Small Farmer Organizations and Transformed Markets in Southern Africa

by David Neven, Rose Hopkins, Dave Weatherspoon, and Thomas Reardon

Department of Agricultural Economics, Michigan State University Staff Paper 2005-21   October 2005

South Africa's agricultural producers face a rapidly changing environment. A highly consolidated supermarket sector (the two lead chains represent 80% of sales) now accounts for nearly 60% of the formal food retail market, one of the highest shares of any developing country.

The government's economic development policy is amongst the most radical in the world. Its land reform policy aims to ensure a grant-based transfer of 30% of all agricultural land from white farmers to black South Africans over a 15-year period (2001-2016). The 2004 Broad-Based Black Economic Empowerment (BBBEE) Act scores firms and farms on the degree to which they are owned by or source from those disadvantaged under apartheid. The latter are, according to current government guidelines, expected to represent 50% of supplies for all firms by 2007.

This new environment has created new market opportunities in the form of potentially more profitable and reliable long term contracts. It also created new challenges. Supermarkets for example use the same high standards for food quality and safety as those used in Europe. The increase in scale and cut-throat price competition at the retail end stimulates consolidation and industrialization in the processing sector. Supermarkets, food service firms and processors alike have to continuously increase the efficiency of their procurement system. Limited in their resources and representing high transaction cost options for these buyers, the rural poor are in a weak position to overcome these challenges, thus making their inclusion in these new market opportunities less likely.

Given this new market reality, our strategic research question here is: what business models can assist South Africa's rural poor (smallholder farmers, farm workers) in  uccessfully accessing and competing in dynamic food markets? A detailed understanding of these successful business models will provide powerful guidance to development programs aimed at replicating the success stories on a larger scale.

Full paper available for download here