Many of the world's food market systems start with small and inefficient rain-fed farms. Farmers in developing markets rarely use improved seeds, fertilizer, irrigation and other key inputs. Smallholder-based farming systems also suffer from poor crop handling and high post-harvest losses. What's more, farmers frequently sell to open markets, and have limited long-term relationships with buyers, leaving them with scant knowledge of buyers' requirements for quality. These weak and fragmented market systems deter risk-averse banks, investment funds, and firms from investing in agriculture. All of this translates to low yields, variable product quality, and difficulty for farmers to make ends meet.
The critical question remains. How can we, as development practitioners, promote transformative, systemic change within weak food systems? Our research and field experience across dozens of market systems suggests that measurable, sustainable, systemic change will require a great leap in economic value creation. In fact, we believe that economic value across the market system must be increased by 5 times its current value, in order for a tipping point to be reached. Only then will farmers, financial institutions, input suppliers and end-buyers be incentivized to provide sufficient levels of investment to create a transformed, efficient market system. A 5 times increase in farm income will be needed to lift smallholders out of poverty and to attract young graduates into farming, ensuring the sustainability of the value chain in the long-term.
So, what would the new transformed market system look like? In our vision of a transformed market system, stakeholders work collaboratively to upgrade and co-create additional economic value throughout the value chain through:
- Direct, long term linkages between producers and buyers, through focused supply chain managers
- Higher numbers of farmers using improved agriculture technology packages (e.g. improved planting material, fertilizer, and, in some cases, drip irrigation)
- On and off farm grading, enhanced post-harvest handling, and product bagging in pest-resistant bags
- Centralized aggregation points and post-harvest facilities
- Full product traceability
- Value creation, viable return on investment, and guaranteed offtake which facilitates investment at all levels
What are your thoughts and your reaction to our vision? Tell us what you think. How much income creation is needed to make these market systems work better for smallholder farmers, consumers at the base of the pyramid, and other stakeholders? What other systemic changes are needed?
If you would like to have further conversations with us, please contact Peter Boone, Director of Economic Growth at Peter.Boone@thepalladiumgroup.com and Eduardo Tugendhat, Director, Thought Leadership, at Eduardo.Tugendhat@thepalladiumgroup.com.