SMALLHOLDER COMMERCIALIZATION, INTERLINKED
MARKETS AND FOOD CROP PRODUCTIVITY :
CROSS-COUNTRY EVIDENCE IN
EASTERN AND SOUTHERN AFRICA
Jones Govereh, T.S. Jayne, and James Nyoro
June 1999
This paper is published by the Department of Agricultural Economics and the Department of
Economics, Michigan State University (MSU). Funding for this research was provided by the
Food Security II Cooperative Agreement (AEP-5459-A-00-2041-00) between Michigan State
University and the United States Agency for International Development, through the Africa Bureau's
Office of Sustainable Development, Africa Bureau, AID/Washington. Support was also provided
under the Kenya Agricultural Monitoring and Policy Analysis Project (KAMPAP), supported by
the United States Agency for International Development/Kenya; the International Livestock
Research Institute, Regional Tsetse and Trypanosomosis Control Program, and the Department of
Veterinary Services Tsetse Control Branch of Zimbabwe; and by USAID/Mozambique.
Supplementary support for this study is provided by the Office of Sustainable Development, Africa
Bureau, AID/Washington.
TABLE OF CONTENTS
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1 Where Can Growth Occur Within Agriculture under Market Liberalization? . . . . . . .
1.2 Can Growth Occur Without Food Crops? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1
2
3
2. CONCEPTUAL FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1 Interlocked Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Synergies Between Cash Crop and Food Crop Productivity . . . . . . . . . . . . . . . . . . .
2.2.1 Household Level Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2.2 Regional Spillover Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Summary of Key Pathways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
6
7
7
8
9
3. RESEARCH SITES AND METHODS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Study Sites and Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Research Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. EVIDENCE OF COMMERCIALIZATION IMPACTS ON FOOD PRODUCTIVITY . .
4.1 Descriptive Findings from the Country Studies . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1.1 Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1.2 Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1.3 Zimbabwe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Household Level Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2.1 Effect of cash cropping on access to variable inputs . . . . . . . . . . . . . . . . .
4.2.2 Effects of Cash Cropping on Access to Farm Capital . . . . . . . . . . . . . . . .
4.2.3 Access to Extension and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Regional spillover effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.1 Access to Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Arrangements That Strengthen Complementarity . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.1 Success in Replicating Interlinked Marketing Arrangements . . . . . . . . . . .
4.2.2 Producer Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2.3 Smallholder Organizational Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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5. SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LIST OF TABLES
Table 1. Study Sites in Kenya, Mozambique and Zimbabwe . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 2. Household Level Characteristics by Production System and Commercial Scheme
Categories, Mozambique, 1994/95, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 3. Household characteristics by farm size category, Muranga and Kisii Districts, Kenya.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 4. Distribution of Coffee Factory Sales Revenue to Various Marketing Actors: Muranga Vs.
Kisii Districts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 5. Household characteristics by farm size category, Kisumu and Bungoma/Kakamega B
districts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table 6. Household characteristics According to Animal Traction Use and Cotton
Commercialization Index in Gokwe North District, Zimbabwe, 1995/96 . . . . . . . . . . . . 31
Table 7. Econometric Models of Commercialization, Animal traction Use, Food Crop Productivity
and Output, Gokwe North District, Zimbabwe, 1995/96 . . . . . . . . . . . . . . . . . . . . . . . . 34
1. INTRODUCTION
The majority of the populations in Africa live in rural areas and depend on small scale agriculture for
food and income. Faced with limited prospects for rural industrialization, smallholder agriculture
remains the major engine of rural growth and livelihood improvement for some time. Meeting the
challenge of improving rural incomes in Africa will require some form of transformation out of the
semi-subsistence, low-input, low-productivity farming systems that currently characterizes much of
rural Africa.
In some areas of Africa, input intensification was formerly promoted on food crops in the 1970s and
1980s through state-led programs featuring subsidized and interlinked credit-input-output marketing
arrangements implemented by state marketing boards (Rohrbach 1988; Byerlee and Eicher 1997).
However, these state-led approaches eventually accumulated large budget deficits and became
financially unsustainable, leading to partial state withdrawal from food crop and input marketing and
an associated stagnation or decline in the use of farm credit and cash inputs on food crops (Jayne
and Jones 1997; Shepherd & Farolfi 1999). Moreover, there has been substantial depreciation in
the real exchange rate in many countries, which has decreased the profitability of using tradeable
inputs such as fertilizer on non-tradeable crops (which include the major grain crops in most years
and most areas of Africa). The limited successes in stimulating food crop intensification in the postliberalization environment can also be partly attributed to the evolving system’s continued difficulties
in delivering and reliably recovering credit to finance the intensification of smallholder food crop
production (Mosley 1994; Dorward, Kydd, and Poulton 1998).
1.1
Where Can Growth Occur Within Agriculture under Market Liberalization?
Renewed growth in African agriculture will require financially sustainable intensification of existing
cropland, since most of the high-potential farmland in Africa is already under production. Highvalued cash crops represents one potential avenue of crop intensification. Evidence from other
parts of Africa shows that processes of agricultural intensification and productivity growth are often
driven by cash crops featuring the development of interlocked credit, input, and output markets (von
Braun and Kennedy 1994; Dorward, Kydd, and Poulton 1998; Shepard 1999). Using analytical
insights from the New Institutional Economics literature, Dorward, Kydd, and Poulton (1998) have
shown that export-oriented cash crops may serve to stimulate smallholder crop productivity and
income growth, provided that ubiquitous credit market failures can be overcome through institutional
innovations in farmer/marketing agent relationships. The authors particularly focus on the potential
opportunities for interlocked credit-input-output market arrangements to overcome problems of
deliberate farmer default and help capitalize smallholder cash crop production. The authors indicate
that export oriented cash crops are where such growth is likely to occur, both because these crops
tend to have more concentrated marketing channels which offer greater potential for interlocking,
and because structural adjustment and currency depreciation have increased the profitability of
tradable crops relative to non-tradable crops. The prognosis for food crop productivity growth
appears less optimistic, a conclusion that is
1
supported by stagnant or declining trends in national food crop production in most countries of
Eastern and Southern Africa.
1.2
Can Growth Occur Without Food Crops?
However, an income and productivity growth strategy focused on export-oriented cash crops is
likely to be impeded without complementary progress in food crop productivity and associated food
crop market development. This is for several reasons:
1.
The price of food is a key factor determining the economics of diversifying into non-food
cash crop production and non-farm activities and encouraging the overall process of
structural transformation. Productivity growth in food crop production will be critical to
drive down the price of food and raise rural disposal incomes and hence demand for
products and services in non-food sectors of the economy.
2.
Risk aversion: semi-subsistence households have shown their proclivity to grow some food
crops to meet their household needs to the extent that food markets are costly and
unreliable. To the extent that the costs and risks of acquiring food through the market
declines, this will free up resources for higher-return activities that include selected exportoriented crops. This suggests that the resources that the small farm sector can bring to bear
on cash crop activities (such as those discussed by DKP) will depend on productivity gains
in African food systems.
3.
Governments are likely (for political as well as economic reasons) to encourage national
food self-sufficiency and minimize dependence on imported food (especially in countries
featuring white maize, a crop with a limited world market). Pressure for price and other
forms of direct policy support for staple grain production has continued in many countries
despite attempts to reform and liberalize their grain sectors, and this is likely to continue
shifting away land, labor, and capital resources from non-grain cash crops unless sufficient
productivity growth in food crops is able to reduce such countries’ perceived external
dependence on grain.
In short, while we agree that the emphasis on cash crop productivity growth under favorable
arrangements is compelling and can serve as a major engine for smallholder income and productivity
growth if the key credit, input and output marketing channels can be coordinated effectively, we
stress that cash crop growth will be facilitated by grain crop productivity growth, and therefore it
should be directly addressed as a key component of overall smallholder growth strategy. Thus, we
believe it is important to examine whether there are circumstances under which cash crop
intensification can help support food crop productivity growth in a synergistic manner.
1.3
Objectives
This paper addresses the role of cash crop production in promoting food crop productivity growth.
The paper argues that, in addition to the direct stimulus that cash cropping can have on household
2
incomes, there may be important indirect effects of cash cropping on the productivity of other
household activities such as food cropping. These potential synergies or trade-off between cash
crops and food crops have been generally neglected in food crop research and extension programs,
although they may have important implications for programs designed to promote smallholder food
crop productivity growth.1 More comprehensive information on the interactions between food and
cash crop production may help in refining extension strategies for both kinds of crops and in refining
our understanding of the broader effects of cash cropping and associated commercialization of
agriculture.
The issue of whether cash-cropping improves smallholder welfare in Sub-Saharan Africa (SSA) has
been controversial and debated for decades. The argument heard often in developing countries that
the promotion of commercialized non-food cash crops entails loss of capacity to produce food and
loss of food productivity is, in our view, overly simplistic. This view, which is still often used as a
justification for policies that alter the relative price ratio between food and non-food crops, does not
take account of potential synergies between cash crop marketing arrangements and the
intensification of food crop production. While cash crops may compete with food crops in terms of
area allocated to each crop, the relationship concerning other factors of production such as labor,
working capital and crop management has important complementary dimensions.
The objective of this paper is to determine whether smallholder cash crop commercialization can
appreciably stimulate food crop input use and productivity. A second objective is to understand the
various pathways involved, and to determine how cash crop schemes can be designed to maximize
such synergies. Our findings are based on household-level survey data from three countries in
Eastern and Southern Africa: Kenya, Mozambique and Zimbabwe. Similarly to Dorward, Kydd,
and Poulton, we find that the impacts of cash crop commercialization on smallholder welfare
depend on the institutional details and environment of the cropping schemes, and that interlocked
transactions across credit, input, and output markets are critical given the current conditions of rural
financial markets in most parts of sub-Saharan Africa. However, our results additionally indicate
that the future direction of food crop productivity and input use may also be dramatically affected
by the manner in which cash cropping schemes are instituted. In many cases, smallholders’ access
to cash inputs (through in-kind credit) for use on food crops depends on the existence of viable and
sustainable cash crop marketing arrangements in the area. A better understanding of why and how
these complementary benefits between cash cropping and food cropping occur can help in the
design of integrated commodity-input-credit partnerships between private firms and farmer groups.
These results also refute a widespread negative perception that market liberalization bodes poorly
for the prospects of food crop intensification and production incentives.
The paper is organized as follows: Section 2 discusses the concepts borrowed from theories on
vertical coordination and market organization. The data sets and methods used in the case studies
are discussed in Section 3. Section 4 discusses the analysis and findings of the country case studies.
The various pathways by which cash cropping were found to affect food productivity are
highlighted. Lastly, Section 5 discusses conclusions, policy implications and suggestions for future
1
For informative exceptions, see Goetz 1993 and Dione 1989.
3
research.
4
2. CONCEPTUAL FRAMEWORK
Agricultural commercialization may be defined as the proportion of agricultural production that is
marketed. As such, commercialization can be measured along a continuum from zero (total
subsistence-oriented production) to unity (100% of production is sold). Commercialization of
agriculture involves a transition from subsistence-oriented to increasingly market-oriented patterns
of production and input use. Economists have long advocated cash crop production as part of a
broader strategy of comparative advantage. The underlying premise is that markets allow
households to increase their incomes by producing that which provides the highest returns to land
and labor, and then use the cash to buy household consumption items, rather than be constrained to
produce all the various goods that the household needs to consume (Timmer 1997; Pingali 1997).
While this concept of comparative advantage is well accepted under the assumption of wellfunctioning markets, the process of commercialization involving non-food cash crops is impeded by
risks and high costs in the food marketing system. Food market failures give rise to the well-known
non-separability of household production and consumption decisions, which account for the
potential breakdown of agricultural commercialization strategies based on comparative advantage.
The involvement of marketing firms in cash cropping schemes may be measured along a risksupport continuum. On one end of the continuum are firms that attempt to develop profitable
opportunities with smallholder farmers while limiting their exposure to risks. These firms encourage
delivery of smallholder products to the extent possible without incurring major expenditures in
service support or credit that may not be recovered. While risks are minimized, this approach
generally generates small surpluses from participating farmers and hence has less potential to
catalyze farm productivity growth. On the other side of the continuum are firms that pro-actively
support input intensification of smallholder production in order to generate greater surpluses and
throughput. This is often important for the firm in the presence of scale economies in processing
(e.g., cotton ginning, sugarcane processing) and where fixed costs can be spread out over a greater
volume of products handled. The most common approaches to pro-actively generate greater supply
from farmers involve the distribution of credit, inputs, management and extension training, and
seasonal labor support to participating farmers who have generally passed some screening
requirements. These up-front costs are recouped in principle by the firm at the time that farmers sell
their product. In some cases, marketing firms explicitly try to also promote food crop productivity
even if they do not purchase these crops (e.g., in the case of Lonhro in Northern Mozambique).
The firms’ rationale for supporting food crops is based on the belief that their cash crop operations
will be more sustainable and profitable over the long run if their participating farmers are more
productive in their food crop enterprises.2 While this model has produced some noteworthy
successes from the standpoint of supporting smallholder income growth3, the sustainability of such
2
For example, if households are able to increase their food production per unit of land, they
may devote a greater portion of their landholding to the cash crop sought by the firm.
3
A few examples of these are the sugarcane schemes in Western Kenya (documented by
von Braun and Kennedy 1994) and the Lonhro cotton schemes in Northern Mozambique
(documented by Strasberg 1997).
5
schemes depends on the firm’s success in recovering its up-front outlays in support of farm
production. Cost recovery and the institutional design of credit programs are a function of (a)
screening, how selective are firms in registering farmers in the schemes that have a high probability
of repayment (issues of adverse selection and the moral hazard come into play here); (b) market
structure (e.g., number of competing buying firms in the market); (c) the profitability of growing the
particular crop relative to other crops; (d) the extent of coordination between competing marketing
firms (e.g., sharing of information of which farmers are extended credit by which firms); and (e)
attitudes and responses by farmers concerning repayment, which are a function of history.4 There
are “tragedy of the commons” analogies here, in that individual may choose actions that may be in
their perceived short-term interests but not necessarily in their long-term interests; or choosing
actions that may be in their own interests but will bring down the system if enough other people take
similar actions).
Where a firm chooses to operate along the risk-support continuum is a function of these numerous
aspects of market organization and behavior, the broader institutional environment (which
determines contract enforcement potential, information costs, and other transaction costs of
contracting), and of course firms’ subjective decisions. Two firms operating in the same
environment may choose to pursue different strategies reflecting their proclivity to take risks. These
issues underscore that little can be said, in any generic way, about the performance of cash
cropping schemes in promoting farmer welfare -- the institutional details of how the system is
designed can crucially affect performance outcomes. The task for researchers is to identify design
elements in cash crop schemes that promote desired behavior to achieve mutual win-win outcomes
for farmers, marketing firms, and others in the agricultural system, including consumers.
2.1 Interlocked Transactions
A key common feature of the more sustainable (but not necessarily equitable) private-sector cash
cropping schemes has been “interlocked transactions,” or the tying of credit (usually in-kind) to the
delivery of product at harvest (Minot 1986; Goetz 1993; Strasberg 1998; Dorward, Kydd, and
Poulton 1998). Provided that institutional arrangements are successfully designed to limit the
incentives for farmers to “side-market” their output to other buyers, marketing firms may find it
possible to profitably extend credit, inputs, and other services to support food crop production as
well as cash crop production, and recover the credit and associated costs upon the farmer’s
delivery of the crop. By contrast, in situations where the institutional arrangements between the
farmer and buyer are not successful in limiting incentives for diversionary sales of the cash crop, the
potential synergies between cash crop cultivation and food crop productivity may break down.
The key features determining the ability to limit diversionary sales are both institutional and crop-
4
In many countries, agricultural debt has been forgiven, sometimes in connection with
election promises and other forms of political patronage (e.g., Senegal, Zambia, Malawi, and
Kenya). In such cases, the costs of credit default (from farmers’ perspectives) are reduced, making
such outcomes even more likely in the future (Dorward, Kydd, and Poulton 1998).
6
specific. Food crops suffer some key disadvantages in this regard. Crops that smallholder farmers
can process or store on the farm for long periods pose greater difficulties and costs for firms to
ensure delivery than perishable and industrially processed crops. Market structure (e.g., the
number of potential buyers operating in the market) also influences the ability of marketing firms to
ensure recovery of loans and service support, but these problems can be mitigated by cooperation
and coordination between buyers (e.g., sharing lists of farmers receiving loans from each firm, and
agreeing not to buy products from farmers who have received loans from other marketing firms).
However, when the number of potential buyers becomes very large, as it does with staple
commodities (as many households themselves are in the market to purchase these crops as well as
traders), the potential for coordination among buyers breaks down, and credit recovery for up-front
support services becomes extremely problematic. This may partially explain why staple food crops
have seldom been featured in commercialization programs involving private marketing firms
operating at the support end of the risk/support continuum. While some crops are sold for cash,
there is typically weak support from private marketing actors to actively promote the productivity of
these crops through credit, input, management advice, forward markets for sale of output, etc. In
Kenya, for example, a nationwide household survey in eight diverse zones in 1997 and 1998 reveals
that agricultural credit was almost exclusively allocated by cash crop marketing firms (Table 1).
Credit for food grain crops was only supplied by the parastatal (Agricultural Finance Corporation)
and even in this case eligibility is extremely restricted. Moreover, farmers’ access to credit differed
across regions even when they grew the same cash crop, reflecting differences in the marketing
firms’ ability to recover the credit through interlocking arrangements (Nyoro, Yamano, and Jayne,
forthcoming). These observations underscore that certain types of commodity/market structure
combinations are more likely than others to attract private investment of the type that can catalyze
smallholder crop productivity and in some cases the productivity of other farm activities.
2.2 Synergies Between Cash Crop and Food Crop Productivity
The case for cash cropping has generally been based on the direct contribution that these crops can
have on farm incomes. A relatively neglected avenue of research concerns the effects that cash
cropping can have on the productivity of other household activities. The following sections examine
two potential pathways by which cash cropping may affect the productivity of other crops: (1)
household-level synergies; and (2) and regional spillover effects.
2.2.1 Household Level Synergies
Household level synergies occur when the household’s participation in a commercialized crop
scheme enables it to acquire resources not otherwise available for use on other enterprises in the
crop mix. There are several pathways of this type. First, under conditions of constrained access to
farm credit, households’ ability to intensify food crop production may depend on their participation
in cash crop schemes. Credit market failures are commonly cited as a feature of rural agricultural
economies (Binswanger and McIntire 1987; Adams 1988; von Braun, Malik and Zeller 1993;
Platteau 1991; Bolnick 1992; Goetz 1993; Mosley 1994; Dorward, Kydd, and Poulton 1998).
Scarcity of credit for food crop production has especially dried up after the demise of the state-led
interlocked credit-input-output marketing systems. Credit market failures may create non7
separabilities between input use decisions on food crops and participation in commercialization
programs. Strasberg (1998), for example, found that under credit and input market failures in
Northern Mozambique, participation in cotton outgrower schemes was the primary means of
acquiring cash inputs for use on food production. In parts of Western Kenya, smallholders engaged
in sugarcane outgrower schemes to obtain access to credit, input, extension services, and equipment
for use not only on sugarcane but also on food crops. Some cash crop marketing companies have
stated an objective of explicit support of outgrower farmers’ food production, based on the premise
that this would raise smallholders’ ability to participate in the scheme in a sustainable way, which
would in turn provide longer term benefits to the company (Strasberg 1998). In Zimbabwe, in the
wake of the state credit system’s demise, private cotton marketing firms began administering in
areas suitable for cotton a credit line for inputs and equipment for cotton producers perceived as
having low risk of credit default. The equipment package includes ploughs, which also can be used
in maize production. While the inputs are obtained through a cotton-based credit line, farmers’ use
of the equipment is spread out to food crops in order to improve profitability. Without cotton
production, these farmers would not have access to the credit that assists in capitalizing the farm.
These examples underscore the potential non-separability between production technologies used in
food crop production and the decision to grow selected cash crops and participate in associated
marketing schemes.
Investments by marketing firms to promote cash crop production may also raise the productivity of
existing household resources devoted to food crop productivity. Private sector marketing firms have
found it in their interests to contribute to the training of farmers who grow cash crops. In
Zimbabwe, the Department of Agricultural and Technical Services (AGRITEX) cooperates with
private fertilizer and pesticide manufacturing firms in training farmers at the Cotton Training Institute
(Mariga 1994). One important part of the training program focuses on pest scouting. Farmers get
extensive training in determining the critical stages of economic injury to a cotton stand. Mariga
(1994) argues that cotton instills discipline in farmers because of its stringent husbandry
requirements. Such knowledge not only improves cotton management skills but improves the
overall quality of farm husbandry. Farmers trained in cotton pest scouting are likely to be in a better
position to determine the stage at which a maize stalk-borer or grain weevil causes economic injury.
Hence, investments in human capital represent another household-level pathway by which
participation in a cash crop scheme may promote food crop productivity.
Thirdly, the promotion of high-value, high-return enterprises may improve households’ ability to
invest in lumpy assets such as animal traction. In Mali, 70% of the farmers surveyed by Dione
(1989) perceived cotton production and usage of fertilizer as the two most important conditions
determining the profitability of animal traction adoption. According to Barrett et al. (1982) market
conditions for cash crops affect farmers’ capacity and decision to invest in draft animals and
equipment. Reliable market outlets provided by some cash crop schemes have provided returns that
secure a steady payoff to the investment. By contrast, the commonly witnessed volatility of domestic
staple food markets makes investment in animal traction and fertilizer risky unless these inputs are
also targeted for use on other crops that raise the expected returns and stability of returns of the
8
overall farm activity.5
2.2.2 Regional Spillover Effects
Regional spillovers occur when a commercialization scheme may attract certain kinds of investment
to a region which also provides spillover benefits to other activities. These spillovers occur for all
farmers in an area, not just those growing cash crops. For example, an input-intensive cash crop
scheme may attract a range of private input dealers and support services to an area, which may also
benefit farmers who grow other crops. Dione (1989) found that the introduction of cotton to
Southern Mali increased the demand for fertilizer, which subsequently stimulated private investment
from input manufacturers, distributors, and retailers, who decentralized their services into major
producing areas. These investments made fertilizer and other inputs more accessible and profitable
not only for use on cotton (which was the primary impetus for private investment in the provision of
inputs in these areas) but also for farmers who only produced grain and other staple crops (Dione
1989). These examples highlight the potential synergies between input-intensive cash crops and
subsistence crops.
Regional spillover effects also occur when agricultural commercialization spurs private investment in
market infrastructure and human capital that improves productivity of other farm activities. It has
been observed that private investment in transportation infrastructures to support cash crop
activities has also raised the returns to smallholder grain production and grain traders’ operations
(Strasberg 1997). In some cases, “cess” collected from cash crop revenue has been used to make
community improvements in schools and education, roads, sanitation, etc.
2.3 Summary of Key Pathways
The general inductive argument built up from these cases is that commercialized crop production
and marketing programs may create important synergies with more subsistence-oriented crops.
These potential synergies arise from both household and regional spillover effects. In some cases,
through interlinked transactions for inputs, credit, management, and sale of products, the institutional
mechanisms between farmers and marketing firms can relieve some of the market failure problems
that constrain input intensification on grain crops.
But whether these synergies actually arise depends on the type of perspective and approach that
firms may adopt toward smallholders. We have defined these investment approaches along a
risk/support continuum. At one end of the continuum are firms that passively accept surplus
products offered by farmers, and perhaps offer inputs on cash basis. This strategy requires very
low overhead or fixed costs to be viable. In the middle are firms that attempt to secure needed
supplies to operate profitably but do not actively nurture farmer expansion and intensification of the
cash crop (e.g., through interlocking transactions or other arrangements) because the institutional
5
In some areas, food crops may be cash crops and play a dynamic role in agricultural
commercialization. However, we are aware of very few private sector cash crop
9
environment and/or organization of the market does not enable firms to take this approach without
high risks of non-recovery of its up-front outlays. The key limitation of this approach from the
standpoint of the firm is that in the presence of scale economies in processing or distribution (as with
cotton, sugarcane, coffee, etc.), firms may face difficulties in garnering the necessary volumes within
the set of feasible procurement and sale prices to operate profitably. Relatively weaker synergies
between cash crops and other household enterprises are anticipated to occur through this approach.
At the other end of the continuum is the strategy of pro-actively encouraging smallholder surpluses
through disbursement of credit, inputs, management advice, etc., in order to generate higher levels
of production, and attempting to recover these costs at harvest through purchase of crops from the
farmer. But this scenario is only possible if the institutional mechanisms are in place for the firm to
reliably recover its up-front support costs with low transaction costs. Many factors influence
whether this can happen, including (a) the firm’s success in selectively registering farmers to screen
out adverse selection and moral hazard problems; (b) the number of competing buying firms in the
market, and the degree of coordination between them; (c) the attractiveness for farmers to remain in
the commercialization scheme; (d) ability of the firm to increase probability of credit repayment
through social or physical proximity to the borrower; and (e) perceptions of costs and benefits
associated with credit repayment.
Where marketing firms operate along the risk/support continuum is a function of these
institutional/organization features of the market, the assets and resources at their disposal, and their
subjective perceptions of the risks and rewards of these alternative approaches. The potential
advantages of garnering greater throughput and lower per unit marketing costs must be considered
against the potential risks of not recovering up-front costs of services to farmers if side marketing
becomes an issue. Farmer responses to the potential for opportunistic behavior also determines the
long run sustainability of this approach.
We have hypothesized four pathways by which crop commercialization based on high-value, highreturn crops may promote food crop productivity:
1.
Under credit and input market failures, commercialization schemes may improve farmers’
access to credits and inputs through participation in the cash crop scheme. The success and
sustainability of this pathway may depend on the firm’s ability to recover its credit and
associated costs of supporting smallholder production.
2.
Input-intensive cash crops, by promoting market demand for inputs, may induce private
sector investment that improves the availability (and reduces per unit costs) of key inputs
that can be used on a wide range of crops.
3.
The promotion of high-value, high-return enterprises may improve households’ ability to
invest in lumpy assets such as animal traction.
4.
Commercialization may support private investment in infrastructure and human capital that
has broader benefits for other economic activities such as food crop production.
10
The remainder of the paper examines whether the processes described in this section fit the
empirical circumstances of three cash crop commercialization case studies in Zimbabwe,
Mozambique, and Kenya.
11
3. RESEARCH SITES AND METHODS
This section describes the study sites and sampling issues in each area and the methods used to
analyze the effects of cash cropping on food crop productivity.
3.1 Study Sites and Samples
Data collection for the Kenya study was carried out in two phases. The first phase involved a
single round survey of 1,540 households in 24 districts in May 1997. The survey was carried out
by Tegemeo Institute/Egerton University in consultation with local officials of the Central Bureau of
Statistics. Using this data, regions and cash crops with either positive or negative effects on food
productivity were identified through statistical analysis described below (Strasberg et al 1998).
Based on these findings, Phase 2 of the study involved conducting, in four of these areas, key
informant interviews with organizations and cash crop marketing firms, government departments and
groups of farmers. Two areas with positive cash crop/food crop synergies were selected (coffee in
Muranga, and sugarcane in Bungoma/Kakamega) as were two areas with negative synergies (coffee
in Kisii and sugarcane in Kisumu). Interviews were also carried out with officials of the Ministries of
Agriculture and Livestock Production and Marketing at the headquarters and those officers based
at the districts. For coffee, additional interviews were carried out with the Ministry of Cooperative
Development in Nairobi, the Coffee Board of Kenya in Nairobi and Muranga and Kisii, officials of
Kisii and Mugama Cooperative unions, coffee cooperative societies and coffee factories. A focus
group discussion with farmers who are involved in coffee and maize production was held at each
coffee factory. Concerning sugar, interviews were carried out with the Kenya Sugar Authority
officials, Management staff of Muhoroni and Mumias sugar factories, official of both the Mumias
and Muhoroni Sugarcane Outgrowers companies and two focus group discussions were held with
sugarcane and food crop producers in each district.
The information collected included the organizational features of the commodity marketing and
processing firms and their functions. In addition, information was gathered on arrangements for
obtaining credit and key inputs to farmers for cash and food crop production, management and
extension advice, infrastructure investments, cash crop marketing systems and factors influencing
price levels and price risks. Focus group interviews were also conducted on the sources of farm
inputs, credit, extension advice and their linkages to the cash crop marketing and processing firms.
The Mozambique study was conducted in Nampula and Cabo Delgado Provinces between 1994
and 1996. This work was conducted by the Mozambique Ministry of Agriculture and Fisheries and
Michigan State University Food Security Project. The survey was conducted in several areas
where, in the context of near complete input and credit market failure, the Mozambican Government
had invited multinational agro-industrial firms to form joint venture companies (JVCs) and
rehabilitate cotton infrastructure with the hope that this would increase smallholder cotton
production and incomes. Three well established joint venture agricultural firms (LOMACOMontepuez, SODAN- Monapo and SAMO- Meconta) were awarded regulated monopsonies in
particular growing areas by the government in exchange for working with smallholder farmers in
northern Mozambique. Two of these firms have a relatively large geographic area of influence
12
stretching over several districts. Districts with long and intensive JVC presence and with major
cotton production systems were selected. Within each district, villages and households were
classified into four strata according to the types of smallholder production system:
•
•
•
•
non-cotton farmers, growing primarily maize, manioc, and other food crops;
low-input/dispersed farmers, growing cotton under little or no input/extension support from
the firm. These households did obtain cotton seed for planting and insecticide under
interlocking arrangements;
“high-input/dispersed” farmers, growing cotton under relatively intensive
credit/input/extension support from the cotton firm. The inputs acquired through interlocked
arrangements included seed, fertilizer, and herbicide, and extension advice.
“high-input block” farmers, growing cotton on land owned, plowed and planted by the
cotton company, receiving relative intensive input and extension support from the cotton
firm. Participating farmers were entitled to all the revenue produced under “block”
production, provided that they sell the output to the firm. Furthermore, the company
LOMACO also allowed farmers use a certain proportion of the block land and provided
comprehensive services for maize as well as cotton.
Almost all farmers in these categories also grew maize and other food crops.
Key differences were observed in the extent of JVC firms’ support of smallholder cotton (and
maize) production. LOMACO’s parent company is Lonhro, a British multinational while SODAN
and SAMO’s parent companies were Portuguese. Both SAMO and SODAN provided low input
packages of cotton seed and insecticide, but provided smallholder farmers with no other
components of intensification such as herbicides and fertilizer. LOMACO provided selected
smallholder farmers with herbicides and fertilizer in addition to seed and insecticides. SAMO and
SODAN each focused exclusively on cotton, providing neither inputs nor extension advice for food
or other cash crops. LOMACO worked with smallholder farmers to intensify maize production in
combination with cotton. After a village census was developed, a random sample of 720 households
was selected. The actual umber of households interviewed was 663.
Evidence used in the Zimbabwe study is based on a multiple visit survey of 480 rural households in
1996. The survey was designed and implemented under the Project on Integrated Assessment of
Trypanosomosis Control Strategies and their Impacts. This component of the overall project was
through collaboration between International Livestock Research Institute, University of Zimbabwe,
Regional Tsetse and Trypanosomosis Control Program, and the Department of Veterinary Services
Tsetse Control Branch of Zimbabwe.
Only one district, Gokwe North, was selected for implementing the survey. Gokwe is a major cotton
producing area and has been a destination for internal immigrants seeking the fortunes associated with
cotton. The area is relatively newly settled and farm size is larger than the national average. The influx
of immigrants into Gokwe is often dubbed as “the white gold rush”. A four-stage stratified sampling
procedure was adopted to select study sites within Gokwe North. The first stage involved the
purposive selection of three cluster areas that experienced early, mid and recent tsetse fly clearance.
The agro-ecology across the sites was uniform, each falling into Natural Region IV. The three sites were
13
found along the major drainage systems with land comprised of flood plains and terraces of the larger
river systems.
During the second stage, two wards were purposively selected from each of the cluster areas.
Selection of two wards gave the study an opportunity to identify any differences in local
administration that could have affected the settlement process. For the third stage, two villages
were purposively selected within each ward: one village had the best access to services in 1996 and
the other village had the worst access to services at that time. At the fourth stage, a random sample
of 40 households, representing approximately 15 - 25% of the village population was drawn from
each village. The resulting sample size was 482 households. Households were interviewed about
their demographics, size and potential of land, cropping patterns, management practices and their
asset holding.
Key aspects of the study sites and samples are presented in Table 1.
3.2 Brief Description of Research Methods
This section discusses the econometric models developed to estimate the determinants of fertilizer
use on food crops (Kenya), food crop productivity (Kenya & Zimbabwe) and aggregate grain
output (Zimbabwe). The Kenya case identified the effects of commercialization at both the
household and crop-specific levels while the Zimbabwe case estimated the impacts at the household
level and village level. In Mozambique, the effects of commercialization were investigated at the
scheme management level.
14
Table 1. Study Sites in Kenya, Mozambique and Zimbabwe
Country
Sample
Year Survey
Conducted
Commercial Crop
Schemes Surveyed
Kenya
Joint Tegeneo Institute/Food
Security Project Data Base of
1,500 HH in Rainfed Zones
1995/96 and
1996/97
Coffee, tea,
Sugarcane, French
beans, Vegetables,
Maize
Mozambique
MAP/MSU FSP Data Base of
520 HH in Northern Cotton and
Maize Zone
1993/94 and
1994/95
Cotton
Zimbabwe
Joint ILRI/RTCCP/TCB/UZ Data
Base of 450 HH in Gokwe North
District, Zambezi Valley
1995/96 and
1996/97
Cotton
To test the effect of commercialization econometrically, it is necessary to develop a proxy which
captures the variation in household behavior across the sample. As such, we define the household
commercialization index (HCI) as:
HCI = [ gross value of crop sales hh i, year j/ gross value of all crop production hh i, year j ] * 100
This index measures the extent to which household crop production is oriented toward the market.
A value of zero would signify a totally subsistence-oriented household; a household with an index
value of 100 is completely commercialized. In Zimbabwe, because cotton accounted for nearly all
the value of agricultural sales in Gokwe North District, the HCI was almost synonymous with cotton
sales as a proportion of gross crop production. The HCI index in the Zimbabwe sample ranged
from zero (for 14% of the cases) up to 96% across the sampled households, with the mean value
being 42%. In Kenya, the HCI averaged 39% in 1995/96 and 41% in 1996/97, and varied greatly
across districts. For example, the HCI was as high as 80 percent for farmers in Bomet, an area
where tea and maize are major cash crops. The HCI was in the range of 15% or less in areas of
relatively low agro-ecological potential.
Details of the models and estimation procedures for the Kenya, Zimbabwe, and Mozambique
studies can be found in Strasberg et al (1998), Govereh and Jayne (1999), and Strasberg (1998).
The general modeling procedure was to measure household-level synergies directly from household
model estimation, based on (1) OLS models of factors influencing household-level crop
commercialization; (2) models examining the effect of household-level crop commercialization on
farm capitalization or fertilizer use on food crops, using an instrumental variables approach account
for likely endogeneity between commercialization and farm capitalization; and (3) models examining
15
the effects of commercialization (either directly or through farm capitalization and/or input use) on
food crop productivity, again using an instrumental variables approach to account for endogenous
relationships.
To measure potential regional spillover effects, the Kenya study tried to measure how the intensity
of cash cropping activity and the institutional arrangements in a particular region affected food crop
fertilizer use and productivity after controlling for other household and locational effects. For
example, two zones may exhibit similar potential for coffee production. It may be the case that in
one of these zones the coffee processing company pays farmers in a timely way for their coffee
output, alleviating a liquidity constraint for households wishing to purchase fertilizer for the following
season while in the other zone such payments occur many months after harvest. Likewise, in two
otherwise similar tea zones, tea companies may offer farmers differential output prices and
infrastructure investment. Farm households in the zone where tea is relatively more profitable may
more easily be able to access fertilizer and other inputs (e.g., hired labor and seed) than in the low
tea price zone. To test for crop specific effects of the five leading cash crops in Kenya -- coffee,
tea, sugarcane, French beans and (other) vegetables -- commodity-specific indices measuring the
proportion of cropped area to each at the village level were included. Regional spillover effects
were also proxied in the Zimbabwe case by a measure of accumulated private sector cotton
marketing investments in each village, whose effect on food crop productivity was then measured.
Readers wishing more details on the models used and estimation procedures are referred to
Strasberg et al (1998), Govereh and Jayne (1999), and Strasberg (1998).
16
4. EVIDENCE OF COMMERCIALIZATION IMPACTS ON FOOD PRODUCTIVITY
4.1 Descriptive Findings from the Country Studies
4.1.1 Mozambique
The typical smallholder household owned approximately three hectares in Mozambique (Table 2).
Overall, there was a positive association between the intensity of commercialization and farm size.
Non-cotton growers owned smaller farms, and there were significant within-sample differences.
This may reflect to some extent selection bias in the registration of farmers by the cotton firms.
Cash crop production in these sites was not associated with reduction in the amount of resources
available for food production. Actually, the evidence points to the reverse. The most intensive
cotton growers in Mozambique produced more maize and cotton than non-cotton growers. This
might be expected to some extent given differences in land sizes across the farm categories. But
even the least intensive cotton producers produced more maize than non-cotton growers (Table 2).
The most intensive cotton producers also had higher yields of maize and cotton than low input
cotton growers. These yield differences can be linked to differential input use and JVC service
provision. These links are established in a more rigorous way through multivariate analysis.
Farmers’ participation in markets has risen dramatically from the war-time levels. Most households
in the sample were either buying and/or selling food crops. Non-cotton growers were less active in
selling and buying food crops than cotton growers. The largest food sellers were the high-input
cotton producers in Montepuez (Table 2). These households sold between 5 and 30 times as many
calories as any other zone category group. A larger proportion of intensive cotton producers were
net sellers of food than non-cotton producers.
Table 2. Household Level Characteristics by Production System and Commercial Scheme
Categories, Mozambique, 1994/95,
17
Montepuez
Monapo/ Meconta
HighInput
Block
HighInput
Disperse
d
LowInput
Disperse
d
NonCotton
Growers
Low Input
Block
LowInput
Dispers
ed
NonCotton
Growers
Sample
21
20
103
90
130
198
101
Cotton yields (kgs/ha)
1442
1179
569
n.a.
693
501
n.a.
Maize yields (kgs/ha)
1985
979
634
606
514
395
374
Farm size (ha)
5.8
6.4
4.6
3.2
5.7
3.9
3.2
Area cultivated (ha)
5.4
5.8
3.5
2.3
3.9
2.8
2.0
Family size (labor adult
equivalent)
3.8
3.1
3.4
3.3
3.6
2.9
2.5
Value of family durables
($)
121
130
58
29
86
32
20
Value of livestock ($)
6
5
13
10
6
13
8
Number of agricultural
tools
6
5
5
5
7
5
5
Percent selling
78
97
78
65
60
59
55
Average sales (‘000
calories)
6967
3725
544
752
701
388
280
Percent buying
88
90
71
82
100
100
92
Average purchases (‘000
calories)
358
319
296
266
800
528
428
Percent net sellers
69
89
67
52
21
22
28
Percent not in market
6
0
3
6
0
0
6
Percent net buyer
25
11
30
42
79
78
67
Source: 1994/96 MAP/MSU FSP Smallholder Survey
18
4.1.2 Kenya
In Kenya, study sites for detailed field analysis were chosen to include schemes where positive and
negative relationships between cash and food crop production had been identified. Muranga and
Kisii areas were selected to represent coffee areas where positive and negative effects on food crop
productivity were identified, respectively. Bungoma/Kakamega and Kisumu Districts were selected
to represent areas where positive and negative relationships between sugarcane and food
productivity were measured, respectively.
Use of fertilizers by households in Muranga and Kisii is comparable. About 99 and 92 percent of
respondents indicated that they used fertilizers on food crops. However, the quantity of fertilizer
used per hectare of food crops in Muranga is 50 percent greater than in Kisii (Table 3). This may
reflect the higher proportion of farmers in Muranga that receive agricultural credit through the coffee
cooperatives. Whereas almost 70 percent of the respondent in Muranga received credit, only about
29 percent of the respondents in Kisii received agricultural credit. With a lower proportion of
farmers receiving inputs on credit in Kisii (and relatively low off-farm incomes), Kisii farmers used
lower levels of yield-enhancing inputs on both coffee and food crops. These factors have
contributed to lower levels of crop income per acre and per labor adult equivalent in Kisii, and
comparable food crop yields in the two areas despite Kisii’s arguably superior agro-ecological
conditions. Why do these differences occur?
Comparison between Muranga and Kisii Coffee Unions
Coffee processing arrangements for small-scale farmers in Kenya require that all the coffee is wet
processed in a centralized coffee pulping unit owned and managed by a cooperative society. The
pooled processing of coffee has ensured that coffee is not traded at the farm gate. The crop is rather
assigned to a cooperative society thus providing a form of security to credit advances to farmers on
the understanding that coffee payments are passed through the same channel. This system is
designed to ensure prompt loan repayments by farmers. Security of creditors is also increased by
the requirement that all the coffee is sold in the centralized coffee exchange. The cooperatives’
ability to recover credit and other support costs to farmers are ensured in theory by the interlocking
of inputs, credit and output markets.
In practice, regional unions’ ability to provide credit and other support services to member farmers
has depended on management skills, transparency, accountability to farmers, and the resource base
of each unit. Muranga and Kisii unions have similar organizational structures but differ in key
behavior and performance levels.
A comparison between the proportion of costs incurred by these organizations in coffee handling,
processing and marketing in both Muranga and Kisii is shown in Table 4. Whereas the costs
incurred by the marketing and milling institutions are the same, processing and handling costs in Kisii
is more than 50 percent higher than those of coffee factories in Muranga. Low processing costs in
Muranga allow farmers to receive 71 percent of the gross factory sales revenues.
19
Table 3. Household characteristics by farm size category, Muranga and Kisii Districts, Kenya.
Muranga
Kisii
commercialization index tercile A
low
(n=18)
medium
(n=38 )
high
(n=15 )
Total crop income per acre
7,769
8,408
16,237
Total crop income per adult equiv.
3,122
4,876
Food crop income per acre
4,441
Food crop income per adult. equiv.
Total
commercialization index tercile A
Total
low
(n=12 )
medium
(n=43 )
high
(n=37 )
9,810
4,280
7,764
11,925
8,983
11,210
6,392
2,071
4,444
8,636
5,820
5,935
6,404
5,650
3,787
5,681
6,342
5,581
2,170
3,401
4,515
3,510
1,877
3,310
5,098
3,842
commercialization index
4.6
36.6
73.3
35.7
2.0
38.9
71.4
47.2
farm size (acres), owned
1.19
2.04
3.63
2.14
1.20
2.24
3.01
2.41
% of cropped area devoted to non-food
cash crops
23
31
48
32
25
22
29
25
% of hhs that are net maize sellers
0
11
43
14
0
26
54
34
mean kg of net sales per adult equivalent
-84.4
-60.6
-4.9
-55.6
-41.5
0.4
458.2
179.1
% of hhs using fertilizer
100
97
100
99
83
88
100
92
fertilizer dose per hectare of food crops
19.5
21.7
39.9
24.7
14.9
16.2
17.9
16.8
% of hhs using hybrid maize seed
61
84
93
80
92
86
89
88
% of hhs receiving agric. credit
39
74
93
69
8
23
43
29
4,896
13,592
18,429
13,138
5,851
5,776
10,040
7,752
mean Coffee yield (Ksh/acre)
mean Coffee price (Ksh/kg)
12.5
8.2
Note: A: Commercialization index tercile is ranked at national level. The lowest tercile is between 0 to 14; 14 to 59 for the middle; above 59 for the highest tercile.
Source: Tegemeo Institute/KARI/MSU survey database.
20
Relatively high processing costs in Kisii reduce the proportion of gross income from coffee sales passed
on to farmers. The Kisii cooperative societies only pay 33 percent to farmers.
Table 4. Distribution of Coffee Factory Sales Revenue to Various Marketing Actors:
Muranga Vs. Kisii Districts.
Muranga
Kisii
------ % of total coffee proceeds -------Coffee Board of Kenya
Millers
County Council
tax
Society Processing &
Handling Costs
8
4
1
2
29
8
4
1
2
52
Payment to Farmers
56
33
12.5
8.2
Average coffee price to
farmers 1996/97 season (Ksh
per kg):
Source: Nyoro and Jayne, forthcoming.
The cost of operations in coffee processing vary widely with the type of management employed in the
cooperative society, the capacity utilization of coffee factories, accountability and efficiency of the
procurement of coffee processing inputs among other factors. Whereas for example the average volume
of coffee processed in Kisii is about 60,000 tons of cherry, in Muranga, it is about 98,000 tons. It is
130,000 tons in Kirinyaga. The higher the volume of coffee processed per factory, the lower the
operational costs and the higher the payments to farmers. Kisii district also has the lowest capacity
utilization of the coffee factories of about 25 percent of installed capacity. Muranga capacity utilization
is 56 percent higher than that of Kisii. Higher capacity utilization in coffee processing in Muranga
contributes to the higher prices that farmers in this area receive for their product compared to farmers in
Kisii.
Another factor influencing processing costs in Kisii is the proportion of permanent to casual labor
involved in coffee processing. The ratio is 39 percent higher in Kisii than Muranga (Nyoro and Jayne,
forthcoming). Labor management in Kisii appears to be less able to flexibly adjust permanent labor
when coffee production is low, or during the times when no coffee is being processed, thus incurring
higher labor costs.
High costs and low farm prices contribute to farmer disillusionment and a shift to other crops. This
21
exacerbates the problem of unutilized processing capacity and further reduces farm prices in a vicious
cycle. Kisii farmers remaining in coffee production have increasingly started to side market their coffee
to non-registered buyers to avoid poorly functioning coffee cooperative societies. This in turn breaks
down the potential for interlocking credit/input/output transactions between farmers and the coffee
coops. Cash purchase of inputs from private traders is still possible, but these firms rarely provide
inputs on credit because they are prohibited from buying coffee under the Coffee Act, hence
interlocking arrangements involving the purchase of coffee are illegal and risky. These problems
contribute to the lower levels of agricultural credit received by farmers in Kisii, and lower levels of
fertilizer use per unit of land, compared to coffee farmers in Muranga.
Muranga cooperative union has been the force behind high coffee production and the positive effects of
commercialization on fertilizer use and food crop productivity in Muranga district. The union is
considered to be one of the best-managed coffee institutions in the country. Out of these cooperative
societies, 17 of them are non-coffee cooperative unions that are involved in dairy production. The
coffee union is comprised of about 140 coffee societies. Societies voluntarily joined the union because
of the various benefits that they derive from the union. The union has provided the following functions to
the societies:
•
•
•
•
centralized bookkeeping and accounting services to the societies, including internal audits, that
offers regular checks and balances on society accounts to validate bookkeeping.
employment of society management staff who offers specialized and centralized services to the
societies,
education, training and extension advice to member through their respective societies and
factories. Through the ministries of cooperative and agriculture, the union organizes field days
where seed companies, seed distributors, input manufacturers and Research institutions like
KARI and Coffee Research Foundation are invited.
providing inputs on credit such as fertilizers for use in coffee and food crop production,
pesticides, maize seeds, and others like the animal feeds and hardware materials.
The union also has access to overdraft facilities at the commercial banks that also facilitate it to
undertake capital intensive activities such as large importation of inputs like fertilizers and agrochemical.
The union is cushioned further by the societies who agree to cover the union’s budget deficits where
they arise. The union has also been able to act as a channel for donor funded projects like the Second
Coffee Improvement program that was World Bank financed project implemented through the
Cooperative Bank of Kenya. The project provided farmers with money for farm-input loans, training of
farmers and coffee factory rehabilitation. The union borrowed the money from the cooperative bank for
on ward lending to farmers.
Provision of inputs to the cooperative societies is one of the main roles of the Union. At the beginning of
each season, farmers are requested to place their orders for inputs in the coffee factories. All the orders
are consolidated, they are passed on to the union for procurement. Each farmer-input requirement is
assessed based on the value of the previous year’s coffee production. The higher the value of the
previous year’s production, the higher the credit allocated in the following year. The farmers are
22
allowed to apply for inputs for use in coffee, food crop and livestock production including certified
seeds and hardware materials. On receipt of the orders, the unions using its own funds procure the
inputs either locally from main manufacturers or are imported directly. The union delivers the inputs
directly to farmers through its established net work. The unions have 10 input distribution centers across
the entire coffee growing areas. A network of 144 small stores and 140 coffee factories complement
the main input distributors. Every coffee factory is a store from where the farmers can pick the inputs.
In Muranga, the coffee crop secures the credit for use in both coffee and food crops. The credit
worthiness of the farmers is tied to the coffee production in the past year. This implies that the higher the
production of coffee, the higher the amount of credit that the farmer qualifies for. Such farmers are
therefore able to qualify for other inputs like seed and fertilizer used in food production. The factory
management committee screens farmers to ensure that only those that are credit worth and those with
good credit repayment in the past are recommended for credit. This screening process has reduced the
credit administration costs and has also ensured high recovery rates of the loans.
By contrast, the Kisii union used to offer inputs to the cooperative societies for onward lending to
coffee farmers until 1992 when the union was unable to recover the loans lend to farmers through their
respective societies. Most of the inputs at the society level were not given to farmers as intended; it is
widely reported that inputs were sold elsewhere and money misappropriated by the society
management.
Comparison between Sugarcane Schemes in Kenya
Strasberg et al (1998) found that farmers participating in the Mumias sugarcane scheme in Bungoma
and Kakamega experienced positive synergies between sugarcane and food crop productivity, whereas
these synergies were not observed in the Kisumu sugarbelt region. More growers in the former
schemes were able to apply fertilizer and higher rates of fertilizer on food crops than growers in the
latter schemes (Table 5). Use of hybrid maize seeds was more prevalent in Kakamega/Bugoma region
than in Kisumu area. These differences are attributed to better access to credit.
But what explains why some cash crop schemes have worked better than others in supporting
smallholder farm productivity? What are the institutional details behind varying levels of performance?
Sugar is an important import substitute commodity and is the most prominent cash crop for farmers in
the lower midland zones of Western and Nyanza regions. Sugarcane is produced by both nucleus
estates owned by the processing companies and by small-scale outgrowers who are contracted by the
sugar factories to produce the cane on their behalf. Over the past two decades, nucleus estate
production has declined in importance, and the sugar companies are more dependent on the
outgrowers’ cane for processing. In the outgrowers sugar schemes, land preparation, input supply,
cane harvesting and transport have traditionally been done by the factory on credit. Farmers are
responsible mainly for planting and weeding.
23
Table 5. Household characteristics by farm size category, Kisumu and Bungoma/KakamegaB districts.
Kisumu
Bungoma/Kakamega
commercialization index tercile A
low
(n=120)
medium
(n=52)
high
(n=15)
Total crop income per acre
6,939
3,159
12,836
Total crop income per adult equiv.
3,673
3,858
Food crop income per acre
2,308
Food crop income per adult. equiv.
Total
commercialization index tercile A
Total
low
(n=55)
medium
(n=58)
high
(n=57)
6,548
9,035
10,827
9,294
9,733
11,213
4,554
6,803
10,769
9,732
9,138
2,285
6,146
2,724
3,339
4,584
4,769
4,243
1,909
2,590
7,770
2,742
2,234
4,532
5,179
4,005
commercialization index
1.62
34.2
80.9
19.3
1.4
35.7
81.2
39.9
farm size (acres)
2.89
4.75
5.63
3.71
3.32
6.06
6.89
5.45
% of cropped area devoted to non-food
cash crops
12
12
16
13
32
31
38
34
% of hhs that are net maize sellers
1
13
0
13
2
22
26
17
-70.7
-54.6
-67.3
-65.9
-115.9
-60.3
-6.7
-60.3
6
13
25
10
55
57
60
57
0.6
0
2.49
0.6
6.66
9.64
13.8
10.1
% of hhs using hybrid maize seed
9
17
8
11
53
79
75
69
% of hhs receiving agric. credit
10
13
25
13
36
34
39
36
10,328
10,766
18,674
11,367
5,868
5,061
4,884
5,263
4.82
5.03
4.84
4.88
5.79
6.12
5.99
5.97
% household with plough
15
23
33
19
24
45
54
41
% household with oxen
18
33
50
26
20
50
47
39
0.49
1.07
1.75
0.79
0.42
1.26
1.12
0.94
29,034
8,734
39,435
25,861
48,200
46,057
40,038
44,831
mean kg of net sales per adult equivalent
% of hhs using fertilizer
fertilizer dose per hectare of food crops
non-farm income (Ksh / adult equiv.)
number of adult equiv. family members
mean number of oxen owned
mean Sugarcane yield (kg/acre)
Notes: A: Commercialization index tercile is ranked at national level. B: The divisions within Bungoma and Kakamega for this table include only Kanduyi,
Kabras, and Mumias (Western Transitional).
24
Cane is processed in mainly government-owned and -managed sugar factories. The sugar companies
are concerned with cane development, milling and marketing of sugar. They also undertake field
activities such as surveying, plowing and harrowing, harvesting and provision of seed cane, fertilizer
chemicals and extension services.
Farmers have endeavored to provide some of these services thus allowing the factory to concentrate on
the cane crushing and sugar marketing functions. Initially, the farmers formed the cooperative societies
to undertake these functions. The cooperative societies and unions were poorly managed and due to
lack of clearly defined crop assignments to the lender, there were high default rates on the loans given
to farmers. The poor loan recovery coupled with corruption and poor accountability by the society
management almost led to the collapse of the societies. As a result, farmers reorganized themselves and
formed outgrower companies to take over these functions. The farmers within the Mumias Sugar
factory catchment area formed the Mumias Sugar Outgrowers Company Limited (MOCK). More
recently, farmers within the Muhoroni Sugar Factory formed the Muhoroni Sugar Outgrowers
Company Limited (MUSCA) to serve the interest of farmers in the area. The outgrower companies
have taken over some of the services that used to be provided by the sugar companies. These
companies are planning to expand their functions to cover all the field services and also provide
accounting and financial services that currently are being done by the sugar companies.
Cane and sugar are still subject to government control. Government sets prices for the raw cane and ex
factory prices of the processed sugar. The price set is uniform for all zones regardless of quality or
sucrose levels. The price also does not reflect the large cost disparity for cane production costs, which
vary widely across the cane production zones. Uniform ex factory sugar prices also disregard the costs
of processing sugar, which again vary by the sugar factories.
Sugar production is regulated by the Kenya Sugar authority (KSH) which is a government parastatal.
The objectives of KSH are to finance for the development of sugar factories on behalf of the
government, part funding of sugar cane research, financing the Outgrowers companies for onward
lending to farmers for sugar cane development, and providing the general regulatory frame work in the
sugar factories. The operations of KSH are financed through a levy on proceed sugar of about 7
percent of the wholesale price. KSH in conjunction with the ministry of agriculture sets the raw cane
and ex factory prices.
The differences observed in the relationship between the presence of a cash crop and food productivity
in the Kakamega/Bungoma and Kisumu is attributed to the institutional arrangement in these zones. The
presence or absence of farmer based organizations have facilitated the provision of credit for the
purchase of yield enhancing inputs and the extension advise on food production.
Mumias Sugar Company (MSU) and Mumias Outgrowers Company (MOCK) are the key
organizations in the Western Kenya sugar belt that have been instrumental in supporting the sugar cane
farmer in cane and food production. Mumias Outgrowers company was established in 1975 jointly by
GO and local farmers as non-profit organization. The company was established to finance farmers
within Mumias Sugar Scheme in developing and maintaining cane production, providing extension
25
advise and other supportive services to sugar cane production and also promote and represent farmers’
interests in the Mumias sugar company.
Currently MOCK has a membership of about 43,000 farmers spread out in Kakamega, Bungoma,
USIA, and Siaya districts. It supplies about 90% of the 1.9 million tonnes crushing capacity at Mumias
Sugar company. The rest of the cane comes from the nucleus estate that is managed wholly by the
Sugar Company.
A board of directors consists of four representatives who are elected by farmers, government
representatives and the Mumias Sugar Company. Each cane production sub–locations are represented
by area leaders whose purpose is to monitor the farm operations in their respective areas. At the farm
level, there are block leaders who are in charge of specific group of farms.
MOCK is the grower of the cane while the Mumias Sugar Factory is the cane miller. The Sugar
Company has been the main contractor for the field services to the farmers. MSU is involved in land
ploughing, harrowing, furrowing and surveying, seed cane and fertilizer supply to farmers, offering
technical extension advice to producers, harvesting and transportation of cane to the factory, and
provision of some accounting services to the Outgrowers company. MSU is also involved in sugar
milling and marketing.
The Outgrowers Company supplies its members with credit whose guarantee is the cane crop. Since
1985, the company has been involved in promoting food production through the provision of maize
seeds and fertilizers on credit. In 1992, the company diversified its support of food production to
include providing farmers with dairy cows spray pumps, tick control chemicals and forage cutting
equipment.
The main source of revenue for on lending to the farmers has been the Agricultural Finance
Corporation. Between 1985 and 1997, MOCK has provided about 53 million shillings in form of seeds
and fertilizer for about 14,000 hectares of maize. Out of total expenditure AFC’s share in the loans is
about Ksh 18 million shillings. They also have provided farmers with about 165 dairy cows. Normally,
AFC does not lend money directly to farmers with less than 5 acres of land, so by lending to MOCK,
the AFC funds become available to small farmers participating in MOCK, similar to a organized farmer
group loan. AFC’s repayment rate for loans to MOCK is reputed to be exemplary.
MOCK have also organized the Mumias farmers into groups in order to provide extension services to
the community. The Outgrowers company’s extension staff in conjunction with the local Ministry of
agriculture staff and the personnel from the livestock department organizes local educational seminars
and field demonstrations. In these field days the farmers are taught various crop and animal husbandry
practices. MOCK also provide some financial support for purchase of veterinary drugs for emergency
cases. Besides these services, farmers get information on animal nutrition from the local stockists of
animal feed.
The outgrower company provides the agricultural services and credit to the members of the company.
26
The credit is provided depending on the member’s request but also based on the credit worthiness of
the farmer. This is based on a farmer’s past cane production and projected production. Farmers who
qualify for credit commit to deliver the cane through the Outgrower company to the sugar factory and
accept the loan to be recovered from the cane payments. After the sugar is sold, the Sugar Company
remits the payments to the Outgrower company who deducts the value of its loans and remits the
remainder to the farmers. This process has reduced the incidences of loan default because all the loans
are secured against the cane delivered to the outgrower companies.
The performance of the Mumias Sugar Company has also affected positively the performance of the
Outgrowers company. The sugar factory has the highest capacity utilization of all factories in the
country. High cane yields and lower mechanical breakdowns have increased the utilization of the cane
crushing capacity, which in turn has reduced unit costs of processing (Chalon, 1994). Mumias normally
utilizes about 85 percent of its sugar cane crushing capacity compared to about 30 percent for
Muhoroni sugar factory
The other factor that has influenced differences in the performance of these sugar factories is sugar cane
quality. Mumias Sugar Company has high cane quality and hence a high sugar recovery rate. The
weather, which is a key determinant of sucrose content, is more favorable for cane production than that
of the Nyanza sugar belt. But also crop extension and higher levels of fertilizer use have also
contributed to higher cane quality in Mumias. The cane to sugar conversion ratio is better in Mumias
than in Muhoroni. Mumias Sugar factory requires only 60 percent the amount of cane required by
Muhoroni to make a ton of sugar. Due to lower production costs made possible by greater use of
fertilizer, Mumias farmers tend to have higher farm profits than those in Muhoroni (Nyoro and Jayne,
forthcoming).
The other main factor influencing the performance of Muhoroni sugar factory is quality of the cane
produced in the zone. This zone has lower quality cane than the Mumias zone. Sugar recovery from the
cane in this zone thus is low. The quality of the cane is caused by weather, which is less favorable for
cane production than in Mumias. Moreover, crop maintenance at the farm level is relatively low,
fertilizer use is considerably lower in Muhoroni than in Mumias. The cane to sugar conversion ratio,
which is a key determinant of factory’s efficiency, is low. Muhoroni Sugar Company requires more than
one and half times the amount of cane needed in Mumias to extract a ton of sugar.
Mumias farmers benefit from more highly developed institutional arrangement for the provision of inputs
and agricultural services necessary to support food crop production. In Muhoroni, there is no provision
of any services from the farmer’s organization to the cane producers except that from the sugar
company. Unlike in Mumias, farmers thus have no access to agricultural credit to finance the food
production. Agricultural services to promote food production such as extension advice to farmers also
is lacking as most of field extension workers from the factory are limited to sugar cane production only
and do not extend to food crop production. Farmers are therefore unable to benefit from cheap public
loans such as those availed to the Mumias farmers from the AFC. The farmers in Muhoroni have
borrowed the idea of forming an outgrower company from MOCK.
27
The Muhoroni Sugar Outgrowers Company (MUSOCO) thus was formed in 1992 as a limited
company. Muhoroni Sugar Company guarantees the company. Currently, the company is able to
provide some limited credit to farmers although the Sugar Company is still playing this role. The
company expects to operate along similar lines to MOCK. Farmers who are members of the company
will be contracted by the MSU to grow the cane. They will be provided with all the necessary services
and inputs on credit. The sugar company’s activities will be limited to sugar processing and marketing.
On receipt of payments, the Sugar Company will pass on the money to the Outgrowers company who
after deducting the loans to farmers and the agreed service charges will pass on the remainder to the
farmers. The Outgrowers company also aims at raising income from a variety of sources to diversify its
resources base.
4.1.3 Zimbabwe
Farm capital investment appears positively related to cotton commercialization (Table 6). Among
animal tillage users, farmers not growing cotton had less than half the draft-equipment and other
physical assets as the rest of the sub-sample. As a result, 55% of non-cotton growers were largely
dependent on poorly functioning rental markets for animal traction,6 . Cotton growers were twice as
capital intensive as non-cotton growers. Cotton production in this area of Zimbabwe is clearly
correlated with animal traction and draft equipment ownership. To acquire draft cattle in Gokwe North
District, 53% of the farmers used income from cotton, 20% used a combination of cotton and maize
income and 18% used wage savings (Govereh 1999).
The relationship between cash and food crop production is shown to be neither entirely competitive nor
complementary. Results in Table 6 show that the most cotton intensive households produced 253kg
and 288kg of grain per capita, respectively. This finding seemingly supports the position of many critics
of non-food cash crop production, i.e., in the context of land and labor scarcity, cash crops take land
and labor resources away from cereal production. However, if we consider that per capita cereal
consumption requirements are approximately 20kg of cereal equivalence per month, households in the
top quartile produced on average more grain per capita for food self-sufficiency. About 52% of the
intensive cotton producers produced all their grain requirements. The income from cotton sales
compensates for the labor and land shifted to cotton. By contrast, only 60% of the non-cotton growers
were grain self-sufficient. What is worrying is that 40% of non-cotton growers did not produce enough
grain to last the next season. Non-commercialized households appear to be the most disadvantaged
group - vulnerable to income and food insecurity. Only 20% managed to produce grain surpluses.
Household cotton commercialization and adoption of animal tillage were associated with higher gross
per capita crop income. Animal tillage users produced twice as much as hand tillage users. Even
without use of animal traction, households in the top cotton tercile had about four times the crop income
per capita as the non-cotton producers. This observation is consistent with evidence found in other
studies of agricultural commercialization (von Braun and Kennedy 1994; Strasberg 1997; Jayne 1994).
6
None of the sampled farmers in the survey used formal credit to acquire cattle.
28
Specialization in high value cotton enabled farmers to boost their incomes. This boost in incomes was
extended by adoption of animal tillage.
Another key issue is whether smaller farms commercialize disproportionately less than those with large
farms. The data in Table 5 indicates that household cotton commercialization was indeed positively
related to land holding size and adoption of animal tillage. Non-cotton growers who did not adopt
animal tillage in 1996 had the smallest average land holding of 3.83ha. These results suggest a
sequential hierarchy of crop choice: households cultivating less area (generally lacking animal traction
and labor to expand cultivation of the highly clayey soils in this region) tend to put priority on food
production. Non-cotton producers tended to have relatively large parts (20 - 25%) of their farm under
fallow. Households with sufficient draft power to expand cropped area, while not neglecting food crop
cultivation, are better able to introduce cotton into their farm activities and exploit the higher returns that
it provides. Highly commercialized cotton farmers owned more draft power and equipment to cultivate
a greater proportion of total land area.
The association between cotton commercialization, investment in animal traction, and total area
cultivated in this case occurred under conditions of relative land abundance. It is not clear how far
these findings can be generalized to areas where farm sizes are small and the potential for expansion of
cultivation is limited. These findings indicate that factors, such as ownership of animal traction and other
farm assets may be more critical in influencing households’ ability to expand cropped area and thereby
exploit cotton production. We now examine the hypothesis that cotton commercialization, via animal
tillage, improves food crop productivity. The argument is that the most commercialized growers manage
to transfer some of their benefits from cotton technology, inputs and assets over into cereal production.
29
Table 6. Household characteristics According to Animal Traction Use and Cotton Commercialization Index in Gokwe North
District, Zimbabwe, 1995/96
Non-Animal Traction Users
NonCotton
growers (0)
Cotton Commercialization
1 st Tercile
3 rd Tercile
Animal Traction Users
Subtotal
NonCotton
growers (0)
Cotton Commercialization
1 st Tercile
3 rd Tercile
Subtotal
TOTAL
SAMPLE
Sample
Grain Yield (kg/hectare)
44
1112
35
847
27
1416
126
1130
30
808
87
1055
80
922
303
923
429
982
Grain Output (kg/capita)
301
366
253
302
456
488
288
374
353
Total Crop income
1806
1837
3520
2327
1084
2390
2248
2159
2206
Total Crop income
527
1035
1961
1072
632
1744
2134
1811
1603
Land size (ha)
3.83
5.8
5.12
4.92
4.62
5.88
7.00
6.3
5.9
Percent area that is fallow
24.6
19.4
10.3
17.8
20.7
11.8
11.9
12.1
13.7
Family size (No.)
6.0
6.9
6.5
6.6
5.2
6.9
5.9
6.3
6.5
Farm capital investment
1397
4021
4590
3333
2808
5526
6446
5450
4855
Animal draft teams (No.)
.07
.6
1.22
.5
.63
1.39
1.45
1.4
1.14
Family head years in
3.3
4.6
5.0
4.6
6.3
6.0
6.9
6.4
5.9
Female headed (%)
18
14
7
13
23
16
9
13
13
Percent newcomers (%)
66
37
55
55
30
39
45
39
44
Distance to market (km)
28.5
29.7
26.1
27.9
25.5
23.5
22.3
23.1
24.5
notes: a cotton commercialization defined as value of cotton sales divided by value of total crop production. b Farm capital investment includes value of draft
equipment, pesticide equipment, etc.
Source: Socioeconomic Impact Assessment of Tsetse and Trypanosomosis Control Surveys, Gokwe North District, Zimbabwe, 1996/97.
30
4.2 Household Level Synergies
This section examines the types and importance of household level synergies in the three country cases.
4.2.1 Effect of cash cropping on access to variable inputs
The country studies indicate that participation in cash crop activities opens up farmers’ access to inputs
for use on food crops. Participation in cash crop schemes in Kenya and Mozambique did not only
make improved seed, fertilizer, herbicides, pesticides and machine services accessible for cash crops,
but it also allowed a higher level of these inputs to be used on food crops. In Kenya, a percentage
increase in the household commercialization index led to a 0.14 kilograms increase in the amount of
fertilizer used per unit of land planted in food crops (Strasberg et al 1998). This result indicates that,
after controlling for differences in market infrastructure and other regional and household-level factors, a
household that markets 40% of its farm output through participation in a cash cropping scheme utilizes
about 5.6 kgs more nutrients per acre of food crops than households that have a subsistence farm
production orientation. This amounts to roughly a 50% increase over current levels of fertilizer nutrient
use on food crops.
In Mozambique, farmers engaging in high-input cotton schemes had higher levels of food productivity
(more inputs available for food production) than households who were on low-input cotton schemes
(Strasberg et al 1998). This is due to application of herbicides and fertilizers in Montepuez in addition
to using improved seeds and insecticides which was common in all schemes. The analysis provides
direct evidence of positive spillover effects in terms of use of cash crop acquired inputs on food crops.
The arrangements which facilitate access of inputs for food production are discussed in Section 4.4. In
schemes where firms did not directly support maize intensification, intensified commercialization
benefitted food crop intensification indirectly as residual fertilizer was available for utilization by maize
during crop rotations. To some extent, inputs provided by the firm for use on cash crops are partially
reallocated to the farmers’ food crops. We cannot conclude whether this practice represents a onefor-one substitution of input use on one crop for usage on another, or whether participation in the cash
crop scheme increases the total volume of inputs purchased for use on both crops.
In Mozambique, high-input cotton/low-input maize growers were able to obtain higher maize yields than
low-input cotton/low-input maize. Increasing food productivity benefits the marketing firms as growers
become able to shift management and land resources towards cash crops.
4.2.2 Effects of Cash Cropping on Access to Farm Capital
Commercialization in a high-return activity helps to finance lumpy investments (ploughs, oxen, other
equipment) for use in both cash crop and food crop activities. These synergies may be especially
evident where there are serious constraints in local capital markets, through which households could
otherwise finance such investments. Reliable market outlets provided by some cash crop schemes have
provided returns that secure a steady payoff to the investment. In all sites, 2-15% of the crop surplus
was comprised of grain. Access to cash or a credit line is instrumental for farm capitalization. The
31
Zimbabwe case investigated the relationship between the intensity of commercialization i.e., access to
cash, and use of animal tillage. The more dynamic instrument variables for cotton commercialization:
number of knapsack sprayers; distance to market and gender were associated with significant changes
of 9.3%, 2.0% and 13.8% in the probability of using animal tillage, respectively. The relationship
between commercialization and farm capitalization was not uni-directional. The impact of asset levels on
the degree of commercialization was weak but the impact of specialized assets like knapsack sprayers
on commercialization was significant and important. The relationship between commercialization and
grain crop productivity was both direct and indirect, as commercialization was found to also contribute
to farm capitalization which in turn contributed to both absolute grain crop production and grain crop
yields.
While equipment is acquired through cash returns, the investments in animal traction is less risky if these
inputs are also targeted for use on other crops that raise the expected returns and stability of returns of
the overall farm activity.7
4.2.3 Access to Extension and Training
Does agricultural commercialization lead to better husbandry techniques that can then be applied across
a wider range of crops? The hypothesized pathway is that farmers transfer management skills learnt
through participation in cash cropping schemes to benefit food crop production. Farmers need to have
certain capacities, for example, ability to read and write to be able to benefit from this type of spillover.
The country results show that the intensity of commercialization among the Zimbabwe sample was
significantly affected by the number of years the household head had spent in school. Education was,
however, only weakly related to food crop productivity in Mozambique and Zimbabwe. However,
extension training had a significant impact on food crop productivity in Zimbabwe. In Zimbabwe, the
private sector marketing firms have contributed to farmer training where commercial crops are involved.
The evidence indicates weak support for the hypothesis that investments in human capital emerging
from cotton training programs had a positive spillover effect on food crop productivity.
4.3 Regional spillover effects
Regional spillover effects occur when agricultural commercialization spurs private investment in market
infrastructure that improves productivity of other farm activities, including food crop production. The
following results highlight the potential synergies between input-intensive cash crops and subsistence
crops at the regional level.
7
In some areas, food crops may be cash crops and play a dynamic role in agricultural
commercialization.
32
4.3.1 Access to Markets
Commercialization is hypothesized to contribute to development of communication networks, roads,
physical marketing infrastructure, and other assets by both the public and private sector. These
investments may contribute to the market development requirements of food crops. In the econometric
results in Table 7, the distance to market was a significant factor in the intensity of commercialization in
both Kenya and Zimbabwe. Distance to supply depots, road quality, access to traders and water
resources significantly affected the production of cotton in Zimbabwe and Mozambique. Greater
proximity to JVC land and factories in Mozambique provided better access to services to smallholders
and was associated with higher food production and productivity.
Private investment in transportation infrastructure to support cash crop activities has also raised the
returns to smallholder grain production and grain traders’ operations (Strasberg 1997). While cash
crop marketing firms in Zimbabwe have not yet invested in road infrastructure, they put pressure on
Government to target their resources towards improving the quality of roads. In some cases, “cess”
collected from cash crop revenue has been used to make community improvements in schools and
education, roads, sanitation, etc.
33
5. SUMMARY AND CONCLUSIONS
Most of the productive agricultural regions in Africa are already under cultivation. Area expansion is
not a viable long-term option for agricultural growth in this continent. Developing strategies to increase
the value of agricultural production per unit of land is a top priority.
High-valued cash crops represent one potential avenue of crop intensification in some areas. Exportoriented cash crops have in some cases stimulated smallholder crop productivity and income growth
and have overcome market failures in credit and input supply through institutional innovations in
farmer/marketing agent relationships. However, an income and productivity growth strategy focused on
export-oriented cash crops is likely to be impeded without complementary progress in food crop
productivity and associated food crop market development. The price of food is a key factor
determining the economics of diversifying into non-food cash crop production and non-farm activities
that encourage the overall process of structural transformation. Productivity growth in food crop
production will be critical to drive down the price of food and raise rural disposal incomes and hence
demand for products and services in non-food sectors of the economy. To the extent that the costs of
acquiring food through the market can be reduced, farmers will have incentives to move from a foodfirst to a comparative advantage pattern of production featuring higher-return cash crop activities. This
suggests that the resources that the small farm sector can bring to bear on cash crop activities will be
influenced by the rate of productivity growth in African food systems. Thus, we believe it is important
to examine whether there are circumstances under which cash crop intensification can help support
food crop productivity growth in a synergistic manner.
This paper addresses the role of cash crop production in promoting food crop productivity growth.
The paper argues that, in addition to the direct stimulus that cash cropping can have on household
incomes, there may be important indirect effects of cash cropping on the productivity of other
household activities such as food cropping. These potential synergies or trade-off between cash crops
and food crops have been generally neglected in food crop research and extension programs, although
they may have important implications for programs designed to promote smallholder food crop
productivity growth. To a large extent, agricultural and nutrition policies in the region have historically
formulated rural development strategies with a food crop focus and have implicitly or sometimes
explicitly regarded diversification into non-food cash crops as detrimental to household food security
objectives. While productivity growth of staple food crops is indeed essential to overall rural
productivity growth due to the large proportion of cropped area under food crops, the potential of
higher-valued cash crops to promote food crop productivity has often been neglected.
Research results are beginning to shed light on constructive and meaningful ways by which the private
sector can configure its operations in the post-market liberalization environment to promote
smallholders agricultural productivity. Findings from other parts of Africa have shown that there are a
wide variety of arrangements through which private marketing and processing firms have related to
smallholders, with widely differing levels of investment and support of smallholder production (Dione
1989; Jaffee 1992; Jaffee and Morton 1995; Strasberg 1997; Strasberg et al. 1999; Dorward, Kydd
and Poulton 1998; Shepherd and Farolfi1999). The findings indicate that there are major differences in
performance (i.e., intensity of input use, crop productivity, and smallholder incomes) across different
34
types of cash cropping arrangements involving private firms and smallholders. The more successful
cash cropping arrangements have had a markedly positive effect on food crop productivity and
smallholder incomes. This emerging empirical work is beginning to indicate strongly that
commercialization of smallholder agriculture, featuring high-valued cash crops, can under certain
conditions provide a strong stimulus to smallholder agriculture and have major indirect benefits for food
crop productivity.
The principle findings of this investigation include:
1.
Household agricultural commercialization, ceteris paribus, generally has a significant and
positive effect on food crop fertilizer use and productivity. There was evidence of householdlevel synergies, whereby participation in some (but not all) cash cropping schemes examined
did increase farmers’ access to inputs on credit, which had a significant positive effect on food
crop productivity. These findings were observed in Kenya and Mozambique.
2.
Commercialization at the household level has in some cases contributed to farm capital
formation. The Zimbabwe case study found that cash income from commercialized production
patterns facilitated households’ purchase of draft oxen and traction equipment that were used
on both food and cash crops. Investment in animal traction significantly and positively affected
food crop productivity. Under the relatively land-abundant conditions of some of the study
areas, animal tillage allows households to put more land under cultivation, and therefore is a
major source of increased farm production per capita. Also investment in farmer training
significantly and positively affected food crop productivity.
3.
Evidence of regional spillover effects from cash cropping arrangements -- both positive and
negative -- were found in Kenya. Weakly positive regional spillover effects were found in the
Zimbabwe cotton case.
4.
The effects of particular cash crops on food productivity was found to differ markedly by
region, independent of the household-level effects of agricultural commercialization.
Agricultural commercialization and its effects should not be overgeneralized. What matters is
what kind of commercialization, how particular schemes are organized, and their effects on
smallholder access to inputs, management advice, market outlets, price levels and price risks,
and so on. Equally important is farmers’ response to opportunities for “opportunistic behavior”
(e.g., deliberate default on loans).
Overall, the findings show that farm dynamics between cash cropping, capital investment, and food
crop output are important to consider in discussions of agricultural commercialization among
smallholder farmers. The various pathways by which crop commercialization can affect food security
and incomes under conditions of pervasive market failures needs to be more clearly understood to
develop more informed policies in support of smallholder welfare.
The challenge for government policy is to identify and facilitate strategic pathways to create positive
interactions between food and cash crops, and between the public and private sector. In this regard, a
35
major public good role of government would be to strengthen the incentives for loan repayment by
recipient farmers. It has been shown that high credit repayment is a major feature of viable cash
cropping arrangements that have allowed farmers to intensify their cash crop as well as food crop
production. Private marketing and processing firms traditionally have not contracted or developed
interlinked arrangements with smallholder farmers involving food grain crops. The few exceptions have
almost always been characterized by some degree of control over output markets, so that the recouping
of credit or other up front support costs could be ensured. But as Dorward, Kydd, and Poulton
(1998) point out, effective and sustainable interlocking arrangements are not possible in all situations.
Certain environmental and market conditions affect the ability of marketing firms to develop viable
interlocking arrangements. A major challenge is to overcome perceptions that credit programs are gifts
or will be forgiven in time – perceptions that have been strengthened over time based on actual
experiences in many countries. Dorward, Kydd, and Poulton conjecture that the changing of these
perceptions will require the involvement of traders with sufficient financial resources to withstand several
years of farmer default (and consequent sanctioning) in order to establish the new “rules of the game.”
Under this scenario, government support for the new operating environment will be crucial, including the
use of public campaigns to alter perceptions and reinforce the need for strict loan repayment, the
strengthening of the legal system to protect lenders, and the development of procedures for handling
credit repayment terms under drought and crop shortfall conditions, and in general nurture a culture in
which “it pays to pay back.” A useful task for further research is to understand how such changes in
perception have been successfully nurtured in other countries, and identify the public good investments
that could potentially be applied to the current situations in Sub-Saharan African countries.
36
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