ABSTRACT
Recent research emphasizes adopting business models that not only improve market linkages but also enable inclusion of smallholder farmers in high value markets along the value chains. While evidence points to positive impact of business models choice, studies seldom exploit the extent of their impact on smallholder gross income. Besides, socioeconomic and institutional factors associated with such choice of the models are discussed incoherently, hence less understood. The objectives of this study were: to identify and characterize various business models used by banana farmers to link with other value chain players; to determine the socioeconomic factors that influence the choice of business models by the farmer and to investigate the effect of business models on the gross margin of farmers participating in the value chain. In this study, a multistage sampling technique and systematic sampling was conducted and 146 banana farmers in Meru County sampled. An assumption was made that there was mutual exclusivity in choice of a business model. Broadly, three categories were identified: buyer-driven, producer-driven and intermediary-driven business models. Farmers who chose buyer-driven models were more likely to link to markets through processors, exporters, retailers and often engaged in contract marketing. They were motivated by higher price, provision for farm input, increased profits and market availability to their produce. Those in producer-driven models exploited collective action in farmer groups and co- operatives including sharecropping. Farmers who chose intermediary-driven models were more likely to engage in joint ventures with traders, wholesalers, NGOs and Government. Multinomial logit results showed that sex, age, education level, group membership, income and having someone to initiate the market linkage process positively influenced choice of the business model. Smallholders (79.45%) realized a gross margin of below USD 200 per month. This high-resolution evidence of how socioeconomic and institutional factors affect choice of business model and the consequent influence impact of the model on gross margin can inform researchers and policy-makers on best approaches to use in linking smallholders to markets.
CHAPTER ONE
INTRODUCTION
Background
Smallholder farmers in the Sub-Saharan Africa supply above 80 per cent of the food for household consumption and markets (Samans, Blanke, Corrigan and Drzeniek, 2015). Specifically, in Kenya (a low-middle-income country), it is reported that 70 per cent of the rural population depend on agriculture and 65 per cent of exports earnings are from the agricultural practices (IFAD, 2015). There are two major sectors of agriculture: livestock rearing and crop farming in Kenya. Major crops grown include coffee, tea, sugarcane and horticultural crops for local consumption and export. Recently, horticultural farming has increased and crops such as banana, passion fruits, tomatoes, mangoes, French beans and other vegetables have started earning farmers a lot of income (Mbuva, 2015). This sub-sector has a wide array of production, socio-economic and geographic diversity. Besides, there is still need for accessing high value markets. The development of high value markets along the value chain presents horticultural smallholder farmers with better opportunities to earn more income. These opportunities are because of globalization and well-designed market arrangements.
Banana Marketing in Meru
Banana (Musa spp.), is a local staple diet as well as an export crop. In Kenya, there has been an increase in banana production from 1,394,412 tonnes in 2012 to 1,398,154 tonnes in 2013 (FAO, 2015). As an export crop, banana is exported to United States and European markets where it is consumed as green, ripe or value-added banana flours. In 2013 alone, 20 metric tonnes of banana were exported, valued at 30,000 US$ (ibid). In Meru County, banana is sold in the form of green bunches, banana flour and ripened banana (HCDA, 2015). Banana is viewed as a pro-poor enterprise (Place et al., 2009). As such, its role in poverty eradication cannot be ignored. Currently, the banana market is growing. This is due to increasing demand and emergence of large retail markets in the country. Additionally, important marketing arrangements and strategies such as market contracts, crop insurance, vertical and horizontal integration that farmers can benefit from have provided better incomes for smallholder banana farmers in Meru and continue to grow.
Further, the regulatory role played by Horticultural Crops Development Authority (HCDA) and the innovation platforms designed by the Kenyan government and NGOs has boosted marketing efforts in Meru. As such, there have been calls for expanding production levels and engagement of stakeholders in marketing banana along the value chain. Therefore, this study presents the case of banana marketing in Meru County to analyse whether business models that are implemented through various marketing arrangements improve the smallholder banana farmers‘ income and incentivise them to join high value markets.
Business models for linking smallholders to high value markets
In order to increase earning opportunities, there are calls for smallholders to embrace the appropriate business models. A business model is a high-level conceptual description of not only how farmers can create products that meet customers‘ needs or capture value but also design chain of activities that are geared towards linking them to value chain players and other market agents (Kimble, 2015). Business models provide new exploratory ways to overcome marketing puzzles by combining institutional economics theories with entrepreneurship. Besides, the initial conclusions that institutional approaches could single- handedly solve marketing initiatives has become widely regarded as implausible due to the interplay between different marketing systems (Schneider and Nega, 2016; Dehejia, 2015).
Business models, for example, contract farming have been shown to lead to better market access, credit access and access to inputs (Elepu and Nalukenge, 2009). Other studies have argued that business models provide assurance for sale of farm produce with larger agribusiness firms that offer better prices and incentives (Setboonsarng, 2008). Furthermore, these guaranteed price premiums help smallholder banana farmers with potential to exploit the opportunities that large retail markets are offering. This study analyses the various business models and their impact on smallholders‘ gross margin and bases the arguments on a game theory-type approach.
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Item Type: Kenyan Topic | Size: 61 pages | Chapters: 1-5
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