Eastern and Central Africa Programme for Agricultural Policy Analysis ************************************************************************************************************ A Programme of the Association for Strengthening

Agricultural Research in Eastern and Central Africa ********************************************** Electronic Newsletter 15 December 2006-- olume ! Number 2" This is the last issue of the newsletter this year. ECAPAPA wishes all its stakeholders a happy festive season and a prosperous New ear. The ne!t issue of the newsletter will come out on "# th $anuary "%%&. P#$%$&'N( A(#'C)*&)#A* A*)E C+A'N,- &+E CA,E $. /EN0A Agricultural value chains link urban consumption with rural production. Changing demand, as a consequence of urbanization, emergence of modern consumption patterns or new trends in international trade, impact on rural areas along value chains and spills over to marketing and production s!stems. "hese rural urban linkages bear challenges but also mutual benefits for producers and consumers and can be promising entr! points for development interventions. #n the e$cerpts below, %eike %offler and &lad!s 'aingi from (en!a)s ministr! of agriculture illustrate this with the case of (en!a)s #rish potato value chain.

A'(E chains seem to )e the keyword in recent agricultural development de)ates* often in con+unction with rural economic development and agri)usiness promotion. Economic development involves the transformation of rural agricultural )ased economies into more ur)an industrial and service )ased economies. This implies that flows of resources* goods* services* knowledge and information )etween ur)an and rural areas change. Agricultural production in rural areas and consumption in ur)an centres are geographically more and more separated. ,owever* rural production needs to provide the growing cities with afforda)le and -uality food. .alue chains have developed rural/ur)an linkages to meet these challenges and provide potential )enefits for )oth* rural producers and ur)an consumers. alue c1ain 2romotion in agricultural de3elo2ment .alue chain promotion is an effective way of fostering rural/ur)an linkages. 0irstly* the concept provides a useful analytical framework for market and su)/sector analysis. .alue chains descri)e productive processes around a product from the provision of inputs to production* transportation* transformation* processing* marketing* trading* and retailing to final consumption. Since production only translates into income once final consumers really demand and )uy goods* the value chain approach encourages looking at the production process from the consumer1s end.

Secondly* the metaphor of the chain emphasi2es the fact that most goods are produced )y a se-uence of interlinked actors and activities. The approach focuses on the analysis of the institutional arrangements that link the various economic players* which are3 trust* vertical and hori2ontal integration and organi2ation* and contracts. Thirdly* it highlights the importance of private sector development. 0or the purpose of fostering agricultural growth and aligning the agricultural sector development with ur)an and other trends in society* it provides a fairly holistic framework* which can encompass a num)er of different development activities. The starting point for value chain analysis is usually a participatory chain mapping workshop* in which representatives from all groups involved in the process develop a +oint understanding of the respective chain. This e!ercise reveals strengths and weaknesses of the value chain and serves as a starting point for mutual trust/)uilding. 4iscussions evolving around input -uality* logistic arrangements or product standards often help producers to understand the real demand for their raw/product. 'istening to processors and consumers can )e an eye/opener for producers and traders when it comes to consumers1 needs* the right -uality* and the right -uantities at the right time in the right place. Analy2ing the chain +ointly can demystify a num)er of negative perceptions* such as 5middlemen e!ploit us6* or 5farmers always )reak the contracts.6 Pointing out the weaknesses in the chain can help shaping the roles of pu)lic and private institutions to improve chain efficiency and to gain competitiveness. 7n the case of internationally traded products* for e!ample* fresh fruit and vegeta)les* following the value chain is the only way to fully depict the comple! chain linkages* flows of resources* knowledge and logistics. &1e case of /enya- )rban consumers trigger rural 2roduction 7n 8enya* population growth and rural migration led to high ur)ani2ation during the past 9: years. Today* almost ;% percent of the ;" million 8enyans live in ur)an centers* with an increasing tendency. (r)ani2ation* income growth* international influences and moderni2ation of the ur)an society have changed food consumption patterns over the past decade. <ai2e* the num)er one staple food is gradually su)stituted )y wheat* rice and potatoes and increasing incomes stimulate more demand for dairy products* meat* fresh fruit and vegeta)les. Chips and crisps production is a determining factor of growth in demand for 7rish potatoes. 0or "%%;* total ur)an demand for potatoes was #%%*%%% tonnes* where)y 9" percent were processed into chips and 9 percent processed into crisps. Consumption patterns of potatoes deserve special attention* since they fall )etween the categories of starchy staple food and fresh vegeta)le. Three -uarters of the ur)an households consume potatoes regularly* on average : kilograms per adult at a cost of %.: Euro per month. 7ncome elasticity for potatoes is amongst the lowest compared to other vegeta)les* )ut is significantly higher than for all other staple food. Children seem to )e the primary consumers of potatoes since consumptions increases during school holidays when the kids stay with their families.

Apart from households* restaurants* hotels and canteens are ma+or potato consumers. 7n ur)an areas* chips are a common menu item in hotels* restaurants and especially franchise/type fast food restaurants. A profound understanding of consumption helps to assess the real demand=in terms of -uantity* )ut also of -uality. 4uring the past decade* farmers tried to respond as much as they could and potato production in 8enya dou)led from :%%*%%% tons to more than a million and thus provides many farmers with a relia)le income. ,owever* demand is not always met=-uality of the produce is sometimes poor* scarcities occur and prices seem to )e higher than production costs would suggest. %ar4eting between mar4et failure and mar4et functions Currently* potatoes are marketed through a fragmented chain characteri2ed )y many handlers* hardly any cooperation* no integration* and market failure* which result in high supply risks* high transaction costs* price inefficiencies and -uality losses. Analy2ing the chain* critical issues )ecome evident and are often associated with weak rural/ur)an linkages> 0irstly* the predominantly smallholder production is confronted with failing input markets. 7n addition* potato production is affected )y poor -uality and unrelia)le availa)ility of seed potatoes. Secondly* scattered farms* limited storage facilities* poor road network* and insufficient transport facilities damage the potatoes and affect the post/harvest -uality. Thirdly* the market value of potatoes is su)+ect to very limited negotiation* given that almost all farmers sell to middlemen at the farm gate. 7n the a)sence of standardi2ed packing and weighing scales* middlemen developed a tendency to enlarge the )ag si2es )ut to keep the prices per )ag steady. Additionally* local authorities impose road cess per )ag transported* notwithstanding the si2e of the )ags and therefore give an incentive to make the )ag si2e even )igger. 'astly* ur)an consumers )uy most of their potatoes on open markets or in small shops* since potatoes are only sold as fresh produce and given the fact that potatoes are )ulky and to a certain e!tent perisha)le. The challenges on logistics of marketing* the physical infrastructure of markets and on market information are enormous. 7n Nairo)i* potatoes are almost e!clusively traded in ?akulima wholesale market* which is an entirely unregulated spot market for fruit and vegeta)les in the city centre. Potato wholesale is in the hands of a do2en )rokers who serve large clients such as hotels* restaurants* canteens* supermarkets and traders* who retail smaller -uantities to shops and kiosks. This small num)er of )rokers ensures a cartel that reali2es margins of roughly one third of the wholesale price for their )rokering services only. There is literally no competition and only little product differentiation. To sum up* potato marketing struggles )etween )asic market functions and market failures at every single link of the chain. .acilitating a 2rocess of c1ange 7n August "%%;* potato farmers complained a)out the insufficient input provision* a)sence of marketing standards* and e!ploitation )y middlemen. They addressed their concerns to the ministry of agriculture and were supported )y mem)ers of Parliament from potato growing constituencies. The ministry engaged the )ilateral @erman Agency for Technical Cooperation A@TBC

/Promotion of Private Sector 4evelopment Programme APS4AC to respond to farmers1 grievances. PS4A in cooperation with the ministry of agriculture identified the following areas of concern> Production decreases* due to a)sence of input services and clean seed material3 Producers seriously disadvantaged )y the lack of standardi2ed packaging and the a)sence of weighing scales in markets3 Trading of potatoes overta!ed )y uncoordinated cess collection on roads and market places* which is additionally prawn to )ri)ery and corruption3 and 7nefficient wholesale marketing due to market failure* e!pressed in the presence of cartels* lack of market transparency* and high transaction costs.

These results were presented in a workshop* in which input suppliers* potato producers* middlemen* transporters* traders* private sector and relevant pu)lic institutions were represented. Participants were facilitated to develop a +oint understanding of the areas that needed interventions and to )uild consensus on the roles* pu)lic and private* rural and ur)an actors needed to play. A se-uence of activities was suggested. 0ollowing the workshop* a task force was constituted to form a national potato farmer association giving farmers a private sector representation that would )e a)le to lo))y for )etter production and marketing services. The ministry esta)lished a working group of staff from the horticultural division* policy unit* researchers and PS4A* in order to address the necessary pu)lic interventions. 0urthermore* a team that includes 'ocal @overnment Depresentatives was initiated to meet the challenges arising around cess collection* competition and market entry )arriers. Another team developed strategies on how to meet the challenges in seed potato production. Ac1ie3ements and remaining c1allenges 0ollowing a value chain approach in supporting the <inistry of Agriculture to address the development of the potato industry ena)led in a relatively short time )road consensus )uilding amongst rural producers and ur)an traders and consumers. The participation of all* private and pu)lic* rural and ur)an stakeholders in looking for solutions* accelerated the process* decreased )ureaucratic hurdles* and contri)uted to important trust )uilding within the chain. <utual interests were e!pressed and potential )enefits emerged as o)+ectives for coordinated and concerted interventions. Today* a standard )ag si2e is set at 99% kilograms and other standards are in place for production* marketing and processing of potatoes. The <inister of Agriculture signed the potato industry policy and legal framework in April "%%:. The National Potato @rowers and <arketing Association has )een formed and has started to empower farmers in lo))ying for )etter services. They have recruited : %%% mem)ers so far. 9%% mem)ers Alead farmersC participated in training courses on agri)usiness to improve their skills in farming and marketing. Another E% mem)ers were trained in seed potato production* as well as E% e!tension officers to )ack up the producers in the production and marketing process.

<onitoring this process of chain facilitation* a num)er of lessons were learnt from all stakeholders. The chain approach encompassed all stakeholders and proves that pu)lic and private* rural and ur)an actors can achieve a lot* if they reali2e their mutual )enefits and +oin hands for implementation. As a ne!t step it is important to continue facilitating interactions of producer groups with ur)an markets and industries to )etter respond to consumer needs and e!ploit value addition opportunities. Potato farmers have reali2ed that producing for marketing chains re-uires a certain degree of organi2ation* of mutual trust and relia)le two/way information and communication up/ stream and downstream along the value chain in order to respond to market incentives. So far* small/scale producers* scattered all over the country* have very limited organi2ational skills* even if the educational level is fairly high. Conse-uently* training in organi2ational development* leadership skills and group dynamics are the most relevant support measures to producers. 'iaising with politicians or other local leaders can play an important role in mo)ili2ing farmers as well as the )igger players in the private sector. $22ortunities for closer rural-urban lin4ages Structural transformation of rural agricultural )ased economies into more ur)ani2ed economies opens up new market opportunities to rural producers* their trading and processing partners in the value chain = provided they succeed in linking up rural production with ur)an markets and ensure that economic )enefits Ae.g. employment generationC are geared to )oth* ur)an and rural areas. The analysis of the potato value chain revealed investment opportunities for ur)an processors and growing markets for rural producers. Producers need to e!plore forward market integration in order to sei2e these opportunities3 e.g. )y forming marketing groups* )y trading themselves or )y cooperating more with the processing and trading industry. 0inally* value chain promotion challenges the delivery of pu)lic and private services* from agricultural e!tension to )usiness development services for small and medium enterprises in ur)an agglomerations. The pu)lic sector needs to provide a )usiness ena)ling environment for the private sector to perform efficiently. This re-uires not only a change of attitude* )ut also massive pu)lic investment in rural marketing infrastructure=)y resources reallocations from ur)an to rural areas. C$%%)N'CA&'$N Call for papers The Association of African Agricultural Economists AAAAEC invites interested agricultural economists and social scientists to su)mit a)stracts and papers for their second conference planned for August "%/""* "%%& in Accra* @hana. This conference follows a successful inaugural symposium held in Nairo)i* 8enya in 4ecem)er "%%E during the launching of the association. The conference will provide opportunity for agricultural economists and other social scientists in the pu)lic* private and non/governmental organi2ations and institutions to share and assess progress made in improving productivity in African agriculture. 7t will also promote )etter networking among the professionals. 0or conference theme and any other in-uiry* contact> <usa Fmare* cGo 0FD<AT* P.F. Ho! &I .illage <arket %%#"9 Nairo)i* 8enya* or e/mail> aaaeghanaJyahoo.com or visit http://www.aaae-africa.org
"his announcement came from *rof. +illis ,luoch-(osura, *resident AAAE. %e is gratefull! acknowledged.

"his newsletter is an attempt to use e-communications to provide to a broad audience within and outside Eastern and Central Africa a mechanism for distribution and e$change of information relevant to agricultural polic! issues. "his newsletter is being sent to identified stakeholders of ECA*A*A. +e want to respect !our privac! and desire not to have !our e-mail inbo$ filled with unwanted correspondence. #f !ou do not want to receive this newsletter please send us a note at .ecapapa/asareca.org 0, and we will remove !our name from the distribution list. 1or back issues of this newsletter, go to 23iew Archive) at www.asareca.org4ecapapa ECA*A*A is a regional programme of the Association for 5trengthening Agricultural Research in Eastern and Central Africa 6A5ARECA7. ECA*A*A receives support from a number of organizations including, 8'94&"9, E:, #;RC, 5;C, and :5A#;. "his newsletter is supported b! a grant from the 5wiss Agenc! for ;evelopment and Cooperation 65;C7. "he editorial content of the newsletter is solel! the responsibilit! of the Co-ordinating :nit of ECA*A*A.