When Intermediary Links in the Supply Chain are Weakened, the Whole Food System Suffers

Agriculture is hugely important for boosting food security and helping people improve their living conditions—in fact, growth in agriculture is two to four times more effective at reducing poverty than growth in other sectors. For the sector to thrive and deliver those impacts, though, the businesses in the center of value chains must thrive. Food processors, crop aggregators, input suppliers, and other agribusinesses are essential to ensuring that farmers have access to markets, seeds and seedlings, fertilizer, tools, services, and capital. 

But as TechnoServe’s new report makes clear, these businesses are under threat from the COVID-19 pandemic. In a series of surveys that began shortly after the onset of the pandemic, we asked farmers, food processors and entrepreneurs across Africa, Latin America, and South Asia about how they were impacted.

What the data told us is that farmers experienced real disruptions to their livelihoods and quality of life, often linked to impacts of the pandemic on intermediary agribusinesses. The businesses themselves, due to their position at the center of the value chain, have often found themselves buffeted by challenges on all sides. 

In short, the surveys made clear that we urgently need innovative solutions to support food processors and other agribusinesses to help them weather the crisis and lead agricultural value chains in their recovery.

Overcoming Disruptions in Agricultural Value Chains

Starting in July 2020, TechnoServe began surveying smallholder farmers operating in commercial value chains in 10 countries across Latin America, Africa, and South Asia. These found that challenges fell into three categories:

Market challenges: 65 percent of farmers in July reported market access challenges, and that number had only declined to 45 percent in November. The two most common market challenges were low prices and difficulty finding a buyer—this was often linked to disruptions in transportation, the closure of certain markets, and the slowdown of operations at pack houses and other agribusinesses amid social distancing.

Supply challenges: Transportation restrictions, border closures, and other factors also made it harder for farmers to access needed inputs, which became scarce or more expensive. As restrictions eased, the share of farmers with supply challenges fell from a high of 64 percent in July, but still held at 37 percent in November.

Finance challenges: Farmers were squeezed by falling incomes, rising costs, and reduced lending by financial institutions. Our surveys found that about one third tapped into savings to cope, while others invested less in their farms. We may be seeing the impact of that underinvestment on agricultural output: according to our survey, the share of farmers reporting smaller-than-usual harvests rose from 15 percent in July to 34 percent in November.

Overcoming these challenges requires finding innovative ways to support intermediary businesses, and the report highlights some promising approaches. We’ve seen great success in harnessing digital tools to facilitate transactions to link producers and purchasers of agricultural products. In Mozambique, the Catalisa program responded to cancelled sales contracts and other disruptions by creating a simple virtual platform to link vegetable and poultry farmers with local businesses looking for new suppliers.

New business models can also help overcome supply constraints. In India, we’ve worked with farmer producer organizations that have traditional aggregated crops from smallholder farmers. Amid rising costs to transport inputs during the pandemic, we helped these farmer-run businesses aggregate demand for agricultural inputs, as well, to make bulk purchases that drove down the cost to farmers.

Finally, agribusiness can also play an important role in helping farmers access finance. Firms that purchase crops from smallholder farmers can provide credit or advance financing to ensure that these farmers are able to buy adequate inputs and continue to produce crops at a level that will enable them to support their families. We’ve also seen successful instances in which firms are paying crisis bonuses to farmers or use a cost-plus model to help farmers withstand the pandemic.

Supporting the Food Processing Sector

The report also devotes a chapter to the African food processing sector because of the industry’s important influence on the supply of nutritious food for consumers in the region, offering a market for farmers’ crops, and generating employment.

Surveys with food processors showed that these vital firms faced a number of challenges. At the outset of the crisis in April 2020, 70 percent experienced declines in sales, and that number still stood at 68 percent in July. More than three quarters of respondents reported experiencing negative disruptions to the distribution of their products to market, as lockdowns closed schools and other institutions, restricted transportation, and changed consumer behavior.

In July, 63 percent of food processors reported supply challenges, as the arrival of packing materials, raw ingredients, fortificants, and other items was disrupted. That same month, 40 percent of processors reported finance challenges.

Technical advisory support is needed to help these firms adapt and adjust. In Kenya, for example, our staff helped a dairy that sold its products to schools develop a new marketing plan to reach consumers directly. In another case, it helped a dairy fill a market gap in Western Kenya when the supply of milk from Uganda was disrupted by border closures. By September, firms were nearly as likely to report rising sales as declining ones.

But challenges remain, and liquidity is a significant one--especially as the economic recovery in many emerging markets has been slow. Together with a number of partners, we recently launched the Coalition for Farmer Allied Intermediaries, which couples emergency funding with technical assistance to enable food processing firms to adapt, sustain operations and build in resilience towards a return to growth. Developing more multi-sectoral partnerships that tackle challenges from multiple angles will be an important tool for addressing the challenges created by the pandemic.

The report paints a sobering picture of how agricultural value chains—and the agribusinesses they depend upon—have been impacted by the crisis. But through innovation and cooperation, we can help these firms weather the crisis and lead the recovery. As we look at the months ahead, we must continue to provide technical assistance that empowers businesses to make necessary changes; strengthen access to finance; and bring together actors across local supply chains. Working together to do this, we can deliver better opportunities for farmers, improved nutrition, and more economic growth.