Re-designing Smallholder Agricultural Value Chains for Resilience

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Smallholder agriculture in many parts of East Africa, faces numerous risks with varying levels of probability and impact. Acute disruptions such as the Covid-19 pandemic occurring in tandem with longer-term risks such as climate change compounds the risk for individual actors and businesses that make up most smallholder producer value chains.

Despite the emergence of new threats for smallholder agriculture in East Africa, most value chains still remain underdeveloped and often not designed to meet the dual objectives of sustainability and resilience. However, by matching the right approach to innovation with value chain-specific lessons on business modelling, this can help accelerate the transition to more sustainable and resilient production systems.

In today’s macro environment, it is imperative that agricultural value chains consistently confront diverse threats for their long-term sustainability. By definition, value chains comprise business interactions, functions and relationships, that place products or services on the market and although most agricultural value chains are almost identical in structure comprising production, processing and marketing, these verticals bear different risk profiles hence effective innovations for building resilience needs to create synergies along the entire value chain.

Resilience is commonly defined as the ability of people, households, communities, countries and systems to mitigate, adapt to and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth.

E4Impact’s work in the Mango, Coffee and Dairy value chains supports previous studies on approaches to building resilience in agricultural value chains.

The first involves increasing the ability of a value chain to prepare for, mitigate, or prevent negative impacts. Contingency planning and coping mechanisms are regularly developed to maintain and restore mission-critical structures and functions in the face of a shock or stress. Innovations under this approach focus on the absorptive capacity of a value chain to deal with shocks such as improved irrigation and water harvesting technologies in drought prone areas.

The second involves increasing the ability to modify characteristics of or adjust to changes in a value chain so that it can continue to function. This requires building capacity not just for existing shocks and stresses, but also for future changes and an evolving context. The focus of this approach is on increasing adaptive capacity in the face of long term climatic and environmental shocks and stresses. Interventions around crop and livestock diversification are common examples among smallholder producers in the coffee value chain.

The third involves transforming the way natural resources are managed through behavior change and community engagement when ecological, economic or social structures make the existing system untenable. The Green to Grow project employed this transformative adaptation approach through the coordinated adoption of sustainable consumption and production practices by both producers and MSMEs in the Mango, Coffee, and Dairy value chains in East Africa.

Besides managing disruptions, innovations can provide a way to break out of intense competition via product or process differentiation in environments where competitor strategies converge or where sustained advantage remains elusive. They also help address emergent threats such as regulatory or technological shifts which demand fundamentally new competitive approaches. In the context of agricultural value chains, however, business model innovations are more challenging to execute even though they are not easily imitated due to the often-complex coordination required across different components and entities. It goes beyond the reinvention of a single function, product, service, or technology, to deliver value in a novel way.

Below are some of the lessons we learnt during our work accelerating small and growing businesses in smallholder producer value chains across East Africa.

1. Increase focus on market-oriented functions of the value chain

Few innovations for resilience focus on downstream stages of smallholder producer value chains. Many value chain intermediaries lack adequate capabilities or technologies to compete in functions such as sales, marketing, customer engagement and distribution despite these activities yielding higher margins than upstream activities such as production and processing. Further, low levels of market intelligence and customer analytics make it difficult to consistently meet changing customer expectations and take advantage of new opportunities for product differentiation.

2. Take a long-term view to innovations in key activities, resources and partnerships

While value creation and capture are much more straightforward in their innovations, it takes more resources and time to realize a change in the operating model (key activities, resources and partners) of a value chain entity. The most effective innovations in operating models require the reorganization of structures, assets and capabilities to support new sources of competitive advantage and resilience in agricultural value chains.

3. Find a balance between monetization and value creation

A common way that value chain entities scale is through the integration of production, intermediation and marketing functions for better economies of scale. This often involves performing various critical activities for different sets of beneficiaries along the value chain in the form of an ecosystem. The sustainability of such a structure requires the identification of an essential, defensible element or activity that creates value for customers or beneficiaries and a monetization model that reduces barriers to participation while leveraging on the network effects where possible.

4. Adopt a modular approach to innovations along the value chain

The effectiveness of innovations for resilience varies from one stage of the value chain to another. For instance, innovations that improve productivity of smallholder producers such as irrigation have been observed to be more effective at building resilience while intermediary operations such as aggregation and processing require innovations that enhance the cost efficiency of operations. Further downstream, innovations on elements such as pricing, product differentiation, and branding have been shown to lead to significantly better outcomes.

We would love to hear your thoughts or comments on this. Drop us a comment below or send us an email to accelerator.kenya@e4impact.org

Article written by: Anthony Kimani, Investment Services Manager – E4Impact

Featured image from Freepik

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