BY GETACHEW MINAS
In its original formulation, the concept of development is the creation of wealth from which community benefits are realized. It is more than economic growth. It enhances prosperity and quality of life for all citizens of a country. Economic growth and development is used to explain the series of activities through which value is added to products. The concept presented a useful way to analyze the production process in which the factors of production are involved. Subsequently, it was widely used by development economists as a tool for strategic planning. The concept was also applied to analyze the chain of activities that occur beyond a single firm as commodities move beyond the production line and are marketed to the consumers at home and abroad.
The concept of value chains helps to understand the role of labor, capital, land and entrepreneurship in the development process. Academics, policymakers and development practitioners began to apply value chain analysis to help them better understand and engage with the complex web of stakeholders involved in inclusive economic development and poverty reduction. In this effort, the business organizations and their access to markets (BOAM) program was financed by donors and implemented by donor organizations in Ethiopia.
The BOAM program developed an innovative approach which identifies and creates opportunities for value chain development. As elaborated by M. Steen and W. Maijers, this approach is based on market demand and requirements, with a view to benefitting “smallholder” farmers. Linked to this was the focus on facilitating relationships “between” chain actors to make optimal use of these opportunities. The significance of such intervention is the facilitation of pro-poor development.
The main concepts in economic development analysis are applied within the BOAM program. This analysis is one of the innovations in the field of development studies of the past decades. At the core of these studies is the notion that it is “impossible” to understand the development implications of the production, commercialization and consumption of a particular good or service without focus on the target of the program. As R. Muradian put it, it is difficult to grasp the development impacts on the poor without analyzing the relations that are involved in the different economic transactions and production processes that might influence economic relations in Ethiopia.
The main assumption made in applying the concept of BOAM within the development sector is that “vulnerable” actors in developing countries such as smallholder farmers and small and medium-sized enterprises can be both constrained and enabled by the broader institutional environment. They are also affected by the interplay of economic relations in which they operate. The evolution of such ideas is not limited to academic circles alone. Its growing influence has induced a shift in the practice of development cooperation, particularly in the design of interventions targeting poor agricultural producers. Many rural interventions in Ethiopia are traditionally focused on strengthening the supply capacities of smallholders “without” paying attention to markets.
Studies show that productivity improvements contributed to driving down prices, leaving farmers even worse off. One of the key lessons learnt from decades of often disappointing results is that any intervention that seeks to enhance the productivity of smallholder farmers must ensure that there is “demand” for their produces. The adoption of the concept of productivity enhancement leads to a shift in the general assumption within development practice. The economic advancement of productive actors inevitably occurs with shared benefits with others. This phenomenon is referred to as “shared value” or the economic relation between producers and consumer needs.
The principle of fostering “pro-poor” development is characterized by a number of features. One of the features is the approach that deals with constraints and opportunities derived from the market. The other is economic development which is achieved through joint action by all relevant actors. The private sector is also an actor that is the key engine of growth with the action of lead firms. These firms may have linkages with more vulnerable and poor groups. There is a need to shift from the creation of supply/production capacity to the creation of demand/market linkages and the establishment of economic relationships. This is important for pro-poor economic development.
The core assumption behind pro-poor interventions is that poor and vulnerable groups in Ethiopia such as smallholder farmers can be linked to specific markets. This indicates that they are, therefore, successfully integrated into economic processes from which they have been excluded. Responsible development partners or agencies aim to accomplish this integration through building and enhancing linkages between producers and consumers. This covers the processors, traders, exporters and farmers’ organizations and the market. Also, strengthening the relationship between the same smallholder farmers is critical. Strengthening the supply capacity, the ability to produce and increase volumes of goods or services ensure that these goods and services are produced at a “lower” cost. This is done in line with market demand and requirements through increasing overall competitiveness.
A key feature of market interventions is the recognition that one of the main causes of “poverty traps” is inefficiency and missing link between producers and all actors. The BOAM program recognized that for value chain development to occur, all actors involved needed to become successful. As M. Steen explained this meant that BOAM did not “take sides” by trying to advance smallholder farmers at the cost of traders and other private sector actors. There is, therefore, a need for creating an effective coordination among these actors. In practice, this approach implies working with economic operators and stakeholders that have the potential to contribute to a more enabling environment. This willingness to work closely with the small holders, the private sector and the transnational operators is a significant change in the development practice.
Assisting entrepreneurs to use their comparative advantages to compete in globalized markets requires a holistic approach in addressing constraints and opportunities. This approach makes sense as a long-term investment “interlinked” with a package of interventions that are implemented jointly with institutions and economic agents. With its focus on the private sector as an engine for pro-poor growth, BOAM’s development approach goes parallel with this arrangement. It introduces innovative approaches aimed at improving business-to-business relations in selected areas. With improved linkages in the selected areas, it would ultimately benefit poor smallholder farmers in Ethiopia. It would also enable them to adapt their production in line with market demand for their produce.
Smallholder farmers have to be engaged in selected subsectors on which focus is made for the purpose of appropriate and supportive interventions. Relevant criteria have to be designed for the selection of agricultural subsectors in which smallholder farmers in Ethiopia would be engaged. Some of these criteria include macro and micro economic standards and benchmarks. The macroeconomic standards involve clear market potential, market accessibility and market stability which are the starting point for any sub-sector intervention. These factors ensure that the investments made are based on real market opportunities. The macroeconomic measures also deal with employment, income, import, export, foreign exchange earnings that support the smallholder farmers. The microeconomic benchmarks are related to a set of criteria that examine the capacity and readiness of private sector actors to cooperate with and to add value to the selected commodities.
An important aspect of intervention is the “alignment” to pro-poor development priorities. These priorities include expansion of opportunities for poor smallholder farmers to increase their income. This is done through linking them to a better functioning and more market-oriented and “competitive” undertaking. Key indicators include the potential of the intervention to contribute to job creation, income generation and linkages with smallholders. Based on these criteria, the focus would be on agricultural subsectors. But, before engaging the Ethiopian smallholder farmers, it is necessary to analyze constraints they have been confronting in their operations. The constraints observed may be the result of issues within the production system, or they may also arise from the lack of an enabling environment for the development of business to business operations linked to inputs, outputs, management and other factors of production.
The input, output and production relations may be affected by the exchange systems. It is, therefore, difficult to predict the effect of a particular intervention. While economic analysis can be helpful in identifying where the constraints lie, it does not always provide a clear solution. To facilitate the development process in Ethiopia, it requires initiation of interventions often on a pilot basis. The “effects” these interventions have to be carefully monitored and adjusted. A typical intervention consists of a number of actors involved in producing agricultural commodities and transforming them into consumer products. Interventions represent an enabling environment, which consists of support organizations such as financial service providers, transporters and firms offering business development services to smallholder farmers and pro-poor economic activities.
Also included in the production relations are influencers such as government policy institutions and research bodies that are crucial in building a successful relations between smallholder farmer, private enterprises and other entrepreneurs. Elements of the enabling environment include favorable policies, market intelligence, quality control and standardization, accreditation and sector promotion. Interventions in support of processors, traders and exporters and, in some cases, farmers’ organizations are crucial. The rationale for this is that these actors are well placed to “mediate” between demand and supply. This group of actors has to be well connected to other operators. An inter-agency coordinating committee has to be established in Ethiopia to provide a holistic support to the smallholders. This results in employment, income and tax generation and foreign exchange earnings for the country.
Editor’s Note: The views entertained in this article do not necessarily reflect the stance of The Ethiopian Herald
THE ETHIOPIAN HERALD JUNE 17 /2021
