Agricultural economist Malapane Thamaga believes South Africa’s farmers can benefit from the power of collective action through an agricultural clustering model. In this thought provoking article he encourages new farmers to take advantage of economies of scale through agricultural clustering. He shares a number of lessons from the communal wool farmers and smallholder flower producers in Mzansi.
Farmers are better-off working together as a collective and complementing each other rather than competing among themselves. The Sepedi saying that “Tau tsa hloka seboka dishitwa ke nare e hlotsa” (loosely translated as lions hunting independently fail to even prey on a limping buffalo) comes to mind.
This is the case in business and even more relevant for emerging farmers. The contrasting approach is by taking advantage of economies of scale through agricultural clustering.
With Rift Valley Fever upon us, farmers are encouraged to vaccinate their livestock against this deadly disease. This virus is known for causing outbreaks of abortions and deaths of livestock (predominantly sheep, goats and cattle). Operating independently would make it expensive for emerging farmers to embark on this operation.
However, as a collective, farmers may take advantage of economies of scale, cluster together and work on a vaccination programme that would make it easier even for those owning few livestock to vaccinate their stocks. This idea may even work for collectively purchasing feed directly from the manufacturer at a lesser price. This is made possible by the magic in the form of economies of scale.
Economics of scale
The idea of economies of scale is among the first concepts you learn in your first-year agricultural economics, that is that there is power in numbers. Strictly speaking, economists define economies of scale as the cost advantages that enterprises obtain due to their scale of operation resulting in decreasing average cost of production per unit.
This concept is best described through the possibility of purchasing inputs at a lower per-unit cost when they are purchased in large quantities. Unfortunately, the majority of emerging farmers operate in small scale and are unable to purchase products in large quantities as individuals.
However, there exist an opportunity to reduce costs per unit when they explore the possibility of working together through what I would rather refer to as cluster farming or agricultural clustering. This is similar to the concept of cooperatives.
Unfortunately, the term cooperative is tainted and has negative connotations in the South African context as the majority of these entities tend to be dysfunctional mainly due to the free rider problem and opportunistic behaviour. This means some members work harder than others while some lazy members only appear during harvest or only when the entity has just received some funding.
Understanding agricultural clusters
Perhaps the problem lies in how cooperatives are formulated in South Africa. In most cases, they are established to tick the right boxes, as this is a preferred entity for getting funded by government. It is out of opportunistic behaviour that people would quickly identify five people from the community, irrespective of their interest in farming, and use their names to establish a cooperative. The consequences of this are dire. As a result, there is no business minded farmer who is interested to listen when you speak of cooperatives. Hence, my preference for agricultural clustering.
The good thing is that the communal wool farmers, especially in the former Transkei and Ciskei region of the Eastern Cape, have been practicing the model of agricultural clustering for years with support from the National Wool Growers Association (NWGA). NWGA is a commodity group whose responsibility is mainly to promote the wool industry in South Africa through information sharing, investment in research and development and being the voice of the wool farmers in policy engagements. Among other roles that NWGA play include investing in shearing sheds, training in wool sorting, shearing and other farming practices for communal farmers.
Agricultural clusters refer to “a concentration of producers, agribusinesses and institutions that are engaged in the same agricultural or agro-industrial subsector, and interconnect and build value networks when addressing common challenges and pursuing common opportunities”.
Operating as a collective also enables farmers to negotiate for a good prices rather than competing among themselves and leading to buyers dictating their prices.
The idea of agricultural clusters is derived from the concept of economic clusters as found in other industries. While agricultural clusters are concerned with addressing farmers’ common goals in agriculture, economic clusters on the other hand refers to “a geographically bounded group of similar, interconnected and often complementary firms that share infrastructures and a common institutional environment”. The classic examples of economic clusters include Silicon Valley, home to many start-up and global technology companies, in the United States.
Agricultural clustering may take two forms, namely an area- or commodity-based approach. In the area-based approach, farmers come together based on the proximity of farms and trading posts, while in the commodity-based approach, farmers plant the same type of produce and combine their produce to achieve a higher volume.
Whatever form of agricultural cluster is followed, the cluster development model enables a group of farmers to collaborate on purchases for their input requirements, shared machinery services and marketing agricultural produce together.
These farmers may then acquire support necessary to produce a single crop or variety to similar standards on each of their own farms. The aggregate output of the farmers is then combined and sold to a client. Operating as a collective also enables farmers to negotiate for a good prices rather than competing among themselves and leading to buyers dictating their prices.
Unfortunately, individual emerging farmers are unlikely to produce the needed agricultural volumes required by the market and this may leave them opting to sell their produce through the not so reliable informal market.
Typically, agricultural clusters operate in the form of a business trust owned by farmers or a not-for-profit company. I recommend the latter as it is less complex and easy to manage. In most cases they partner with an already established agribusiness with Global Gap certification and access to a market partner with nearby farms to assist them with technical expertise. This is to ensure quality of production and that generally accepted agricultural practices are followed. While an existing entity operates in their own name, they engage the clustered farmers through the NPC which also plays an aggregator role for marketing purposes and inputs distribution.
Another such good example of agricultural clustering is the Timbali platform, a Mpumalanga Province based technology incubator enterprise established in 2003 to support start-up floriculture entrepreneurs in overcoming their challenges. Timbali started with only 10 farmers and now support about 185 farmers.
Communal flower farmers
The incubator platform supports growers with technical expertise, financial administration skills and access to markets. Through their marketing arm, AmaBlom, these clustered smallholder florist farmers markets over 5,5 million flowers annually, sold mainly in the South African market. To this end, they have created 700 jobs with a combined annual turnover of R11.6 million.
Note that unlike in the commonly practiced cooperatives, here farmers continue to operate individually on their own farms but are brought together through a common goal of achieving economies of scale.
It is however important that the clustered farmers are strict and do not compromise on quality of the produce.
This can be achieved by not allowing mediocre products to contaminate products of higher grade.
The communal wool farmers, on the other hand, cluster themselves under what are commonly referred to as wool growers’ associations. Communal farmers in these areas own from as little as five sheep per household to as many as 200 sheep per household. Unfortunately, wool is only sold through bales weighing between 100 kg and 190 kg per bale.
One bale is typically made by 60 skirted fleeces, i.e. about 60 sheep. However, for farmers to add value to their wool, it must be sorted into different classes for uniformity purposes so that each bale is made up of wool of similar length, fineness, strength and are from sheep of the same breed. In this way farmers increase their chances of fetching higher prices at wool auctions undertaken under the auspices of the Cape Wools in Port Elizabeth.
Accordingly, farmers enjoy shared access to infrastructure such as the shearing shed, bale pressers and services essential for wool marketing such as shearers, classers and transport to take wool to Port Elizabeth. Unfortunately, communal farmers have not explored extensively the idea of buying inputs, such as medication and feed, as a collective. If this opportunity is explored further, communal sheep farmers would likely increase the quality of their wool and meat which will lead to increased profitability. This strategy may go a long way in fighting disease outbreaks such as Rift Valley Fever.