Beyond the farm: promoting agribusiness as a way out of poverty
Just improving farm yield is not enough to lift families and communities out of poverty – we also need to change the systems in which smallholders operate
If we’re serious about ending poverty and feeding a growing planet, it’s imperative that we focus on the 2 billion people who live and work on small farms in the developing world. Often, the best way to support these smallholders has less to do with things they can do to improve their farms and more to do with the systems in which they operate.
What happens at the farm level is important, and farmers need access to knowledge that enhance productivity inputs and tools. But to create sustainable growth in agricultural industries, that can provide opportunities for increasing economic benefits for farmers now and in the future, we need to take a broader approach to development that targets the entire market system.
What does this look like in real life? The African cashew industry offers a compelling example. The cashew industry has been transformed over the past decade, first in Mozambique, and subsequently in west Africa, with the leadership and support of Technoserve, a nonprofit organisation that works with enterprising people in the developing world to build competitive farms, businesses and industries. Our experience has shown that a market systems approach can create growth that lifts families and communities out of poverty.
In Mozambique, we encountered an industry that was once the world’s leading cashewnut producer, processor and exporter, until civil war and poor policy decisions destroyed the industry. By the late 1990s, Mozambicans were shipping their reduced production of raw cashewnuts to India for processing – and thus losing out on much of their value. The country’s cashew tree orchards were aging, tree husbandry was languishing, and average yields per tree were less than 30% of their potential. Farmers had few options other than selling their cashews in their shells to traders at low prices.
With almost a million families having cashew trees, there was the potential to lift a large number of Mozambicans out of poverty. But a sustainable industry would require more than just planting trees and improving farming practices – these farmers needed a reliable local market for their cashews.
A handful of local entrepreneurs, working with us, were able to revive the cashew processing industry in Mozambique, creating thousands of jobs and providing new opportunities for hundreds of thousands of small farmers.
The experience demonstrates several principles that hold true for any sector.
Begin with rigorous market analysis
Too many agricultural development programmes focus on increased productivity without enough thought about how those products will be sold and processed competitively, through the business cycle. Our work with cashews in Mozambique began with an in-depth study that identified a promising business model for the industry. Historically, large-scale processors had dominated the cashew sector in Mozambique. Our study suggested that smaller, labour-intensive plants located near cashew farms could operate at a lower cost, produce a high-quality product and create jobs in rural communities and a reliable local market for the farmers, who could be incentivised to improve the quality of their product.
Engage bold, motivated entrepreneurs
Most developing countries have a weak culture of entrepreneurship. Antonio Miranda, an entrepreneur with experience at major firms, was willing to take on the risk of opening a factory. Miranda, with our support, created a business plan, designed the factory, organised its supply chain and accessed working capital. His first factory opened in 2002 and served as a model for other entrepreneurs. By 2006, TechnoServe had assisted nine new factory enterprises.
Improve business environment
The revived cashew industry faced a number of challenges including marketing the processed nuts, accessing capital and reviving Mozambique’s aging cashew orchards. The Association of Agribusiness Industries (AIA), a private supply chain services company, was supported to develop a brand to market Mozambican cashews and create a programme to replant cashew trees. A loan guarantee system helped reduce the cost of financing for opening new factories. In addition, the entrepreneurs negotiated appropriate labour practices with the government.
Focus on sustainability
AIA is jointly owned by several Mozambican cashew factories and charges a fee for its services – a model that created a mechanism for industry service and support. Farmer trainings are also delivered by processors to encourage sustainable assistance and continued improvement among producers.
Expand and replicate
Between 2002 and 2008, Mozambique went from having no capacity to process raw cashew nuts competitively to becoming the largest processor in Africa and the fourth-largest in the world. The processing industry now employs more than 5,000 workers, with annual sales of about $25m (£16m). Stimulated by the experience industry players, donors, governments, entrepreneurs and farmers are replicating the Mozambique processing model in west Africa.
The impact of this work is apparent in communities such as Namige, the site of Miranda’s first factory, where the increased economic activity revitalised the local business sector and broader community. Producers like João Sekare are investing in more cashew trees and using the profits to diversify their farms with items such as coconuts, oranges, peanuts and livestock.
The development community can encourage such change in any number of agricultural industries in the developing world. We just need to think and act beyond the farm.
Simon Winter is senior vice president of development at Technoserve, a nonprofit organisation that develops business solutions to poverty.