Reimagining agribusiness models which value farmers, environment

WHEN you listen to banks talking about agricultural investment it would appear capital or money is more important than fundamental natural resources like land, water, labour and local knowledge.

Yet it is clear that without land, water, fertile soils, local people and favourable climatic conditions, capital injected into agricultural projects will not generate meaningful returns.

Money is important but it should not undermine other equally important resources and institutions like markets.

This skewed notion of agricultural investment has made it difficult for capitalist investment models like contract farming to lift many smallholder farmers out of poverty.

When farmers are contracted to supply fruits, tomatoes or any other commodity to a single company, the farmers have no power to influence pricing and other factors. Much of the power and profit is with the shareholders of that company.

Ideally, agribusiness models should be designed in ways that distribute value fairly to farmers, natural resources, the environment and owners of capital.

For instance, what is the cost of producing citrus fruits or sugar cane to the environment, water and indigenous knowledge systems? Such questions are not answered by extractive capitalist business models.

Cultivating alternative agribusiness models

Given the limits of corporate models, it is high time alternative agribusiness models were explored. For instance, what prevents small grains farmers from owning shares in a beer brewing or milling company?

Let us imagine fruit farmers in Chipinge or Mutoko district owning shares in a fruit processing company or groundnut farmers owning shares in a peanut butter processing company.

The only reason such models may not exist is because capitalist models do not have room for the majority of farmers, who are the producers of raw materials, to influence decision-making including pricing models.

With sufficient recognition of the role of farmers in the survival and growth of corporate agribusinesses, it should be possible to value farmers and natural resources.

Farmers may not be able to directly influence companies which buy their raw commodities, but government and development organisations have power to change some of these ownership dynamics in favour of farmers and sustainable production practices.

The government can use policies, while development organisations can use their capital to dilute share ownership within companies on behalf of the farmers and rural communities.

For instance, instead of pouring money into nutrition gardens, dam construction and heavy-duty irrigation schemes, development agencies working in communities where fruits or small grains grow naturally can just invest that money in a fruit processing or a grain milling company on behalf of farmers.

In any case, farmers have already mastered production and what is missing is a reliable market. Besides redistributing power to farming communities, such measures will guarantee farmers a market that they control.

Pros and cons of diverse agribusiness models

Diverse ownership models have been tried in many African countries with different success rates depending on commodity or value chain, among other factors.

For instance, while co-operatives may have failed in some African countries, tangible successes have been scored in Rwanda, Kenya and Malawi where co-operatives are involved in specific value chains such as coffee, dairy and fishing, among others.

Models that give power to producers like co-operatives and territorial markets tend to create more social, environmental and economic value than corporate models that focus on individual value chains.

Although fewer co-operatives have failed compared to private companies that have failed, the failure of co-operatives has received more media attention than the failure of companies to take-off or thrive. These are some of the biases requiring correction.

African mass markets or territorial markets may not be described as cooperatives but they are remarkable hybrid models that try to distribute power and income equitably along all value chain nodes.

In fact, mass markets are fast evolving into local versions of community-based enterprises that are not more about ownership but more about farmer involvement in determining sustainability of agricultural enterprises through embedded benefit sharing structures.

The benefits may not always be monetary, but include reducing transport costs for instance by using one big truck to take commodities to the market.

This is how aggregation strengthens the bargaining power of farmers unlike if farmers supply to contract companies individually.

However, there is still need to increase the power of farmers to determine prices of commodities that are produced in environmentally-friendly ways.

The market is not yet very good at giving value to such commodities.

Easier said than done

This article is not trying to create the impression that agribusinesses are easy to set up and operate.

If that was the case, Africa would be awash with viable agribusiness enterprises.

Like in any sector, there have been more failures than successes in agribusiness, suggesting that agribusiness is not a walk in the park.

If it was easy, a group of farmers would simply come together and start selling their commodities. After all, everyone is allowed to form a company or a co-operative.

Failure rates indicate that there are some intangible sophistications that render agribusinesses and business in general, not for the faint-hearted.

Operating a business has its own complications which should not be overlooked.

Among other factors, what has prevented some agricultural co-operatives from thriving continuously is the seasonal nature of commodities.

When a co-operative is focusing on fruit harvesting and processing, it means when fruits are out of season the co-operative stops functioning and members have to find something else to do for survival.

The same applies to a co-operative on small grains whose commodities tend to be seasonal.

Seasonality is a key issue that needs to be managed through bulking up commodities and buying from other distant communities.

This means co-operative members have to hone skills in doing this work including negotiating contracts with other markets.

Agribusiness models with a unique African identity

An agribusiness that works for smallholder farmers should combine aggregation, preservation and market information system.

A purely profit-oriented enterprise may not be able to do so because it focuses on increasing profits for shareholders.

Government may try to fill the gap but its main mandate is creating an enabling environment, not setting up businesses.

Most non-governmental organisations also tend to have a different mandate from establishing businesses.

A social investor who is passionate about addressing social challenges faced by farmers while also running a business entity for sustainability could be an ideal institution.

Such a social enterprise will ensure active participation by farmers in line with their different needs.

However, that kind of institution does not exist in African countries.

When established, such an entity will ensure as farmers get services through aggregation, preservation and market information, they also actively participate in decision-making, including determining prices, payment methods, packaging and entire market operations.

The social enterprise can be a combination of a co-operative and mass market all in one.

As currently practised, co-operatives are different from a social enterprise because the co-operative model assumes farmers should run the enterprise while on the other hand the farmers have their own individual enterprises.

This is problematic in terms of time and attention. A co-operative puts farmers at the same level yet in real life, farmers are not at the same level.

In co-operatives, farmers expect dividends while in a social enterprise, the farmers will be made to appreciate that benefits around fair pricing are more valuable collectively than earning dividends at individual level.

Only a social enterprise can consolidate services so that farmers benefit collectively in their different capacities.

The fact that many farmers cannot come together into one big co-operative, association or company through which they can sell their commodities indicates that group dynamics are a very big challenge which corporate agribusinesses capitalise on.

It appears the majority of farmers just want an entity that addresses their needs without involving them in the intricacies of operating a company on a daily basis.

Critical lessons can be learned from how mass markets represent African ecosystems that are trying to grow through indigenous commerce which is different from a typical cooperative or private company.

Based on unique knowledge systems and practices, African mass markets provide a rich foundation for reimagining agribusiness models with an African identity.-newsday