Inequality and Economic Inclusion

Tuesday, 15 November 2011

Linking small marginalised producers to modern markets: Are we trying to fit a square peg in a round hole?

  • Year: 2011
  • Organisation: TIPS
  • Author(s): Sandy Lowitt
  • Countries and Regions: South Africa

Improving small, marginalised producers access to modern markets has increasingly been accepted as an important element in South African policy debates on improving the employment, income and livelihood opportunities for such producers. The importance of market access arises because in the absence of such access, these producers are restricted to servicing proximate, local community markets which are traditionally thin and do not support: increased output volumes, product diversification and value addition, increased employment, increased income generation or increased returns. To date programming in this field has been characterised by two traits. First the majority of programmes have been project based, unsustainable, un-scalable, un-replicable and have impacted a limited number of direct beneficiaries. This project based approach has resulted in market based employment creating programming achieving substantially less penetration, coverage and success than social delivery programming. Second, the majority of programming has largely bought into the orthodox economic view that the “fault” for market exclusion lies largely with producers – their personal characteristics, production methods and location – resulting in a supply side dominated intervention approach. By this logic if small producers improve the quality and consistency of their production then they will almost certainly be included in modern markets. This chapter argues that even if supply constraints are fully relieved, the modus operandi of lead firms (which dominate the South African economy), create a sufficiently hostile and infertile environment, that even if market access can be achieved, the threat of adverse inclusion remains high – making the idea of improving livelihood and employment opportunities by linking small marginalised producers to modern markets an extremely difficult task. Despite these challenges, the chapter offers three system based policy options to address the issues of small producer exclusion, as well as, briefly touching on the idea that alternatives to linkage strategies need to be considered.

The research is based on value chain analysis as it is viewed as the most powerful and relevant tool in understanding the drivers behind the erection and administration of the barriers to entry which prevent small, marginalised producers from accessing modern markets. Understanding market power and governance and the exercise of this power allows economists to understand who the gatekeepers of value chains are, why and how they erect barriers to entry, how they influence the distribution of incomes and rents along a chain and how supply criteria are endogenised into chains via product and process upgrading and critical success factors. As such understanding lead firm behaviour in modern markets not only frames the opportunities and risks facing linkage programme initiatives, but it assists in designing interventions which are realistic and deal with the realities of how lead firms behave and organise their productive networks.

Although traditional value chain analysis is empirically driven and highly specific in terms of product or sector, this chapter discusses generic value chain characteristics and attributes, as a survey of hundreds of case studies across countries, sectors and products revealed that the same constraints arise consistently in the interaction between small producers and lead firm value chains (Lowitt, 2009)