Africa's food system needs a better class of middlemen

Billions of dollars have been spent on increasing farmer productivity, enhancing nutrition, and driving rural economic development in Africa. However, agricultural production has not improved at the desired rate: Food imports have expanded rapidly, many Africans spend more than 40% of their income on food, and agriculture is too infrequently a driver of economic growth across Africa.

Given population growth, rates of urbanization, large and growing youth unemployment and the challenges of climate change, it’s imperative that African countries find new ways to enhance commercial smallholder livelihoods; spur enterprise growth across food systems, driving employment; increase industrialization and commercialization of agriculture and food production; and secure enough nutritious food to feed a growing and increasingly urban population.

“Inclusive intermediaries” – producer organizations, aggregators, processors and vertically integrated brands that source “inclusively” from commercial smallholder farmers – are the linchpin for transforming Africa’s agriculture and food systems. They:

However, there are far too few inclusive intermediaries across Africa and too few have reached scale and profitability; access to capital is frequently cited as the biggest barrier.

Historically, development programmes have disproportionately focused on interventions at the farmer level to increase productivity, while less than 1% of impact capital has gone to support inclusive intermediaries in the “missing middle” (firms looking for funding that are too big for microfinance and too small for other forms of capital).

Fixing this will require exponentially greater amounts of philanthropic and impact-first capital to support and grow more inclusive intermediaries, and to catalyze a stronger pipeline of investable enterprises that can crowd in more commercial capital.

Driving this inclusive agricultural transformation also calls for a new approach to multi-stakeholder collaboration. The appropriate catalyst for these initiatives will depend on specific value chain factors such as the level of smallholder farmer competitiveness; upstream productivity and quality gap; the state of ecosystem development for SMEs; critical mass of commercially viable intermediaries in operation; and the concentration of buyers.

To develop and support inclusive intermediaries you have to understand the specifics that define agriculture and food systems. These include:

• Value chain context: the biological and economic characteristics, often defined on a sub-national, regional basis

• Farmers: plot size, technical proficiency, poverty level, proximity to infrastructure, etc.

• Intermediary characteristics (Business type: coop/farmer producer company, aggregator, processor, vertically integrated brand. Size: micro, small, medium enterprise. Evidence of scale: the repeatable model, unit of scale, and proven economics. Degree of inclusivity.)

• The target end market: domestic or export, raw good or processed, packaged good

At Bain, we’ve developed a range of detailed case studies that demonstrate how various inclusive intermediaries in differing circumstances have been successful around the world:

Dairy in India (Dodla Dairy)

In dairy in particular, a vertically integrated dairy brand can achieve the margins that allow for inclusivity – strategically sourcing from smallholder farmers – and that in turn secure the quality required. Dozens of inclusive, scaled dairy companies have emerged in India over the past 30 years delivering better nutrition, job growth and rural economic development. Indian government policies, investments and system-building – particularly infrastructure, financing and cooperative development – over decades were critical to set the foundation to allow for private enterprises to thrive and grow.

Fresh fruit & and vegetables in Kenya (Twiga, Tulaa)

Inclusivity is a choice that carries associated costs, financial return and speed to scale trade-offs. Technology does drive efficiency and scale, but in agriculture and food the physical realities will prevent companies from meeting the dizzying expectations of exponential growth seen in other sectors that lack the constraints and complexity of fragmentation, geography and logistics.

Maize in Nigeria, Rwanda, Mozambique (Babban Gona, Kumwe, ECA)

Corporations are critical to both the viability of intermediary businesses and for creating the price premium and secured demand that allows for the relationship between the farmer and the intermediary – they enable the reduction in side-selling that is critical. A combination of end markets is needed to create margins to grow for food, feed and alcohol.

Growing farmer prosperity, increasing economic development and food security, and driving greater employment will require a development approach that prioritizes the growth of thousands of inclusive intermediaries operating across Africa. There are three main models to drive inclusive intermediary development:

The required “fit” with the value chain is based on the level of system development, e.g., farmer productivity, available infrastructure, the number and size of intermediaries, nature and size of demand; and the type of actors operating in that system.

In addition, as previously stated, exponentially greater amounts of philanthropic and impact-first capital is required to support and grow more inclusive intermediaries and to create the conditions to attract commercial capital, particularly credit. It’s also critical that governments live up to the Comprehensive Africa Agriculture Development Programme (CAADP) commitments (~10% of public spending on agriculture) to invest in primary agricultural production.

Finally, governments, donors, investors, banks, and corporations must collaborate much more closely to achieve target outcomes.