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GREAT insights Magazine

Constructing Markets through Value Chains: For whose Benefit?

01-05-2014

Park, A. 2014. Constructing markets through value chains: For whose benefit? GREAT Insights, Volume 3, Issue 5. May 2014.

Aid agencies are using value chains to build basic market infrastructure in African agriculture, but in doing so, they tie the interests of small farmers to the demands of multinational wholesalers.

Since their earliest engagement with post-independence Africa, Western governments and financial institutions have encouraged a reliance on “market forces” to carry the day. But decades of failure have taught these actors a lesson: markets simply aren’t lying in state, ready to be unleashed. They are constructed, through an invisible infrastructure of laws, incentives, and networks.

Multinationals setting the pace in GVCs

In agriculture, donors and development agencies are working to develop this infrastructure through value chains, which they promote as a means for small farmers to market their goods. But value chains are not simply a means to collect an existing crop line; they are constructed to direct small farmers toward specific crops and methods of production which are desirable by large commercial interests. Two different value chain projects being developed separately by the United States’ aid agency, USAID, and the Gates Foundation in Zambia, for instance, aim to supply a growing demand for meat in southern Africa by introducing small farmers to soybeans, then turning that soy into chicken feed for commercial wholesalers [1]. Agencies develop these value chains to fulfill commercial demand, but they are also inviting the companies they intend to support to guide their development. As they do, we should be asking ourselves, who is constructing the market, and for whose benefit?

In recent years, USAID has prioritised fostering partnerships with the private sector for agricultural development. Since 2010, the agency has been at the forefront of a global effort to transform Africa into an agricultural hub, both able to support itself and export the excess. From the beginning, private-sector partners have been central to this effort, attracting companies including PepsiCo and Wal-Mart to the cause [2], and inviting them to dictate their terms of doing business.

As USAID administrator Rajiv Shah said during a 2010 speech on Feed the Future, “If you’re from the private sector, tell us what countries and donors can do to reduce constraints on business operations.” [3]

Risks and benefits of joining value chains

Value chains are an example of this thinking in action, giving large-scale commercial interests the means to influence the shape of the market according to their requirements. In the case of chicken, wholesalers can use the value chain to tell farmers what they need. In turn, they receive a steady supply of high-protein, soy-based feed. Farmers working within a value chain are guaranteed a market for a high-value crop. Since most grow corn primarily, rotating soy into their crop line also helps to restore soil quality.

Yet while the benefits may be substantial for a small farmer, the risks are also high. Positioned at the bottom of the value chain, farmers are subjected to any breakdown in linkages between themselves and the commercial purchaser at the top. While the largest chicken wholesalers are multinational and have the ability to withdraw from a country if the commercial chicken market fails, small farmers do not have the same benefit.

This method of developing markets by prioritising large-scale commercial interests has precedence in Africa. Take, for instance, the Kenyan milk industry— an early example of one value chain project. In 2003, according to report by the UN’s Food and Agriculture Organization, Kenyan dairy provided income for more than 625,000 people [4]. The industry was so productive that USAID and the Gates Foundation proposed transforming Kenya into a regional export. With their assistance, large-scale milk producers, including Nestle [5] and Land O’Lakes [6], entered the country beginning in 2007 and introduced commercial production methods [7]. Some farmers began working with them but within three years Kenya experienced a milk glut and producers began dumping milk in the streets [8].

In the interest of who?

While it is tempting to think that multinational seed producers, local chicken and milk wholesalers, and the small farmers in between, all share a common definition of success, the fact that these small farmers and corporations now operate in the same space should not be considered evidence that their interests are perfectly aligned. 

In accepting the corporate sector’s interest in African agriculture as the new engine of the region’s agricultural development, we also have to recognise that massive businesses like Wal-Mart, whose 2013 sales revenues exceeded the GDP of every African nation that year, have their own interests. These interests may align at times, but they may part at other times. The real trick for donors and aid agencies may be less about leveraging private power, and more about balancing it.

Alex Park is a Researcher at Mother Jones magazine.

This article was published in GREAT Insights Volume 3, Issue 5 (May 2014). 

Footnotes

1. http://www.motherjones.com/environment/2014/01/kfc-africa-chicken-usaid-gates-foundation

2. http://www.motherjones.com/blue-marble/2013/06/explainer-us-governments-push-bring-big-ag-africa

3. http://web.archive.org/web/20100525073353/http://www.usaid.gov/press/speeches/2010/sp100520.html

4. http://www.fao.org/fileadmin/templates/ags/docs/dairy/P1assessmentkenya.pdf

5. http://www.nestle-ea.com/en/csv/csvatear/eaddp

6. http://www.idd.landolakes.com/ECMP095099.aspx

7. http://www.grain.org/article/entries/4259-the-great-milk-robbery-how-corporations-are-stealing-livelihoods-and-a-vital-source-of-nutrition-from-the-poor

8. http://allafrica.com/stories/201001250062.html

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Economic Transformation and TradeBusiness and DevelopmentAgricultureValue chainsAfrica

External authors

Alex Park