We're Undervaluing Value Addition
Updated: Dec 15, 2019
I recently attended a side event at the United Nations for the Commission on the Status of Women (CSW62) on the Role and Contribution of Rural Women in Food Sovereignty in Sierra Leone. I had the pleasure of listening to several excellent speakers, but a passing comment by Isata Kabia, minister of Social Welfare, Gender and Children’s Affairs caught my attention. She described how she bought a large bag of beans in Sierra Leone for $2 and then put some in a small bag to bring on the plane, which she mused she could sell for $2. She was talking about value addition, and sometimes it’s as simple as a small bag and a label.
In my work supporting food and agribusiness micro, small and medium enterprises (MSMEs) in developing countries, I must often find ways to improve their profitability. Adding value to agricultural products is my go-to strategy.
From guiding dairy farms toward pasteurized milk, fermented products, butter and cheese, to developing nutritious specialty cereal products, to growing in-demand vegetables that replace imported ones, there’s almost always a feasible way to step up the game. Yet I often wonder why I don’t see more attention paid to it.
Up and Down the Value Chain
Donor programs and governments commonly seek to develop value chains, and for good reason. They’re efficient, inclusive and can produce a good ROI for all involved. Such clusters (such as coffee and cocoa) seek to bolster smallholder farmers, build industries, expand markets, and create jobs and GDP.
This holistic and coordinated effort seeks to strengthen weak links and can benefit the many players involved. However, it doesn’t often devote itself to development possibilities at the very end of the chain. For example, the typical commodity coffee chain ends at the retail sale of the roasted beans, but what about the possibilities of even higher value coffee end products?
The other limitation is that this approach necessitates concentrating on large-scale cash crops, so low-volume specialty products are usually excluded.
Food Processors Add Value (Or Maybe Not)
Value addition can be imported when multinational companies set up production facilities in developing countries. This results in capital injection, jobs, tax revenue, economic diversity, and badly needed skills transfer. There are opposing views on the benefits and the debate is ongoing. Large food manufacturing may negatively impact the livelihoods of small businesses and can be exploitative in various ways, including low wages and adverse public health outcomes.
It’s a mixed bag and a long discussion. Suffice it to say that this mode of food processing is beneficial to developing countries if the products add to the nutritional status of the people, companies employ local labor, food safety is enhanced and the supply chain maximizes local sourcing.
What About All Those MSMEs?
There’s another option that doesn’t get much attention but has tremendous potential. It encompasses the many agricultural products that fall outside the value chain clusters in the first case and the masses who don’t work for large food processors in the second case. It’s small-scale agro-processing.
NextBillion readers are hyper-aware of the importance of MSMEs. The World Bank estimates there are 365-445 million of them just in emerging markets. Because they are small and scattered, it becomes difficult and resource-intensive to organize them. Yet their numbers suggest an opportunity to be capitalized upon.
The necessity to encourage small agro-enterprises is perhaps most visible in Africa. According to the African Development Bank, “Little attention has usually been paid to the value chain through which agricultural commodities and products reach the final consumers within the country and abroad. This neglect results in enormous potential losses of value added and employment opportunities.”
Show Them the Money
If we follow the money, it’s not in the raw material. Cocoa farmers get only 3 percent of the value of a chocolate bar. In a $110 billion market, even the largest producers (Ivory Coast and Ghana) are watching the profits grabbed by a host of others in the chain. Tanzania exports raw cashews only to have them return in processed form; the real money was made outside the country.
Developing countries could really develop if they had solid food processing industries. The World Bank estimates that each job in agro-processing creates 2.8 jobs in the wider economy. Those processors could support smallholder farmers and other suppliers, become part of the formal economy, save countless tons of food from everlasting decay, and feed millions.
Where's the Problem?
So why isn’t there more agro-processing in developing countries? Primarily because it’s capital-intensive and funds aren’t exactly ripe for the picking. Agriculture financing is notoriously risky due to volatile prices, unpredictable weather, farmers who don’t qualify for loans and high transaction costs in rural areas. Creative financing schemes need to be developed so the industry can be built.
Then there’s the lack of locally available technologies and technical knowledge in disciplines like food safety and handling, production processes, equipment handling, packaging technology and regulatory compliance. The food industry should be mobilized to provide technical training and knowledge sharing.
To be clear, there’s a vast chasm between minimal processing for food functionality and over processing strictly for profit. Minimal processing allows grain to be efficiently converted to flour, fruit to be dried or turned into drinks and nuts to be transformed into seasoned snack mixes. It doesn’t mean food that’s devolved into a tasteless mass of chemicals and devoid of nutrition.
Making it Work at the Base of the Pyramid
Minimal processing means value addition can happen even at the base of the pyramid. An important step is to develop simple, low cost, non-electric small-scale equipment that can take the drudgery out of manual agricultural processing and food preparation, especially for women. CTI is an example of an organization that makes easy work of shelling ground nuts and threshing pearl millet on a small scale.
It’s also possible to add value just by creative flavoring of local favorites or growing niche specialty products with high demand. Strawberries and carrots are high-value items where everyone’s growing rice and cassava, and they contribute to dietary diversity.
The thing is, we need to get beyond food commodities in developing countries. Food starts with agriculture; we need the raw materials first. But value addition is what produces better incomes and food security.
Original post at NextBillion.net