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Value Chain for High Value Crops – High Risk? High Profit?

PFV-SortingOptIn recent years there has been considerable interest in improving the economic well being of smallholders by encouraging them to grow high-valued cash crops as part of value chain enterpriese that are intended to develop a total link between producer and consumer or at least the industrial processor. This would include such things as paprika in Malawi and Zambia, export specialty vegetables also in Zambia, or Pesticide Free Vegetables as depicted from Thailand. The question is: what is the real potential for shifting to high valued crops to make major inroads into the poverty of smallholder producers?

The answer lies in why these crops are high valued and to what extent they are either high risk crops or high quality sensitive crops. Also involved are the crops that the high- valued crops are replacing.

Since, as contended in other parts of this website, smallholders are most likely maxed out with the limited resources available to manage their land, the production of high-valued crops can only be accomplished by substituting the high-valued crops for something they are already producing. Thus the maximum benefit would be the price difference between the market value of the high-valued crops compared with the present crops, including the replacement purchase of any subsistence crops that were replaced.

Another concern is the high risk that can be associated with producing high-valued crops. An example would be the specialty vegetables crops AgriFlora is air freighting from Lusaka, Zambia to Europe. One of these crops is baby corn. For baby corn the harvest window is only one day between the tiny ears being immature and becoming over mature. Thus, if market opportunities for their smallholder cooperators are every three days, for every opportunity to market the baby corn and receive a high value there are two opportunities missed for which the price will be discounted or completely lost. As the quality can only be assessed in the packing shed where the small ears are removed from the husk there has to be some elaborate accounting system to keep track of each individual smallholder’s production as it moves through the packing shed to make certain each farmer get due credit for value of what is marketed, or the farm gate price has to be severely discounted to account for the packing shed discards hopefully destined for a animal feedlot. The ability to evaluate the quality of production only after it reached the packing shed leaves the farmers at the mercy of the company, and resulted in considerable contention among the farmers who continuously felt the value of their produce was being downgraded but for which they had no effective recourse.

Another risk factor with AgriFlora’s operation is that they have to book air space several days in advance either via commercial jets or charter planes. Once booked, there is little flexibility in the amount they can accept for shipment. If you book too much, you lose money, if you book too little, it might not be possible to expand you shipment to meet available produce. Thus, when more produce is received than space available the discards can only increase and include what would normally be market quality produce. Unfortunately, specialty crops, like all crops, are subject to weather variations which affect the time they will become available and totally outside the control of the producer, large or small. Ultimately, AgriFlora went bankrupt in late 2004.

Finally, there can be serious quality concerns. An example is paprika, which is used extensively as food coloring. Paprika has strict quality standards associated with the color and blemishes in the fruit, even when it is farm-dried and thus less perishable than the specialty vegetables that AgriFlora processed and marketed. Obtaining the best quality is closely associated with the care taken while growing the crop. This very quickly translates into commitment of labor and other operartional resources. If these are in Short Supply or restricted by Limited Diet it might be difficult for many smallholders to obtain the quality needed to command the best price and set up contention between buyer and producer over the price received.

Ultimately, encouraging the smallholder to shift to high-valued crops may have some potential for increasing their income and improving economic well-being, but it does require some sensitive, in-depth evaluations that recognize why the intended crops are high-valued, and that high-value does not always translate to high farm profit. When quality and market opportunities are not fully taken into account, smallholders can actually be severely hurt by the effort, regardless of how well intended.

Last Revised: 27 March 2010

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