Farming for a more fruitful economy

shutterstock_143841478South Africa’s smallholders could produce enough strawberries, berries and tomatoes to capture three million tons of additional demand by 2030. This would be enough to capture 12 percent of predicted global demand growth (excluding North America) for these products by 2030. Another way to understand the impact of this phenomenal opportunity is that it would grow South Africa’s GDP by R27 billion, creating some 121 000 jobs in the process. Macroeconomic gains aside, such assistance would also greatly benefit some of the poorest and most desperate communities in South Africa, all this by utilising only three percent of South Africa’s existing farmland to produce crops at yields already achieved by this country’s farmers in 2013.

This may sound simple, but the fact is, smallholders need critical support in shifting production to horticulture, increasing their yields, accessing better inputs, and importantly, gaining access to markets.

A time to grow

New research by the McKinsey Global Institute (MGI) shows that by 2030 the South African agricultural sector as a whole can grow its contribution to GDP by R163-billion, while creating almost half a million jobs in production and processing. To be sure, the bulk of this growth relies on improved yields from medium- and large-scale commercial farms and from a shift to significantly more agro-processing. But smallholder farmers could play an important role too.

Right now, smallholders occupy about 4-5 percent of arable land in South Africa. Their farms range from five to 20 hectares in size, and they use nearly 80 percent of their yield for household food which, naturally, limits their efforts in shifting to commercial production. The estimated 52 000 households have an equally challenging commercial barrier in accessing the market. Economically, connecting such a large number of small-scale producers to market will require some form of output consolidation. To develop and sustain a small business that feeds their households, employs workers, and improves their quality of life (and moves away from self-sufficiency), these smallholders need to raise their productivity through three initiatives:

Switch to higher-value crops – Shifting to horticulture will raise the value of the farmers’ output, enabling them to be financially viable at the five to 20 hectare scale. MGI’s analysis of the Eastern

Cape, KwaZulu-Natal and Limpopo provinces identified that berries, strawberries and tomatoes can be viable at this scale. If smallholdings were to aggregate into larger farms of 30 hectares or more, then avocado, litchi and mango also become viable.

Use improved inputs – An input like fertiliser can increase crop yields by 50 percent, more appropriate seed varieties by 15 percent and practical farming knowledge by a further 40 percent. Unfortunately, most smallholders have no access to these important inputs.

Gain access to markets – To access retail supply chains, smallholders need to aggregate their efforts and output. Farming cooperatives are a typical way to achieve this. These would enable them to offer fewer points of contact and reach a scale that would make market access economically viable. These cooperatives also have the capacity to lead supplier initiatives to develop demand and off take routes for their smallholders to sell their produce to.

Smallholders also need to build their knowledge of how to achieve high quality produce standards if they are to increase their market reach. These include issues of quality, consistency and point-of-origin information. Cooperatives can also coordinate these farmers to ensure that, for instance, the tomato growers in a region do not deliver all their produce to market at the same time.

Good growth needs good support

These three levers work well on paper, but crop transition initiatives can take years to bear fruit. The transition to horticulture does not happen in a single step. Practically, these farmers need sustained management and business support, as well as investment, over a period of years.

The production of staple crops needs to continue in parallel to the transition to ensure they can still feed their households. Small-holder farmers will require support as follows:

Services and support programmes – Smallholders need increased access to agricultural extension services (currently geared towards commercial farmers), as well as finance services, human resources, technological development, delivery systems and marketing services.

Commercial farmers can play a supporting role through skills and know-how transfer to their smallholder neighbours. Kenya offers an instructive example with its National Agriculture and Livestock Extension Programme, which supports farmers with education drives through field days, demonstrations, courses, on-farm trials, and shared interest groups.

Access to funding – Smallholders need access to tailored financing that is linked to education and support. The private and public sector could come together to provide this support. In Nigeria, for instance, over 20 banks collaborated with the government in designing a $500 million risk-sharing facility to support lending to small agricultural businesses. Funding can take another form, that of subsidies. However, direct subsidies to smallholders should explicitly be temporary, with a long-term view toward self-funding through a structured programme like Massmart’s Supplier Development Fund that gives farmers access to grant funding for inputs, while offering to subsidise those grants should crops fail.

Supported cooperatives – When smallholders aggregate their produce and efforts, they can better access financing, inputs, and large-scale retailers, giving them the scale they currently lack. The Is’Baya High Value Crop programme in the Eastern Cape, for instance, has increased its collective annual revenue by R19 billion over the last 15 years, reaching more than 5 000 households.

For smallholders to be truly successful, they will need strong support from the other players in the agricultural value chain. Magwentshu and Leke are partners in the Johannesburg office of McKinsey

& Company, and Jayaram is a partner in the Nairobi office. They lead work in the agriculture and resource sectors in a number of countries across sub-Saharan Africa.

AUTHORS: Nomfanelo Magwentshu, Kartik Jayaram and Acha Leke

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