414
The problem of poor participation of small-scale dairy and vegetable farmers in
the formal value chain is also due to the challenges farmers face in local production
and marketing. The problem is compounded further by the new competitive environment of liberalized and globalized food markets, where free trade and food
safety are receiving ever-increasing global attention (Danielou and Ravry 2005;
Swinnen and Maertens 2007; Maertens et al. 2012). Liberalization and globalization usually lead to an influx of imported products, which in turn leads to stiffer
price competition and the adoption of new strategies of chain management. These
changes constitute new challenges for small dairy and vegetable farmers in SSA,
where standards are not strictly enforced in the market place. In many SSA countries, food standards for local markets are below those in export markets and there
are no effective means to ensure countrywide compliance (Jayasuriya et al. 2006).
It is worth noting that developed and developing countries in SSA face different
economic, technological, institutional and political challenges. A change in standards in a developed country may only result in a slight change within the industry
and require a strengthening of the domestic regulations to ensure that new standards
are met. However, for emerging agricultural value chains in SSA, particularly in
countries where institutional failures are rampant, a new standard may require major
investment in infrastructure and significant legal and/or organizational changes to
redress such failures. Furthermore, the costs of compliance can vary markedly
across firms and countries because they are accustomed to different national standards and ways of life and they face unique challenges.
Economic literature identifies intra-firm and inter-firm coordination and management of chain activities as the best way to improve chain efficiency and gains to
chain actors (Mazacco 1996). Various forms of chain governance structures (vertical coordination forms) have been developed by lead actors in a bid to reduce transaction costs so as to gain competitive advantage (Hobbs 1996; Hobbs et al. 1998;
Hobbs and Young 2001). In situations where quality control is important, the trend
has been a shift from loosely coordinated chains to closely coordinated ones and, in
extreme cases, to full vertically integrated chains. The loosely coordinated chains
are mostly characterized by spot procurement, whereas the relationship between
actors in closely coordinated chains are forged through either contractual arrangements, joint ventures, strategic alliances or vertical integration. The informal and
formal milk and vegetable value chains in SSA are likely to have their own unique
governance structures, falling either within the categories discussed here or variants
of the same. It is important to identify these structures and assess their effect on
smallholder farmers’ entry, the chain efficiency and participants’ benefits.
3.4 Integration of Smallholder Farmers to Commodity Markets
The rationale for integrating smallholder farmers into commodity value chains in
SSA and other developing countries is deeply rooted in the desire to promote the
adoption of new institutional economic (NIE) theory, with the purpose of matching
F. T. M. Kilima and L. R. Kurwijila
The problem of poor participation of small-scale dairy and vegetable farmers in
the formal value chain is also due to the challenges farmers face in local production
and marketing. The problem is compounded further by the new competitive environment of liberalized and globalized food markets, where free trade and food
safety are receiving ever-increasing global attention (Danielou and Ravry 2005;
Swinnen and Maertens 2007; Maertens et al. 2012). Liberalization and globalization usually lead to an influx of imported products, which in turn leads to stiffer
price competition and the adoption of new strategies of chain management. These
changes constitute new challenges for small dairy and vegetable farmers in SSA,
where standards are not strictly enforced in the market place. In many SSA countries, food standards for local markets are below those in export markets and there
are no effective means to ensure countrywide compliance (Jayasuriya et al. 2006).
It is worth noting that developed and developing countries in SSA face different
economic, technological, institutional and political challenges. A change in standards in a developed country may only result in a slight change within the industry
and require a strengthening of the domestic regulations to ensure that new standards
are met. However, for emerging agricultural value chains in SSA, particularly in
countries where institutional failures are rampant, a new standard may require major
investment in infrastructure and significant legal and/or organizational changes to
redress such failures. Furthermore, the costs of compliance can vary markedly
across firms and countries because they are accustomed to different national standards and ways of life and they face unique challenges.
Economic literature identifies intra-firm and inter-firm coordination and management of chain activities as the best way to improve chain efficiency and gains to
chain actors (Mazacco 1996). Various forms of chain governance structures (vertical coordination forms) have been developed by lead actors in a bid to reduce transaction costs so as to gain competitive advantage (Hobbs 1996; Hobbs et al. 1998;
Hobbs and Young 2001). In situations where quality control is important, the trend
has been a shift from loosely coordinated chains to closely coordinated ones and, in
extreme cases, to full vertically integrated chains. The loosely coordinated chains
are mostly characterized by spot procurement, whereas the relationship between
actors in closely coordinated chains are forged through either contractual arrangements, joint ventures, strategic alliances or vertical integration. The informal and
formal milk and vegetable value chains in SSA are likely to have their own unique
governance structures, falling either within the categories discussed here or variants
of the same. It is important to identify these structures and assess their effect on
smallholder farmers’ entry, the chain efficiency and participants’ benefits.
3.4 Integration of Smallholder Farmers to Commodity Markets
The rationale for integrating smallholder farmers into commodity value chains in
SSA and other developing countries is deeply rooted in the desire to promote the
adoption of new institutional economic (NIE) theory, with the purpose of matching
F. T. M. Kilima and L. R. Kurwijila