SWINNEN et al FAO March 07

Governance and Surplus Distribution in Commodity Value Chains in Africa Johan F.M. Swinnen, Anneleen Vandeplas & Miet Maertens: 

Governance and Surplus Distribution in Commodity Value Chains in Africa Johan F.M. Swinnen, Anneleen Vandeplas & Miet Maertens FAO Seminar Rome, March 2006

Key Argument of the Paper: 

Key Argument of the Paper Commodity Value (& Characteristics)  Governance of Commodity Chain  Surplus Creation & Surplus Distribution along the Value Chain

Conceptual Framework: 

Conceptual Framework General Model Comparative perspective is key to understand staple food problems Key characteristics of African food markets: Factor market imperfections Weak enforcement mechanisms Interlinked markets Option of contracting can allow access to inputs if interlinking is enforceable

Value Classification: 

Value Classification Low Value Commodities e.g. STAPLE FOOD CROPS (maize, wheat,…) Medium Value Commodities e.g. Traditional export commodities (coffee, cocoa,…) High Value Commodities e.g. Non-traditional exports (FFV, FSP, flowers,…)

A Historical Perspective: 

A Historical Perspective State-controlled Governance (After WW II) Liberalization, privatization, and exchange disruptions (In 1980s and 1990s) Current Governance: depends on commodity value & characteristics

History: State-controlled governance: 

History: State-controlled governance Marketing boards for staple food crops e.g. ADMARC (Malawi), NAMBOARD (Zambia) Marketing boards for export commodities e.g. Coffee boards in Uganda, Kenya, Zimbabwe… e.g. Cotton boards in Kenya, Zimbabwe… Government-controlled cooperatives e.g. Tanzania Parastatal processing units e.g. CMDT – Malawi Textile Development Company KTDA – Kenyan Tea Development Cooperation

History: State-controlled governance: 

History: State-controlled governance VC by marketing boards & parastatals: Interlinked contracts: seasonal input and credit provision to farmers e.g. ADMARC (Malawi), NAMBOARD (Zambia), CMDT (Mali), SODECOTON (Cameroon)… Government extension services as part of VC e.g. Ghana Cotton Development Boards More extensive VC: e.g. Kenyan Tea Development Cooperation: effective control at all levels including planting material, production processes, quality control and extension services

History: The fall of state-controlled governance: 

History: The fall of state-controlled governance Collapse of government controlled agricultural institutions E.g. in Kenya: collapse of the National Cereals and Produce Marketing Board, the Cotton Lint and Seed Marketing Board, the Kenya Grain Growers Cooperative Union, etc. Privatization of parastatal agri-food processing companies E.g. privatization of the Ghana Cotton Development Board into the Ghana Cotton Company

Current governance: 

Current governance Staple food crops (low value) State-controlled governance systems are still prevalent (food self-sufficiency is political issue) Private interlinking is largely absent, private trade relies mostly on simple spot market transactions

Current governance: 

Current governance Traditional export crops (medium value) Shift to Private Governance organized around private trading and processing companies, with interlinked contracts including provision of inputs, technology, management advice… Contract enforcement problems

Current governance: 

Current governance Non-traditional export crops (high value) Recent Phenomenon (Since 1980s), expansion after economic reforms Completely private governance with extensive interlinking (incl. inputs and extension)

Conceptual Model: 

Conceptual Model How to explain the different evolution for these three types of commodities? By commodity value and characteristics.

Perfect Enforcement: 

Perfect Enforcement

Costly Enforcement – One-sided Holdup: 

Costly Enforcement – One-sided Holdup

Costly Enforcement – One-sided Holdup: 

Costly Enforcement – One-sided Holdup

Costly Enforcement – Two-sided Holdup: 

Costly Enforcement – Two-sided Holdup

Interlinking: Commodity value vs. Competition: 

Interlinking: Commodity value vs. Competition

Interlinking: Commodity value vs. Characteristics: 

Interlinking: Commodity value vs. Characteristics

Staple Food Crops: 

Staple Food Crops Low value: Low θ High competition: Households are potential buyers “Chaotic market places” Processing can be done at home Non-perishable Very little private sector VC Only state-controlled (& monopolized) VC is possible

Traditional Export Commodities: 

Traditional Export Commodities Medium value: medium θ Some competition: Traditional export sector has had time to develop Non-perishable Only industrial processing Private Sector VC moderate (although coordination problems e.g. cotton sector (Poulton et al. 2004))

Non-traditional exports: 

Non-traditional exports High value: high θ Low competition: Relatively new industry Quite concentrated (economies of scale for quality control…) Highly perishable Private Sector VC is very important

Policy Implications: 

Policy Implications Increase value staple foods? Improve contract enforcement institutions ? Focus on factor market imperfections ? (rural credit schemes, attention to input markets, development extension services, improve rural infrastructure) Spillovers from private interlinking in the cash crop sector (e.g. through better access to production factors)