For Sub-Saharan Africa, transforming small-scale farming into viable commercial farming is central to reducing poverty and increasing growth. The challenges to achieving this transformation are too great for smallholder farmers to overcome alone. Yet policies to increase access to lucrative markets often overlook this fact. This briefing, based on an extensive review of current approaches, summarizes the barriers to access for smallholder farmers and suggests strategies for future success. http://digital.agripolicyoutreach.org/54552/Managing-agricultural-commercialization-for-inclusive-growth-in-Sub-Saharan-Africa/Policy-Brief

1. Briefing Paper Number 1 | 2012
GDN Agriculture Policy Series
Managing agricultural Johann Kirsten
Mariam Mapila
commercialization Julius Okello
for inclusive growth Sourovi De
in Sub-Saharan Africa
For Sub-Saharan Africa, transforming small-scale farming into viable Employees work at a farm
commercial farming is central to reducing poverty and increasing south of the Ethiopian capital,
Addis Ababa, packing beans
growth. The challenges to achieving this transformation are too great before they are exported
for smallholder farmers to overcome alone. Yet policies to increase to the Netherlands. Supporting
access to lucrative markets often overlook this fact. This briefing, smallholder farmers to contribute
to export markets can reduce
based on an extensive review of current approaches, summarizes poverty and increase food security.
the barriers to access for smallholder farmers and suggests strategies svenn torfinn | panos pictures
for future success.
This briefing paper is one of the
Key messages 10-part Global Development
Network (GDN) Agriculture Policy
The four main factors hindering Enhancing market access for Series for its project, ‘Supporting
successful agricultural commercialization smallholder farmers is critical to reducing Policy Research to Inform
Agricultural Policy in Sub-Saharan
in Sub-Saharan Africa are: poverty and increasing food production. Africa and South Asia’. It is based
The socio-economic characteristics of the
p Government action to assist net on a longer synthesis paper,
food-buying smallholders to become Managing agricultural
smallholder producers. commercialization for inclusive
net sellers should be a priority. growth in Sub-Saharan Africa,
Insufficient agricultural and development
p which draws on extensive
infrastructure. Farmers are more likely to experience published and unpublished
Lack of access to sufficient agricultural
p sustained success in commercial research. The full paper
agriculture when they are organized can be downloaded at:
support services. www.agripolicyoutreach.org
into collectives and networks that
High transaction costs and institutional
p will be of value to policymakers,
It
allow them to share information, experts and civil society working
factors.
collateral and risks. to improve agriculture in
Public investment in rural infrastructure Sub-Saharan Africa.
Implementation of policies that This project is supported by the
and other rural public goods is essential
drive the agricultural sector requires Bill & Melinda Gates Foundation.
for the private sector (both farmers
a multi-sector approach where the
and traders) to operate effectively. If African
public and private sectors and the
governments fail to make such investments,
international development community
rural development and poverty alleviation
support each other.
goals will not be achieved. Lack of such
investment is the most binding constraint
to agricultural commercialization in
most locations.
Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 1

2. Overview
A key feature of The majority of farmers in Sub-Saharan
the factors leading Africa live in poverty and are engaged in
subsistence farming. The commercialization
to successful of smallholder agriculture is considered
inclusive smallholder a key strategy in reducing poverty and
commercialization increasing the even spread of economic
is that they all bring growth in developing countries. To
achieve this, smallholder farmers who are
the market closer to disadvantaged by socio-economic, political
the farmer and reduce and environmental conditions, need to be
transaction costs. included in high-value commercial markets.
The challenges and barriers to achieving
this are too great for smallholder farmers
to overcome alone. Yet most policies
and strategies to increase access to markets
still leave smallholder farmers out.
Smallholder farmers possess few physical
and natural resources such as access
to land and water or irrigation systems;
they often have poor technical skills
and low managerial capacity. They are
often isolated, have very little access to
commercial markets and infrastructure, and
also find it hard to access finance and credit
services. It is therefore a huge challenge
for them to participate in commercial Farm worker Jantjie Carlous bags sterilized
Rooibos (redbush) tea, grown on Groenkol Farm,
agriculture. When they do participate, near Clanwilliam in South Africa for export.
high transaction costs are often involved. graeme williams | panos pictures
Including smallholders in
Methods high-value markets
A systematic review of the large volume of documentation and research Given these difficulties, what are the best
on smallholder commercialization was conducted. Since agricultural ways to encourage and sustain smallholder
commercialization has been promoted with varying degrees of success, farmer participation in commercial markets?
it was necessary to consolidate lessons from across the region – What can we learn from different examples
Eastern, Central and Southern Africa. of success and failure of attempts to do
so across Sub-Saharan Africa? A systematic
The range of countries studied included those such as Malawi and
review of the literature, drawing on
Mozambique, dominated by smallholder farming, while in other
published and unpublished research and
countries – such as South Africa, Kenya, Zambia and Botswana –
documentation from Sub-Saharan Africa,
the agricultural sector is more of a mixture of highly commercialized
shows some clear ways forward. Evidence
value chains and agricultural production by smallholder farmers.
about what leads to successful smallholder
The review included studies on the commercialization of agricultural agricultural commercialization appears
produce from different farming systems: maize-based, rice-based, conflicting as models that work in one
cassava-based, horticulture-based and banana-based. This Sub-Saharan African context fail in another.
range and diversity provided great insight into the differing challenges, However, from the range of experiences,
opportunities and policy environments facing the vast majority it is possible to identify some overarching
of smallholder producers in Sub-Saharan Africa. factors that help and hinder the success
of commercialization.
The systematic review revealed two
main aspects of success. When smallholder
farmers are able to participate in
commercial markets in a sustainable
way, they have firstly received
comprehensive support from both
public and private sectors.
Secondly, attempts have been made
to bring markets and farmers closer.
2 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa

3. The road from subsistence farming Mitigating risks and
to the commercial market overcoming bottlenecks
If smallholder farmers are to produce In addition, smallholder farmers need
greater surpluses to be sold in the market, to be protected against high transaction
they need better seeds, animal breeds, costs and, importantly, any risks that
practices, fertilizers and knowledge. might jeopardize their food security
They need comprehensive public and and livelihoods. In turn, private sector
private policies and programs to support investment needs incentives and rules
them and bring them closer to the to support smallholder commercialization.
market, including better agricultural All of these needs will vary according
infrastructure and access to agricultural to context and require a depth of
support services such as information, understanding from those who are making
finance and credit. policies and designing interventions.
The bulk of current strategies to improve The success or failure of smallholder
the market participation of smallholders agricultural commercialization therefore
are at the micro level. Macro-level strategies depends on two interlinked factors.
for creating a favorable environment for First the ability of governments and private
commercialization mostly favor large-scale promoters to adapt commercialization
commercial farmers and agribusiness models to suit specific social, economic,
firms. Smallholders need access to the geographical and political contexts.
financial, social and economic services Secondly, the extent to which these
that are currently only available to large, promoters are able to provide the
commercialized farmers. comprehensive support that farmers need
to overcome challenges and bottlenecks
in the agricultural value chain.
Bringing the market closer to farmers
In south-western Uganda, the
Nyabyumba potato farmers were able
to enter the commercial market, sustain
linkages and relationships and meet
all the rigorous quality requirements
of the potato market. Through
a program run by the International
Center for Tropical Agriculture (CIAT),
the farmers increased their capacity
to participate effectively in the market.
CIAT supported the farmers to produce
and get direct access to markets and
taught them to carry out market
research. The program also helped the
farmers to develop their ability to
innovate and understand their farming
enterprises better. They were In order for smallholder farms to participate
in commercial markets in a sustainable way,
encouraged to be more innovative by they need better seeds, improved infrastructure
carrying out production experiments on and better knowledge. In this picture farmers
their farms, and thus becoming able to in Mali are machine-winnowing newly harvested
rice on farmland between Markala and Niono.
manage their enterprise in the absence sven torfinn | panos pictures
of external assistance.
Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 3

4. The challenges in more detail
Farmers need information Socio-economic characteristics The main resource constraints that
about markets and prevent rural smallholder producers from
The socio-economic characteristics
commercializing their agricultural
prices if they are to be of smallholder producers affect their
enterprises are a lack of:
successful in commercial ability to become commercial producers.
For example, poor education and low p Access to land and water
enterprise. The use literacy levels result in poor networking, p Agricultural labor
of mobile phones has negotiation and management skills. p Finance to purchase necessary production
been a major innovation Male heads of household are more likely equipment
in this area. to grow crops for market than female
heads of household, who tend to farm p Access to financial and credit services
crops for immediate family consumption. p Capital to cope with low prices or delays
In some cases, strict requirements for in payment
certified crops restrict the poorest farmers p Transport to markets (donkey, bike,
from participating as they do not have ox and cart)
the finances to purchase land or hire
However, other factors may play a more
agricultural labor.
significant role. Some studies showed
that a far greater precursor to success
in market participation were entrepreneurial
skills and the ability to respond to dynamic
market conditions.
Lack of access to sufficient
agricultural support services
Public agricultural support services are
important as they encourage smallholder
farmers to enter lucrative commercial
agricultural markets. In many instances,
individual smallholder farmers are able and
willing to commercialize their enterprises,
but they lack access to market information
or information about production or
agricultural credit, and adequate and timely
agricultural advisory services. They also lack
access to input markets for high-yielding
seeds and inorganic fertilizer. When farmers
join together in groups or cooperatives
they are more likely to be able to access
inputs and purchase advisory services and
market information.
High transaction costs and
institutional factors
Even when farmers know of lucrative
A smallholder farmer in Zambia: female heads markets, they may be deterred from
of household tend to farm crops mainly for their participating because of high transaction
families to eat. Lack of access to financial and costs. Transaction costs include searching
credit services, among other factors, deter them
from expanding into the commercial market. for information, negotiating contracts,
global development network monitoring goods and transporting
them to market. Poor transport systems
and inadequate processing and storage
infrastructure can act as a hindrance
for smallholders. In addition, smallholders
are rarely able to rapidly change their
production volumes in order to meet
market trends. They are unable to keep
up with cost-reducing technological
advances, making them less competitive.
4 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa

5. Insufficient agricultural and Poor access to finance and credit
development infrastructure
Finance and credit in the form of increased
Insufficient or absent infrastructure – non-farm income, savings and credit
including irrigation and water for investment in commercial enterprise is
sources, electricity and power sources, very important to smallholder farmers who
animal dip tanks and road networks – wish to commercialize their agriculture.
often hinders farmers’ attempts This is a key factor determining the level
to increase production. Geographical of success of market-oriented production
isolation and remoteness and a lack and participation. Farmers need a secure
of telecommunications infrastructure asset base (such as livestock and machinery)
prevent them from responding to to make them more resilient to market
higher market prices. shocks. Access to credit by smallholders can
promote the uptake of new technologies
Lack of information and direct and also lead to thriving local economies
access to markets in which surplus produce is absorbed.
Rural market information systems
such as market prices on boards in rural
centers and trading towns have also
been successful in increasing direct
trade between smallholders and buyers.
Direct access to markets alleviates
potential exploitation by middlemen and
other players in the agricultural chain.
Smallholder farmers have Smallholder farmers and supermarkets in Malawi
struggled to join the
‘supermarket movement’ Efforts have been made in the past to help smallholder farmers to become part
through lack of capital and of the ‘supermarket movement’. But they have failed because of a shortage
inability to meet exacting
product standards of capital on the part of smallholder farmers and the inability of farmers to meet
global development network the product specifications set by supermarkets. In 2006 the Farmers Union of Malawi,
with the assistance of the World Bank country office, attempted to establish linkages
between smallholder horticultural farmer groups and Shoprite supermarkets. They
were successful but a longer-term relationship failed to emerge as the farmers were
unable to supply the required volumes in a timely manner. Providing some initial
support in assisting farmers to reach the production levels and quality that meet
the requirements will be necessary. But there could also be much stronger engagement
by supermarkets and other private sector players. However, the cost and effort
involved in such initiatives are usually a deterrent for supermarkets to get involved
at the farm level.
Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 5

6. Struggling together: farmers’
organizations can help them
overcome challenges they
cannot face alone. Pictured here
is a woman farmer on Nordale
Farm in Bonnievale, Western Cape,
South Africa.
eric miller | panos pictures
Spotlight on successes: farmer groups, information and credit Farmer organization, collective
action and innovation
When farmers organize themselves in formal systems, they are more
likely to be successful at commercial enterprise. Together they can This new model for smallholder
work to overcome many of the challenges they cannot face alone. Successful commercialization is based on the
structures manage to separate the shareholders from the management concept that farmer organizations
of the organization. They provide increased market information, access to require two features:
inputs, increased access to extension services and technical advice, transport A non-profit entity that works
p
to markets and access to credit facilities. to strengthen farmer organization.
They might also provide access to land and water and establish a reliable A semi-autonomous profit-making
p
market through contract arrangements. Farmer groups have worked company that works to provide
in ways that minimized transaction costs, led to higher production and an organized way of linking farmers
marketed outputs and reduced price instabilities for members. Trust, directly to lucrative markets.
cooperation and social capital are key features of well-run farmer groups.
If the company is profitable, it will
Innovation and entrepreneurial skills and diversity of commercial enterprise
ensure sustainability and attract
are other key factors of success. Innovative marketing strategies such
high-caliber personnel. Since the
as centralized collection points, transportation and market points also
farmer organizations are shareholders
lead to successful and sustainable commercial market activities.
in the company, they are guaranteed
the funds needed for running their
non-profit farmer organization, for
building the capacity of its members
and for hiring administrative,
managerial and financial personnel
to work hand-in-hand with elected
members. Although the divisions
of the apex farmer organization
are linked, it is essential that
directors and managers responsible
for each separate entity should
have the power to make strategic
decisions which are informed
by the needs of the farmer groups
and individual members.
6 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa

7. Recommendations
Governments must go beyond providing p Invest in infrastructure
market incentives such as higher prices Evidence shows that investment
through pricing policies. Additional support in infrastructure has large net returns
services need to be comprehensive and and also reduces transaction costs
bring the farmer and the market closer for farmers. In order to promote
together. A range of macro-level policies commercial agriculture, governments
and programs could help to do this: should invest in rural infrastructure
Address resource constraints
p such as feeder roads, markets, irrigation
and water infrastructure.
Governments should address the
resource constraints that smallholder Revisit land reform failures
p
farmers face by providing a range Land tenure security is a necessary
of support services. This includes financial condition for agricultural intensification
and credit services, welfare services and therefore successful agricultural
and agricultural support services. commercialization. Governments need
Establish networks
p to create partnerships in the private sector
and try to address land reform failures.
Farmers will better understand and engage
They should reorganize land reform
with commercial farming systems when
initiatives to ensure efficient re-allocation
they work as cooperatives, organizations
of land. Policies should focus both on
and networks. Farmers need support
individual farm plots and collective rights.
to establish and maintain such groups
and learn from other working models Protect farmers from market shocks
p
of successful arrangements. Increasing farmers’ dependency on the
Provide innovative financing
p market makes them more vulnerable
to market forces, and policies need to be
Governments should reform public
coordinated to help farmers absorb any
agricultural support services to help
shocks. Macroeconomic policy needs to
smallholder farmers become fully
be aligned with microeconomic initiatives
commercialized. Agricultural support
that aim to achieve this.
services should be more inclusive and
responsive so that farmers can have Invest in ICTs
p
a say in their function. Innovative Information and communication
financing should also take into account technologies (ICTs) have helped to resolve
the needs of very poor farmers who the problem of poor access to agricultural
have no titled land or other forms information. Investment in new generation
of collateral. High-yielding seeds for ICTs, such as mobile phones, internet
both traditional and non-traditional and email and personal computers,
cash and food crops should be available will benefit farmers. However, farmers
and accessible. also need support to be able to use these
Create social welfare programs
p new technologies.
Governments should target poor rural Increase agricultural R&D
p
smallholders and combine agricultural More research should be carried out to
services with public social welfare develop new market models that support
programs with the aim of improving smallholder farmers to participate in
agronomic management practices, markets and minimize their vulnerability
generating more productive, to market forces.
fertilizer-responsive seed technologies
and investments in rural infrastructure.
Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa 7

8. Key references
The full paper Managing agricultural
CP Auger (1989) commercialization for inclusive growth in
Information sources in grey literature, Sub-Saharan Africa is available for download at
2nd edition, London: Bowker-Saur www.agripolicyoutreach.org
C Barrett (2008) It was written by:
‘ mallholder market participation:
S Prof. Johann Kirsten
concepts and evidence from eastern University of Pretoria, South Africa
and southern Africa’, Food Policy, Mariam Mapila
vol 33, pp299–317 Putting People First, Malawi
CRD (Centre for Reviews and Dr. Julius Okello
Dissemination) (2009) University of Nairobi, Kenya
Systematic reviews, York: York Sourovi De
Publishing Services University of Oxford, UK
K Emongor and J Kirsten (2009) and reviewed by
‘ he impact of southern African
T Prof. Per Pinstrup-Andersen
supermarkets on agricultural development Cornell University, USA
in the SADC: A case study in Zambia,
Namibia and Botswana’, Agrekon vol 48, P
roject Steering Committee
no 1, pp60–84 Senior Advisors
T Jayne, D Mather and E Mghenyi (2010) Prof. Per Pinstrup-Andersen
‘ rincipal challenges confronting
P Cornell University, USA
smallholder agriculture in Africa’, Prof. T. S. Jayne
World Development vol 38, Michigan State University, USA
no 10, pp1384–98
Prof. William A. Masters
T Jayne, S Haggblade, N Minot and Tufts University, USA
S Rashid (2011) Prof. Alexandros Sarris
‘ gricultural commercialization, rural
A University of Athens, Greece
transformation and poverty reduction:
Prof. David Zilberman
What have we learned about how to
University of California, Berkeley, USA
achieve this?’ Synthesis paper prepared
for the AAMP symposium, 20–22 April, Project Management Team
Kigali, Rwanda, available from
Principal Advisor
www.aec. msu.edu/fs2/aamp/
Prof. Douglas Gollin
Kigali%20Conference/Smallholder_
Williams College, USA
commercialization_Synthesis2.pdf
Project Director
M Kherallah, C Delgado, E Gabre-Madhin, Dr. George Mavrotas
N Minot and M Johnson (2002) Chief Economist, GDN
Reforming agricultural markets in Africa,
Deputy Project Director
IFPRI, Food Policy Statement No 38,
Tuhin Sen
October 2002
Lead Strategist, GDN
MATJ Mapila, JF Kirsten and tsen@gdn.int
FH Meyer (2011) Project Consultant
‘ he impact of policy shocks on
T Nupur Suri
ruralhousehold incomes in Malawi’.
Policy Outreach Analyst
Paperpresented at the 49th Agricultural
Vinaina Suri
Economics Association of South Africa
conference, Pretoria, South Africa, you wish to reproduce or build upon this work,
If
28–30 September please contact Global Development Network (GDN).
JJ Okello and SM Swinton (2007) © Global Development Network
‘ ompliance with international food
C
Designed and produced for GDN by Panos London,
safety standards in Kenya’s green
panos.org.uk
bean industry: A paired case study
of small and large family farms’, All photographs © Panos Pictures, panos.co.uk
Review of Agricultural Economics, except pages 4 and 5 © Global Development Network.
vol. 29, pp269–85 All rights reserved.
World Bank (2008)
Further information
‘ Introduction’; Study on competitive
commercial agriculture in Africa, available more information on the ‘Supporting
For
at http://go.worldbank.org/XSRUM2ZXM0 Policy Research to Inform Agricultural Policy in
Sub-Saharan Africa and South Asia’ project visit:
www.agripolicyoutreach.org
Supported by the Bill & Melinda Gates Foundation
ew Delhi | Cairo | Washington DC
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www.gdn.int
8 Briefing Paper Number 1 Managing agricultural commercialization for inclusive growth in Sub-Saharan Africa