Build efficient market systems to boost profitability in the agricultural sector

By Winnie Yegon, Elizabeth Gathogo Charles Muteithia and Tom Ogweno

The agricultural sector continues to provide immense opportunities for meaningful employment and sources of income to Kenyans directly and indirectly. Across value chains, trade in goods and services is generating revenues and profits for businesses and creating a market system. However, anecdotal evidence indicates that the full potential of the agricultural market system is yet to be realised. This is especially so in terms of returns on investment. Market systems typically involve the provision and sale of goods and services in both formal and informal markets.

Investments in production inputs as well as facilitative activities that ensure the food produced reaches the final consumer or trade need to make meaningful returns. However, the returns in most cases do not reflect the investments made in the sector, painting a picture of low profitability. Due to challenges such as poor coordination of activities, limited access to market information, weak safety standard regulatory frameworks and limited investment in physical market structures, value chain actors incur huge economic losses. This is because their ability to maximise on business opportunities within the sector are limited. As a result, value chain actors are not able to sell produce or service at optimal price or value. Examples include produce being lost and wasted due to limited access to markets or information asymmetry, poor infrastructure, limited knowledge on agribusiness or barriers to entry at markets due to weak regulatory frameworks.

Many farmers do not get adequate returns due to inequalities in the market system.

The challenges have also resulted in a market system with skewed dynamics that weaken the bargaining power of some players as well as disruptive economic mechanisms that cause shifts in supply and demand, and eventually unstable prices. The weak structure has left a void that has been filled by those who have access to power and information such as cartels. The latter have in turn created a barrier to entry for other potential food system players in the market space.

To address the challenges, a multi-stakeholder approach is needed to zero in on the gaps and develop a framework for optimum operation. However, the Kenyan market system is characterised as complex and dynamic – having different players with diverse needs and system in the same ecosystem and shifts in demand, supply and commodity prices. For sustainable transformation, changes can only be made overtime. A key area that can initiate this change is the availability and use of information. Market information is a key component in making both technical and operational decisions. It includes knowledge, awareness, and power to apply on matters such as what the market needs, in what quantities, to what quality, where it is required, in what form as well as technical information on bargaining power.

A working market system would ensure farmers get adequately compensated for their efforts

The market system also has a wide range of value chains that converge. To strategically identify challenges and develop solutions, the selection of a value chain to pilot the intervention is key. Within the fruits and vegetables category in Kenya, for example, tomatoes are the second most important vegetable in terms of production and value. But tomatoes face extremely high levels of waste and losses coupled with prices that fluctuate sharply. The challenges experienced by the tomato enterprises are attributable to weak market systems that hinder proper coordination of post-harvest activities and information access that can guide investment in the sector. The solution lies in disseminating reliable information to all the relevant stakeholders within the tomato value chain using a food system approach, organisation and fostering favourable regulations and ensuring information flow. This will enable all the actors to make informed decisions through stakeholder mapping and engagement, research on the actual gaps that affect the tomato market, leveraging on technology, and pitching for funding.

This will provide a platform that can be upscaled to ultimately develop a market system that embodies enhanced stakeholder linkages and coordination (better communication), improved productivity (market driven-yield and quality); improved profitability, improved livelihoods among all the relevant stakeholders, reduced post-harvest losses as well as improved food and nutrition security.

The writers are Horticulture Fellows at the Africa Food Fellowship