For your eyes only, the value addition paradox

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Posted by Joseph Macharia 3 months ago

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Ever wondered why the nicely branded, neatly arranged products displayed at Agricultural Shows and Exhibitions are never found at your favourite supermarket? Visit Nairobi International Trade Fair, Nane Nane Agricultural Shows across Tanzania, National Agricultural and Trade Show in Jinja, Uganda or or the smaller regional shows, exhibitions and farmer field days. 

The locations are different but the story is the same. They give the impression that farmers are fully engaged and firmly in control of the value addition agenda, and are laughing all the way to the bank.

Well, the agriculture landscape is replete with many such products and projects that have never made it to the consumer despite heavy investment of resources; its originators underestimated the process especially on startup and marketing costs, cut their losses and moved on to other lucrative ventures. 

Others are just poorly thought ideas by organizations that have no real intention of improving the wellbeing of farmers but avenues for tapping donor funds, jobs and salaries based in the cities.

This leaves the intended beneficiaries, mostly farmers, to pick the pieces of the failed project and shakes their belief in the viability of agriculture as a business.

Missing link?

In agriculture development circles, Value Addition is seen as the missing link in the quest to improve farmer incomes. Indeed, looking at the value chain, the farmer despite all the effort put in production ends up with the shorter end of the stick. 

For its proponents, the assumption is when farmers engage in adding value to their products, they will earn more from their produce, have more money to meet their day-to-day needs, plough back some of the proceeds to sustain and grow their farming enterprises.

However, its elevated position in development rhetoric does not match action on the ground. It largely remains one of the many catchy phrases used, more so, among Non-Governmental Organizations to make farming attractive to youth, and farmers in general.

Expanded meaning

Value addition has gone beyond the traditional meaning of processing of raw produce to include enhancing value through non-physical characteristics, including branding and designations, for example, selling a product as organic, with a certification organic label. This is what makes sale of indigenous vegetables lucrative in major towns, especially among health conscious consumers whose preference is influenced by the health benefits of the vegetables.

One of the drawbacks to value addition is low understanding among agriculture sector players and lack of a solid framework to guide the practice of value addition, including farmers’ competitive advantage and changing consumer preferences.

Value addition is a deliberate process. However, talk about value addition glosses over the details of what it takes to bring a product to a supermarket shelf and get people to love and buy the product; this includes the investment - both technical and financial, time, regulations and logistics.

Untapped opportunity

Still, with rural poverty still high, the food processing sector remains a source for growth of income and employment; to create well-paying jobs for its young men and women who are abandoning farming and moving to towns in search of employment opportunities. As to whether this potential is turned into reality is a matter for consideration by the different actors.

Keep in mind that any new products and value addition initiatives will go through strong competition with older, bigger, more established brands with wide networks, most of which are situated closer to the major towns and cities; meaning they are already closer to the consumer. 

For example, peanut butter from a women group deep in Migori County versus a company within Kisumu City, Nairobi or any other big town.

These are realities that emerging agro-processors must consider and determine which comparative advantage will give them an edge over the competition. The other option is to explore partnerships with established entities and negotiate favourable terms.

Is it worth the hassle?

Agro-processing is not a one-shoe-fits-all prescription; determine whether the processing venture makes economic sense. Starting up agro-processing is costs; equipment, labour, electricity e.t.c, making it difficult to generate enough sales to cover these startup costs. 

In addition, value addition may involve entirely new production practices or require new skills that may require to being out-sourced or imported from outside the producer group/community setup, resulting in substantial added production costs.

Therefore, it is prudent to assessment whether returns from the undertaking are worth the investment risk. It makes sense to sell some produce better sold raw, depending on quantity, location and prevailing market prices. The margins between selling the produce raw and processing before sale are thin, and not worth the resources and time required. In other words, the added-value is not sufficient to cover associated costs.  

Without making this initial assessment, farmers and organizations get into ventures that never break even, and therefore, do not in any way achieve the intended purpose of changing the economic fortunes of the target farmers. Where processing is feasible, start by penetrating and satisfying nearby markets that do not require complex logistics to service. The risk of high marketing costs is also lower.

Whole hog

The failure of much value addition – agro-processing ventures – among rural communities, especially steered by Not-for-Profit organizations is more about understanding the process of value addition from farm production to consumer marketing. The key to success is to determine both sides of the costs equation i.e. input/production side and returns side.

When you start, go the whole hog, do not leave farmers hanging.