Farming is only one part of the process which gets food onto people’s plates. Agricultural production leads on to packaging, transporting and marketing/selling. There are many places for inefficiencies and wastage. Supply chain management takes a look at all the links in this process.
Dr Tobias Doyer makes the case for co-operation and co-ordination as a way to increase benefits:
- reduced cost through specialisation
- improved synergistic performance
- increased information to support joint planning
- enhanced customer service
- reduced risk and uncertainty
- shared creativity
- improved competitive advantage
Vertical integration is another name given to extending the business to include upstream and downstream activities. Having various assets under one umbrella maximises value in the supply chain.
Certain aspects require advice from legal professionals to avoid what could be seen as uncompetitive behaviour potentially leading to trouble with the Competition Commission.
South Africa is still a net exporter of agricultural products, although a trend is clearly developing that that this agricultural trade surplus is slowly but surely declining. A challenge is going to be to stimulate additional agricultural production, specifically also by smallholder farmers, and to develop models that will include smallholders in modern integrated food chains in a sustainable way.
Source: Dr John Purchase
The farmer’s share of the consumer rand is shrinking. Primary production is the least profitable of all sectors in a value chain. Farmers can share in the profits made upstream through their own farmer-owned businesses. We should do this before we lose more farmers and the total production lands in the hands of a few large companies.
Source: Dr Koos Coetzee
2. Small-scale farmers
In the past, agriculture has been fragmented, with input suppliers, farmers, beneficiators, marketers, financiers, off takers, and consumers all seeing themselves as separate role players without responsibility for any other element of the value chain.
There is every argument to be made for small scale farmers to form buying and marketing groups.
- They can optimise their input costs and negotiate contracts with off takers. Such groups could operate at a regional rather than national level, and don’t need to be limited to one specific industry.
- South Africa’s geographic diversity means that many regions have a range of climatic conditions that would enable a variety of crops to be produced and then sold collectively to local retailers. In other words, grain, livestock, fruit, and vegetable farmers could work together to negotiate one contract to which they would all be suppliers. The retailers would get the product variety they need to attract consumers, and each farmer within a farming group would benefit from a stable supply contract.
- It may also be easier for the government to grant subsidies to collective farming structures instead of individuals.
- Banks prefer to fund small scale farmers through an umbrella organisation that takes responsibility for the group meeting its contract obligations.
- Having a retailer ring-fencing the bank’s risk by contracting to put the group’s products on its shelves makes such groups even more attractive.
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