On the Road: Is the formal market crushing aspirations of rural farmers?

In this blog, Solidaridad’s Managing Director for Southern Africa, Mandla Nkomo, takes a close look at the various types of markets he’s experienced on his long road trips across the region. Unfortunately, he has found that formal markets often take advantage of the small farmer while providing little access or opportunity to those who need it most. Find out below how smarter strategies can help reduce the challenges of formal markets for small farmers.

In the last two years, I’ve had the privilege to traverse various locations both in Europe and our beloved Southern Africa. I have been struck by how similarly yet differently the informal and formal economies are organized both in Europe and in Southern Africa.

The trends I’ve noticed first-hand recently are quite disheartening. The frictional dynamics between the indoor and outdoor markets of Southern Africa, as well as the ever-encroaching need for more energy sources for farmers, are slowly degrading the avenues of sustainable livelihoods for small, rural farmers.

Smarter strategies for sustainable solutions

Unfortunately, large agribusinesses in the region have now learned to take advantage of supportive sustainable interventions meant for small farmers. It is sad but true that on the African continent, big agribusiness firms depend on the low input, low productivity agriculture of small farmers for access to commodities but also to cheap impact investment funds as a reward for working with thousands of these smallholders.

The easily accessible funds 'de- risk' the agribusiness’ engagement with smallholders but essentially subsidizes the working capital costs of the agribusiness operation itself with no incentive for the agribusiness to ensure that commercial interaction with the smallholders is in the interest of the the farmers’ long-term sustainability. The incentive for fewer and more productive wealth-creating smallholders simply doesn't exist as long as there is a reward system for the status quo.

So what ought to happen to bring about meaningful changes in the Southern African countryside? There are no silver bullet solutions to the complex issues raised in this article, but a number of suggestions that can hopefully stimulate discussion.

  • Governments must embrace and enable the informal ‘outdoor’ economy and support it to improve its operational efficiency.
  • Recognition must be give to the critical role the outdoor economy plays in Africa, and innovative support instruments for business development services and infrastructure must be implemented.
  • Low productivity, and low income agriculture must be recognized for the poverty trap that it is and better and more sustainable agriculture systems should be developed and promoted.
  • Rural wealth creation through sustainable agri-food activities is an urgent agenda that must succeed if we are to stem the tide of farmers resorting to charcoal burning as the most viable non-farming source of income.
  • Building resilience through adaptation and mitigation strategies to climate change must be seen as just a starting point for sustainable rural livelihoods.
  • If Africa is to build sustainable megacities, rural areas must not become unsustainable wastelands.

Outdoor vs. Indoor economies

In the Netherlands, for example, it is fair to say most of the economy operates in a manner often described as 'indoors', which means it is characterized by stable infrastructure and neatly organized trading spaces. Mobility of people and goods is largely mechanized by way of train services, bicycles, motor vehicles and airplanes.

By contrast, where the economy in Southern Africa tends towards informality, it does so with a degree of formality by way of well-organized, largely open air markets selling all manner of goods. At these ‘outdoor’ marketplaces, food, fashion and even fun items are sold by ordinary folk as a primary means of survival, as a pastime, or at the very least, a means of earning supplemental income.

Two worlds on one road

As mentioned above, the rural economy manifests largely as an informal 'outdoor' economy where large numbers of rural dwellers bring the fruits of their labour to the roadside to sell to passers-by or amongst themselves in organized market sessions. Large agribusiness installations are also found in the roadside markets that serve mainly as collection points for larger, distant trading facilities.

The roadside economy is often found along the main transportation arteries (roads) that feed the formal 'indoor economy’ of big urban centres. Large trucks carry diesel and charcoal (energy), as well as various agri-food commodities (maize, cotton, soy and other beans, variety of potatoes, livestock, etc), that are destined for the informal markets also found in urban centres. These commodity transport routes pass through most rural areas in Southern Africa.

Interestingly enough, it seems workers for the formal markets are willing to drive past the economic heartland of the informal markets located along the roadsides without any concern that unfair pressures on the outdoor economy will contaminate the heavily regulated indoor economy.

Opportunities of outdoor economies

However, the long drives I’ve enjoyed from some of Southern Africa's major urban centres to the economic engines of rural Southern Africa have revealed an interesting, and informative pattern emerging. Outside of South Africa itself, urban centres in countries like Malawi, Zambia, Zimbabwe and Mozambique have developed a hybrid between the formal 'indoor’ economy and the informal ‘outdoor’ economy. These economies operate cheek-and-jowl with each other with the 'outside' informal economy driven largely by the basic need to survive.

What strikes me as interesting is the way authorities in most of these countries (in particular, Zimbabwe, South Africa and to a lesser extent, Zambia) seem to want to perpetuate the colonial legacy of delegitimizing these informal economies by trying to regulate them out of existence. It's commonplace to see municipal police and similar agents having ongoing battles with so-called informal traders for trading in ‘undesignated zones’ or trading without a licence. Yet in spite of repeated run-ins with law enforcers, the return of informal traders to the roadside speaks to the desperately needed opportunities this economic activity presents to the rural community.

Criminalizing can create chaos

The fundamentals associated with the nexus between survival and a clearly sustainable economic opportunity that the outdoor economy presents to its practitioners seem to be lost on the regulatory and enforcement authorities. The question that needs to be asked though is, where is the wisdom in wanting to criminalize earning an honest living?

In most of the countries in the region, the informal economy is the only means available to a big chunk of the population (largely the poor urbanites) who can't effectively participate in the formal market due to lack of education and other disadvantages forced upon them, as well as the lack of capacity of the indoor economy to absorb their economic aspirations.

Energy dominates the commodity markets

What was also surprising to me are the types of most traded commodities found in rural marketplaces. One would expect agri-food products to dominate, but I have consistently seen that energy products are taking over. Kilometres upon kilometres of roadside are lined with bags upon bags of charcoal. As much as 80% of the trade by visual assessment is made up of charcoal sales.

Does the dominance of charcoal sales show the energy starved the rural poor have become? Or could it be that, once again, this trend represents the nexus of the urban poor's energy deficit and the rural poor's need for non-farm income? Or is it j
ust about the rural poor's own urgent energy needs?

A quick win but long-term loss

A visit to Lusaka's Kalingalinga Market with its stacks upon stacks of bulk charcoal bags, and traders selling these bulk bags and small meal-sized retail packs of charcoal seems to confirm the encroaching dominance of energy products on the informal markets are largely driven by rural farmers’ desperate need for stable energy sources.In Malawi, for example, there seems to be a strong rural demand for charcoal from areas that have depleted their own natural supply of wood.

Another factor to note is that while agri-food commodities are perishable and seasonal, charcoal is a year-round game, making it extremely attractive in a rural economy with immediate transactional needs that require cash to acquire goods and services throughout the year.

Let’s compare the two rural economic endeavours: growing crops or managing livestock vs. the energy economy. From the perspective of a stable income and profitability, it seems charcoal trumps the agriculture option. However, if we evaluate it from a sustainability perspective looking at economic sustainability in tandem with environmental and social sustainability, charcoal can't be the way to move millions of rural and urban poor out of poverty.

The reality for today’s farmers

A cursory look at the productivity of African small-scale farms on any commodity imaginable is woefully below par. No one can make a livelihood from that level of productivity. What is the pathway out of poverty for small farmers on 500 kilograms per hectare of maize or 700 kilograms of cotton per hectare?

Due to their access to quality inputs, cash crops end up being dominated by large agribusinesses and commodity traders. These groups only assume the risk after production has already taken place, while the smallholders have to bear the production and the market risk (via the price).

But if we evaluate the performance of agri-food systems in rural Africa and the agribusiness initiatives that engage smallholders, are we surprised to find that rural farmers are voting with their axes and furnaces and turning to charcoal? What value can rural folk generate from farming with inadequate inputs, tools and methods of the current agri-food systems?

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This blog was originally published on LinkedIn on 26 February 2019.