AgriCulture & rurAl DevelopmeNt NOTES 64931 iSSue 57 oCtober 2011 making the Grade Smallholder Farmers, emerging Standards, and Development Assistance programs in Africa Agro-food standards—including those relating to product quality, food safety, and the environmental and social impacts of production—have become the focus of intense controversy among those concerned with African trade and the potential of establishing linkages that enable smallholder farmers to produce for higher value agro- food markets. two divergent and very outspoken per- spectives have come to dominate the issue. one of them casts standards in a negative light, as barriers to market access that effectively exclude large numbers of African smallholders and small enterprises who are unable to meet the requirements of markets for higher value goods. A contrasting and far more optimistic perspective views standards as providing African smallholders and small and medium enterprises (Smes) with significant opportu- nities to differentiate their products in the crowded com- modity market space. both perspectives have catalyzed an expanding range of Women selecting beans in Senegal. Photo: Arne Hoel, The World Bank. development assistance programs. little of this field of development assistance has been the subject of rigorous impact assessment and with few evaluation materials available in the public domain. Nevertheless, practitioner groups are beginning to share insights and lessons learned from their programs. overall, there is evidence of ongoing learning with adjustments being made in the foci and design of recent programs. Making the Grade: Smallholder Farmers, Emerging Standards, and Develop- ment Assistance Programs in Africa examines the emergence, varied forms, efficacy, and emerging operational lessons of these development assistance programs centered upon African smallholders and compliance with agro-food standards. The growing body of research documenting the market segments for traditional commodities. These experience of development programs that relate situations pose very different sets of challenges for to African smallholders and standards has focused the smallholders involved and the firms seeking to selectively on a narrow field of evidence. Most source standards-compliant produce or raw materials assessments which have emphasized the problems from such farmers. Because the challenges and and costs of complying with standards have focused opportunities implicit in complying with standards on the issue of meeting the GLOBALG.A.P standard vary enormously across commodities and market for fresh fruits and vegetables to supply high-end segments, research that focuses on a single Western European supermarkets. In contrast, most of the positive “standards as opportunity� commodity, or a particular standard, or market literature has focused on compliance with voluntary segment, produces findings that are too discrete to social and environmental standards—such as “fair use as a basis from which to formulate more general trade� or organic—to service niche (yet growing) practical advice. A multiplicity of factors affect the profitability of farmers and has commonly proven to be more of an economic than a firms and which drive them either to enter, exit, or alter their technical challenge. And our understanding of the economic pattern of participation in agricultural supply chains. Stan- costs and benefits of certification processes remains cloudy, dards have become increasingly important in some markets, especially given that a very large proportion of the schemes yet are rarely the dominant or determinant factor in the have been heavily subsidized. success or failure of firms and the trajectory of smallholder participation in different markets. Only a small proportion of commerce is certified as fair trade, organic, or sustainably grown. For example, organic or fair trade coffee makes up just 3 percent of total African cerTIfIcaTIon aS a panacea coffee exports. In Uganda, several recent initiatives have Proponents of both the “barrier� and “opportunity� perspec- been successful in positioning a very small proportion of the tives have pointed to the certification of smallholders and country’s coffee in the market for environmentally certified their products and production practices as the most effective product. The vast majority of its growers continue to supply way to bring these farmers into more remunerative value the conventional market and face persistent challenges chains. For those who see standards as a threat, certification of low productivity, plant disease, and economic viability. provides a powerful instrument to signal compliance and These growers have not benefited from certification at all. avoid exclusion. For those who see standards as an oppor- The situation is similar with regard to horticultural exports. tunity, certification of fair trade, organic, or environmentally While a growing proportion of EU imports of fruits and sustainable products offers an access pass for African farm- vegetables is likely associated with GLOBALG.A.P or other ers to capitalize on demand in high-end niche markets. This private standards, relatively few African smallholders are convergence of views has persuaded a large number of de- currently (or have ever been) linked to the value chains serv- velopment assistance programs to focus on certification as ing high-end European supermarkets. Even in Kenya, which a means of verifying compliance to one standard or another. has the largest number of smallholders who regularly supply The number of farmers or products certified under such high-end fresh vegetable commodities, only about 11,500 schemes has often been used as a core outcome indicator. smallholders are involved. On the other hand, more than Unfortunately, the development impacts of these strategies 500,000 Kenyan households supply horticultural produce to have generally been modest. Many of the interventions domestic and regional markets. Where the trade in these neglected fundamental issues such as farm-level productiv- products does benefit a significant number of people is in ity, supply reliability and aggregation, and farm-to-market the export-oriented commercial farms and pack houses – logistics – issues that seriously limit competitiveness in enterprises which employ more than 200,000 workers. In higher value markets. Other problems became apparent other African countries in which case studies were carried as well. In order to achieve rapid results within the life of out, the number of people employed throughout the export time-bound projects, existing capacity gaps were more com- horticultural value chain is similarly a very large multiple of monly “bridged,� using external technical assistance and the number of smallholder households engaged as suppli- outsourced auditing services, than “filled� by developing lo- ers. Focusing attention and public resources to secure and cal capacity. This has seriously undermined the sustainability maintain the GLOBALG.A.P certification of the 11,500 small- of project impacts, and even where significant impacts have holder farmers therefore appears to be far too selective a been achieved, the potential of these to be replicated else- target to benefit a substantial number of people. where and on a larger scale has been limited. Certification SpecTrum of markeT choIceS and aSSocIaTed complIance challenGeS Perhaps the most fundamental shortcoming of the preoccu- pation with high-end markets is that it gives rise to a simplis- tic, dualistic picture of high-value versus low-value markets that ignores or discounts the many intermediate markets in between. Figure 1 presents a much more realistic depiction of a continuum between traditional markets and advanced markets with very exacting standards and the means to monitor compliance to those standards. Between these poles are a series of four intermediate levels, representing from left to right progressively more demanding markets. Levels 4 to 6 represent standards typical of high value agri- food markets – the focus of much of the investment in Cows feeding. Photo: East Africa Dairy Development Project (EADD). bringing smallholders into compliance through certification. 2 fIGure 1. SpecTrum of reGulaTory and markeT requIremenTS In aGrI-food SySTemS + specifications for more advanced/ quite specific + specifications process standards, for more advanced yet implemented and often quite in the context of specific process highly integrated + specifications Upgrading Steps standards with supply chains and for selected where the supplier basic standards, associated greater detail in record- has a relatively + internal quality basic GAP, good keeping sophisticated characteristics of hygiene, and management products approaches to structure for quality + quality safe pesticide control and risk grades and + basic use/storage and management varietals requirements on record keeping + visual preferences pesticide use systems characteristics + consistent quality and quantities 1st and 2nd + 2nd and 3rd + 2nd and 3rd + 2nd and 3rd party party party party + visual + visual inspections/ conformity conformity conformity inspections inspections testing assessment assessment assessment Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Stringency of official and buyer’s requirements Level of sophistication of the conformity assessment systems Developing Countries Traditional retail Small local High-end markets and small stores supermarkets supermarkets Industrialized Countries Retail markets High-end supermarkets Local stores Discount supermarkets The flipside of the emphasis that has been placed on en- ing farmers move into higher value markets by achieving abling smallholders to participate in these highly discerning compliance with standards. It included a survey of African downstream markets has been the comparative neglect of fruit and vegetable exporters who accounted for an esti- domestic and regional markets which are easier to access. mated 88 percent of Sub-Saharan Africa’s fresh horticultural Connecting smallholders to these markets entails sup- trade (excluding South Africa). The results of the survey porting smaller, less visible, more incremental upgrades were mixed, with evidence that seemed to vindicate both in quality and product consistency that have significantly the optimistic and the pessimistic perspectives on the ef- higher chances of success and that can reach vastly larger fects that standards have on African smallholders (table 1). numbers of smallholders. These smaller upgrades are also more likely to be amenable to local solutions and may be A number of operational lessons emerged from the re- well-served by South-South technical advice that ultimately search program. The following are some of the most impor- benefits African consumers as well as producers. Programs tant such lessons to inform a more pragmatic approach to supporting these more basic upgrades in on-farm practices, enabling smallholders to sustainably engage in high value supply chain organization, and product quality are not only agri-food markets. much more likely to be successful and sustainable, they are also more likely to be effective in establishing preconditions The most important opportunities to achieve the widest for more ambitious upgrades in the future. impacts among the largest numbers of farmers, and where the chances of success are highest, are most like- The World Bank, in collaboration with university and other ly to exist in levels 1 through 3. In most African countries, researchers from Canada and several African countries, there are ample opportunities to increase smallholder pro- undertook a research program titled “Facilitating the Access ductivity and upgrade product quality at these levels. These of Small-Scale Producers to High-Value Markets,� to better lower level markets afford African farmers with substantial inform policy discussions about smallholder markets and latitude to “step up,� and with a manageable amount of standards. The program examined the effectiveness, im- additional investment, distinguish their supply from the pacts, and trade-offs between different approaches to help- norm. Cumulatively, these smaller upgrades can ultimately 3 Table 1. evIdence of Smallholder excluSIon from horTIculTure exporT value chaInS Results supporting optimistic views Results supporting pessimistic views Many exporters have developed and refined a procurement The overall numbers of smallholders reported to be supplying system built on a combination of “make� and “buy,� with the main product to respondent firms declined from 2002 to direct (and sometimes indirect) sourcing from smallholders 2007, with significant proportional declines in the procurement being a critical part of the “buy� portfolio, especially for labor- arrangements for SMEs. intensive crops. While noncompliance may have played some role in this decline, Exporters are well aware of the advantages and limitations of other factors were clearly involved. More than half of the decline sourcing from smallholders. Yet they also understand the constraints is attributable to companies whose customers do not enforce food and risks involved in sourcing large quantities of produce from their safety standards (or most of whose customers do not). own farms and from those of larger outgrowers. Large companies, in particular, have continued to substan- Very high levels of turnover of smallholders involved in the tially draw upon smallholder supplies and then to implement procurement for all size categories of companies were re- bimodal procurement systems combining their own farm- ported. This finding suggests fluidity in smallholder participa- integrated supplies with those sourced from smallholders. tion, with many entries, exits, and shifts in involvement. These companies account for the bulk of Africa’s fresh produce Export-oriented horticultural production entails considerable produc- exports. To the extent that these companies continue to see the tion and commercial risk. If a large proportion of smallholders are strategic advantages of smallholder sourcing, there will likely be engaged in this activity only periodically and are not immersed in the ample opportunities for remunerative involvement by smallholders. management systems of leading or long-standing companies, then the prospects for remunerative and sustainable participation are not strong. lead to smallholder participation in high-end markets. Many programs have also sought to re-position SMEs in When targeting specific groups of farmers it is essential standards-based markets as part of efforts to promote to gauge their “starting point� and support incremen- private sector development and/or assist smallholder farm- tal upgrades and market re-positioning. Experience has ers. This approach has promise yet also risk. The latter is shown that attempts to bring about transformative “great especially the case in efforts to reorient firms down the leaps forward� (i.e. preparing farmers with formerly very path of a specific standard, rather than seeking to upgrade limited commercial experience and weak group structures their general capacities for marketing, quality manage- to compete in stringent high end markets) have frequently ment, supply chain management, etc. Aiming SMEs at failed, due to high risk and/or unsustainable costs. specific standards sometimes exposes them to a level of financial risk and technical challenges that they cannot Identify reasonably strong and organized industries in manage without the intensive resources provided under which “lead firms� have effective commercial strate- the donor program. When the program ends, some of gies and the managerial and technical capacity to these companies have found themselves “caught in the carry those strategies out. In the context of emerging middle,� having invested in changes and raised their cost standards, “lead firm� strategies have tended to be more structure without achieving compliance with a particular successful in linking larger numbers of smallholders to standard or the ability to meet other requirements of standards-based markets than have “bottom up� efforts buyers – such as volume. These difficulties then spill over involving upgrading farm practices first and then seek- to the smallholder farmers who have aligned themselves ing market outlets. The “lead firms� have a reliable set to such firms. Therefore, the structure and maturity of an of downstream clients plus the technical and managerial industry should strongly influence the design of standards- capacity to support the upgrade of farm-level practices and related and complementary interventions. ensure quality control. These attributes reduce the techni- cal and commercial risks faced by the participating farmers This ARD Note was prepared by Steven Jaffee, Luz Diaz Rios and Gunnar Larson, based on the report “Making the Grade: and provide a basis for scaling up results. Initiatives that Smallholder Farmers, Emerging Standards, and Development sought to introduce higher product or production standards � Assistance Programs in Africa, published by the Agriculture in weak and fragmented industries have seen little success and Rural Development Department of the World Bank. The because underlying productivity and managerial weakness report provides a synthesis from a multi-year collaborative have remained unresolved. These persistent weaknesses research program involving the World Bank, the University of Guelph, and a team of African researchers. Find the report at prevent gains from being sustainable or translating into en- www.worldbank.org/ard. during increases in commercial profits or farmer incomes. 1818 H Street. NW Washington, DC 20433 www.worldbank.org/ard