study, this chapter analyzes the impact of the Competition Commission's anti-trust ruling on the performance dimension of the maize sector; in particular on pricing efficiency. Using the Industrial-Organization Framework, the chapter explains the behavior of groups of firms within the context of the basic conditions (policy environment, demand characteristics, technology, etc.) and the market structure within which the firms exist. South Africa's utilization of an institution, such as the Competition Commission, demonstrates the ability of governments to create an enabling environment that stimulates private sector investment and minimizes market distortions within a staple food market.

In disadvantaged districts of Bihar, one of the poorest states in India and an area where smallholders dominate, we find that there have been dramatic increases and rapid up-scaling of modern cold storages, triggered by market reform, investment subsidies, and better overall public service provision and governance. Almost all potato farmers, small and large, participate in these cold storages. The availability of cold storages has seemingly led to improved efficiency in value chains because of lower wastages and some cold storages have become heavily involved in input, output, and especially credit markets. This emergence of cold storages thus leads to important changes in traditional potato value chains, with significant implications for smallholders.