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2021 | Book

African Farmers, Value Chains and Agricultural Development

An Economic and Institutional Perspective

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About this book

This book provides a thorough introduction to and examination of agricultural value chains in Sub-Saharan Africa. First, the authors introduce the economic theory of agri-food value chains and value chain governance, focusing on domestic and regional trade in (and consumption of) food crops in a low-income country context. In addition to mainstream and heterodox thinking about value chain development, the book pays attention to political economy considerations. The book also reviews the empirical evidence on value chain development and performance in Africa. It adopts multiple lenses to examine agricultural value chains, zooming out from the micro level (e.g., relational contracting in a context of market imperfections) to the meso level (e.g., distributional implications of various value chain interventions, inclusion of specific social groups) and the macro level (underlying income, population and urbanization trends, volumes and prices, etc.).Furthermore, this book places value chain development in the context of a process the authors refer to as structural transformation 2.0, which refers to a process where production factors (labor, land and capital) move from low-productivity agriculture to high-productivity agriculture. Finally, throughout the book the authors interpret the evidence in light of three important debates: (i) how competitive are rural factor and product markets, and what does this imply for distribution and innovation? (ii) what role do foreign investment and factor proportions play in the development of agri-food value chains in Africa? (iii) what complementary government policies can help facilitate a process of agricultural value chain transformation, towards high-productive activities and enhancing the capacity of value chains to generate employment opportunities and food security for a growing population.

Table of Contents

Frontmatter
Chapter 1. African Smallholders and Their Market Environment
Abstract
Smallholder farmers in Africa are poor and appear unproductive relative to larger farmers. But once one takes their environment into account, we argue they make rational production decisions given their multiple objectives under the multiple constraints they face. These constraints are shaped by transaction costs, which determine what smallholders can buy and sell. Transaction costs include not just transporting goods to market, but also costs of aggregation, dealing with risk, obtaining liquidity, and costs related to trust, market power, and even storage. The remainder of the book, then, provides historical and institutional reasons why African smallholders face high transaction costs. After explaining why some solutions will likely fail, the book concludes with what we consider promising areas for interventions to catalyze Structural Transformation 2.0 in Africa.
Alan de Brauw, Erwin Bulte
Chapter 2. African Agricultural Value Chains: A Brief Historical Overview
Abstract
African agricultural value chains have gradually evolved from informal exchange to more formalization in general, yet this process has not been linear in time. Policy changes between colonial and post-colonial regimes first shifted at least some smallholders into more formalized markets, and then back to selling surplus on spot markets. The colonial era can be characterized as extractive; institutions were developed to extract value from Africa and provide cheap food to Europe, particularly tropical commodities. Many post-colonial governments continued to implicitly tax agriculture through urban bias and pricing, tariff, or exchange rate policies until structural adjustment occurred in the 1990s. Since then, several factors have improved African agricultural performance, including an infusion of FDI and private sector investments and changes in agricultural policy in Europe improving African terms of trade.
Alan de Brauw, Erwin Bulte
Chapter 3. Economic Theory and Value Chain Governance
Abstract
Agricultural value chains take on several different organizational forms, from being dominated completely by spot markets to being vertically integrated within a single company. We consider a conceptual model of factors leading to different value chain governance structures; then we adapt this model to African value chains by considering contextual factors, such as the abundance of smallholders and the fear that market power often resides with the trader in African value chains. We note that relational contracting plays a very important role in African value chains; transactions along value chains in Africa are typically based on implicit, self-enforcing contracts with little or no third-party enforcement. Transaction costs that lead to relational contracting simply reflect the economic and technological conditions at play.
Alan de Brauw, Erwin Bulte
Chapter 4. The Evolution of Agricultural Value Chains in Africa
Abstract
Agricultural value chains evolve over time in a non-linear process but generally change from traditional to transitional and then more complex forms. The type of firms found in each value chain type differs, and farmers may produce for different types of value chains. The evolution process is driven by several factors, including changing relative prices, income and population growth, urbanization, and technological change. These factors create opportunities for new types of firms along agricultural value chains, and new forms of institutional arrangements, such as contract farming and value chain finance, can begin to replace more traditional institutions like relational contracting and informal moneylenders. We finally consider the role of imported food in shaping opportunities within agricultural value chains, depending both on local factors and transaction costs.
Alan de Brauw, Erwin Bulte
Chapter 5. Smallholders and Markets
Abstract
Smallholder production in Africa tends to be both low yielding relative to the agronomic potential, and crops are of low or variable quality. These outcomes are largely a result of market conditions that smallholders face. Smallholders lack full property rights over land, and capital markets targeting smallholders are thin, so they may not be able to purchase enough inputs. Inputs are often costly, both because of relatively large distances inputs must travel, because farmers may lack information about the right amounts to use, and because they lack capital, reducing demand. And farmers may not trust inputs either, due to perceived counterfeiting or other risks. In selling on output markets, smallholders often face weak returns to quality due to imperfect competition. And even within households, these challenges can differ; women may face stricter constraints on their production than men do.
Alan de Brauw, Erwin Bulte
Chapter 6. Product Quality and Certification
Abstract
Some transaction costs act to reduce producer incentives to be concerned about the quality of their agricultural products. We present a simple model that demonstrates how those attenuating effects can be reduced and are affected by unobservable factors among both producers and purchasers, particularly in a low trust environment. One way to address quality concerns is through third-party certification schemes, which typically involve either unobservable attributes about the product or the production process. However, these schemes are expensive and actors need to reap higher returns from their activities to make them work. Evaluating the impacts of certification schemes is tricky because farmers self-select into participation, and the poorest farmers do not participate. Present evidence, however, suggests these schemes do have positive income effects for participating farmers.
Alan de Brauw, Erwin Bulte
Chapter 7. Storage and Post-harvest Losses
Abstract
Poor storage causes additional problems for smallholder farmers, as they are pressured to sell crops immediately after harvest. As a result, in Africa in many years prices for major grains fall right after harvest and peak just before the next one. Poor storage can also lead to post-harvest losses. Yet good post-harvest loss measurements are scarce, particularly for vegetables; since information on actual losses is poor, it is difficult to design cost-effective interventions to reduce them. With improved storage, farmers could reap returns to higher prices later in the season. More regional storage can also support warehouse receipts systems, which can be used both as collateral and to develop commodity exchanges. Yet again, transaction costs to using regional storage are high for smallholders.
Alan de Brauw, Erwin Bulte
Chapter 8. Silver Bullets?
Abstract
Several solutions have been proposed to transform informal value chains into more formal value chains enabling greater value creation. While many have merit, they are susceptible to exaggeration about their potential to catalyze African structural transformation. We discuss six potential solutions in this chapter. These include land consolidation, which would theoretically lead to more efficient investment, but is susceptible to elite capture; input subsidy programs, which lead to higher output but yield substantial opportunity costs; innovation platforms, which bring people together to solve problems but which can be hijacked and are costly themselves; producer organizations, which can work but must be endogenously formed; ICT, which is spreading rapidly but likely needs to be an intervention component rather than a focus; and blockchain, which lends traceability but lacks incentives for anyone to actually trace products.
Alan de Brauw, Erwin Bulte
Chapter 9. Structural Transformation 2.0: The Rocky Road Ahead…
Abstract
Most countries that have undergone economic structural transformation (Structural Transformation 1.0) have done so first using low wage, export-oriented labor-intensive manufacturing as a driving force to absorb labor, first because there was no competition (the West) and then because productivity-adjusted wages were much lower than other places (East Asia). We first argue this structural transformation is unlikely in Africa, because labor productivity is lower and in general is less densely populated, limiting conditions for labor specialization. Instead we argue for a structural transformation based in part on agricultural processing (Structural Transformation 2.0). We suggest four paths by which Structural Transformation 2.0 could be catalyzed: Bundling interventions to alleviate multiple agricultural constraints; some farm consolidation; infrastructure investments, including but not exclusively roads; and by increasing demand and improving regional trade.
Alan de Brauw, Erwin Bulte
Backmatter
Metadata
Title
African Farmers, Value Chains and Agricultural Development
Authors
Dr. Alan de Brauw
Dr. Erwin Bulte
Copyright Year
2021
Electronic ISBN
978-3-030-88693-6
Print ISBN
978-3-030-88692-9
DOI
https://doi.org/10.1007/978-3-030-88693-6

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