10 steps to sustainable business models for smallholder farmer market development programs

An honest assessment of the supply chains for improved legume inputs shows that holistic solutions are needed. The move to sustainable business models, however, will mean that many flaws need to be addressed. In some cases, what looks like the solution is just reframing the problem. But from the assessment of the different models there are some lessons that are important for legumes in particular, many of which apply to supply chain development in general.

Edward Baars of IITA, CABI’s partner in GALA, dropped by the office to explain what he has been finding out about business models for scaling improved legume inputs. The conversation with Silvia Silvestri and Duncan Sones from the GALA delivery team resulted in ten emerging steps for sustainable business models. The models featured here have all been facilitated or brokered by a range different NGOs. In the most successful cases the approaches were market driven on both the input and output supply and incorporated commercial partners or freelance agents (for example the FIPS-Africa village-based advisors) who have a vested interest in the continuity of the approach.

1. Approaches to smallholder farmer development need to embrace whole value chains, not pick out selected components. Inputs, information and output markets all need to be addressed together

The GALA research has involved us talking to thousands of farmers to assess support through a variety of models. Those that performed best in terms of encouraging sustained use of legume technologies had a holistic approach. Some agencies had assumed that if they concentrated on output markets, everything else would be sorted out. But, farmers in these programs were amongst the lowest users of inoculant, fertilizer and certified or other high-quality seed. Similarly, we found programs with main focus on agronomic information had a high uptake of the technologies, but often struggled to find markets for soybean.

2. Large-scale legume producers with ready access to input supplies and output markets can spread these benefits to the smallholder sector

In Tanzania, an ‘anchor farm’ (nucleus farm) model has been initiated, where a development organisation established a large-scale farm in the heart of a smallholder farming community. This was undertaken with the express purpose of operating so that the benefits of their input and output market linkages could be spread into the local farming community. Smallholder farmers in the anchor farmer model were amongst the most likely to access, and pay for, the improved legume inputs. Elsewhere in Africa, we have found examples of commercial farmers performing a similar role, acting as a catalyst for change in neighbouring smallholder farms. To be successful in this role these farms need to be 500 hectares plus. This is the size at which is it economically viable to mechanize and keep livestock at scale.

3. Village-based promotion can work well if people are selected who are trusted and have integrity and an entrepreneurial spirit

The Scaling-Up Improved Legume Technologies (SILT) project in Tanzania has collaborated with FIPS-Africa to promote best practice in soybean and common bean production. FIPS uses approaches such as ‘Mother and Baby’ plots, which encourage farmers to trial new varieties, inputs or techniques. The advisors, themselves trusted farmers, have a large-scale (mother) demo and provide small packs of inputs to small-scale farmers to enable them to run a risk-free farmer trial. The FIPS advisors then follow up in subsequent seasons to see if the farmers are convinced enough to buy the required inputs. The fact that the advisors are embedded in the villages they serve and they take orders from and make deliveries to the farm gate can be of particular assistance to women. Our research shows that women rely more on input dealers than extension agents for advice on new technologies.

4. Smallholder farmers are rarely loyal to purchasers if they feel they can make a short-term profit by selling crops elsewhere (they may also divert inputs from crop plans agreed with third parties)

Off-taker schemes rarely work in practice. Farmers will only honour their contract if the off-takers are paying more than the going rate for the crop. Most farmers will take a quick profit outside of the scheme if the guaranteed price can be beaten in the local market. So, there is no evening-out of a price guarantee across seasons – farmers only use off-takers when they are offering market prices or above.

5. Both development funds and private sector investment is needed to work together to introduce totally new innovations such as inoculants, rather than product substitutions such as new seed varieties

In all countries in Africa either domestically manufactured or imported rhizobia inoculant is available. But awareness of inoculant is low: in Tanzania, we found only about 15% of farmers are aware of the existence of the product. There are a number of commercial players in each country with access to different brands of inoculant.

Building awareness amongst farmers of a new product, such as inoculant, requires upfront public investment for a number of years. Once purchasing habits are established, conventional brand promotion activity will be effective. The private sector will then seek to differentiate its product advantages (no sticker needed for inoculant to adhere, small packs, better yields etc.). Only above only about a quarter of the farmers that wanted to buy inoculant, thought they would be able to access supplies.

There are a number of issues here. First, there needs to be a concerted effort between the public and private sectors to reach the vast majority of farmers currently unaware of inoculant.

Second, the information on demand needs to be shared with agro-dealers and it needs to come from trusted sources.

Third, the market for inoculant has been skewed by mass distribution of free inputs.

6. Free samples build awareness of innovation, but free inputs, that bypass supply chains, will not lead to sustainable change and subsidy schemes can destroy emerging markets

Agro-dealerships in Africa have to be cautious. Years of careful market sensitization and information provision to build a sales base can be wiped out by free inputs or subsidy schemes that bypass them.

One of the strengths of the research we have been doing is to be able to track places where farmers buy/ obtain inputs. This makes it easier to plan to effectively include the emerging supply chains in any future plans to share inputs below market rates.

7. The viability of seed can vary which makes it hard to get spacing right in short duration bean crops where gap filling is difficult

In many countries, the seed that is available can have germination rates lower than the industry standards. This means that farmers either compensate by adding more and more seed per hole, or they end up with gaps in the field. Soybean, in particular, is most effective when it creates a canopy which stops the weeds from developing. Poor seed germination rates create real challenges to present good advice to farmers likely to result in the close planting and a canopy forming. New varieties and better quality assurance processes are needed.

8. Farmers preferences for seed varieties can be thwarted by registration processes that can present barriers to superior varieties developed outside of the national research institutes

Farmers are pretty good at identifying varieties that meet their home nutrition needs and are appreciated in local markets because of the taste, texture, appearance and cooking quality. In Tanzania, a case in point is the common bean variety Soja Njano. In 2018, although this was not registered in Tanzania, it was still the preferred variety for 61% of bean farmers, who on average wanted 28 kg of certified seed at TSH 3,000 (around USD 1.50) per kilo. Only 5% of these farmers anticipated they could buy the seed they wanted.

9. Release of superior new varieties by the private sector can be choked-off by research institutes and parastatals when perverse incentives are in place

Through our research we talked to private sector seed companies with vastly superior varieties of common bean and soybean which will not come to market. The market for open pollinated crops like beans are challenging as farmers save, sell and swap seed. But, in addition, research institutes sell seed and parastatals often undercut the private sector. It is not clear whether the research agencies are trying to fill a void left by the private sector or the behaviour of the public sector is pushing out private sector players.

10. Complete transparency of information along the output value chain is desirable showing explicitly the mark-up at each transaction – farmer, to aggregator to processor. This requires a commitment to quality from all players

Not all farmers in Tanzania have a sense of market prices. Some actively seek out the information, whilst many do not. Farmers often talk about being cheated by brokers. One solution to this to have very explicit information showing the percentage taken for each transaction. Some markets operate like this, for example currency conversion agents clearly show their buying and selling price. This level of transparency could work well in output markets.

One reason why farmers do not get paid what they anticipated is because they present crops in poor condition. Poor post-harvest practice result in dirt and stones appearing in the grain. Farmers need to concentrate on the quality as well as the quantity of the grain they bring to market, if they are to develop mutual trust between them and the broker. Small adaptations like drying grain on mats made of fertilizer bags stitched together, for example would make a big difference.