Farmers' benefits include having assured produce markets, minimising production risks, transfer of knowledge on the latest farming technology, supply with crucial agricultural inputs, often on credit. As for farmers, processors benefit from assured raw material supplies without commitment of land and labour resources. Also they are exercise control over the production system in order to comply with set standards of relevance to accessing markets. Managed co-ordination facilitates production and marketing planning.
Despite the obvious benefits a number of constraints in farm-agribusiness linkages have been mentioned in the cases studied. Constraints can be classified as internal and external.
Internal Constraints on Farmers and Agribusiness
Lack of Business Management Skills
Poor production planning and marketing skills, especially by small-scale processors, results in a failure to take account of inputs needed to process scheduled amounts of raw materials. Production rates are then insufficient for the amount of crop ordered from the farmer, and processors fail to collect the crop when agreed. Processors also fail to plan for equipment or power failures by ensuring an adequate level of spare parts or backup power generation. This causes production to halt and this has similar knock-on effects on raw material requirements and output marketing. Financial planning skills by agribusiness entities are especially important during the harvest season. Large amounts of working capital are needed to buy seasonal raw materials in adequate quantities, and poor planning may result in delayed or non-payment for crops. This lack of financial awareness, together with low levels of profitability in many small enterprises, also means that processors are unwilling or unable to afford extension advice to farmers, or support them through provision of agricultural inputs or credit. For a large majority of smaller companies, these constraints effectively prevent them from entering into formal contractual arrangements with farmers.
Raw Material Procurement
Difficulties in establishing and maintaining reliable and sustainable supply relationships between farmers and processors can lead to poor business planning and management. Off-season supplies are particularly difficult to maintain in rain fed farming systems. Gluts of raw farm produce during harvest time are common and with lacking storage and pre-processing facilities, continuous processing activities are difficult set up.
Socio-economic discrepancies between farmers and agribusiness create difficulties in establishing long-term, business relationships. Many processors see farmers as simply a source of raw materials and have no interest or no financial resources in supporting or developing them. Others have little respect for farmers and regard them as inferior partners in an agreement. This creates tension and leads to breakdown of agreements, with farmers feeling exploited and reneging on their commitments. Additionally, the lack of trust between farmers and the lack of organizations to work together to meet a processor’s requirements, result in insufficient volumes of crops for processors.
Quality Constraints
Farmers often have little understanding of processors’ requirements for specific crop varieties, high quality standards, specified production volumes or timeliness of delivery. Their lack of commercial skills and knowledge of the way in which commercial enterprises operate is a significant constraint on development of effective linkages. Lack of knowledge and skills also cause farmers to harvest crops when they are immature, cause damage to crops from poor post-harvest handling, and not sort crops into different quality grades. Each of these restricts farmers’ ability to meet buyers’ requirements and again reduces their income.
Financial Constraints
Lack of resources for farmers ultimately arises from insufficient income from their crops, although there are multiple reasons for this. For example, delayed payments from buyers and lack of access to credit create indebtedness, and high interest charges for informal loans by rural money-lenders or middlemen continue the cycle of poverty. Farmers are unable to afford inputs that would reduce damage and maintain the quality of their crops, or afford post-harvest technologies which would enable them to store crops until prices increase out of season. The need for income as soon as possible during the harvest season and high levels of theft from fields or food stores in many countries, prompts farmers to harvest crops before full maturity and to avoid storage for later sale. Each reduces farmers’ potential income and prevents them meeting their side of an agreement with processors.
External Constraints on Farmers and Agribusiness
Among numerous external constraints that face both farmers and agribusiness, the following have significant effects on the creation of strong linkages.
Adverse Macroeconomic Conditions
Inconsistent and not transparent business rules and regulations in general hinder business development. In countries with high taxes, a poor tax administration and high levels of corruption, any economic development is stifled. Poor monetary polices are reflected in high interest rates and devaluing exchange rates. Credits from financial institutions are difficult to obtain and loans are unaffordable in high inflation/high interest rate environments. Devaluation leads to rising costs of imported inputs. Shrinking government expenditures on agriculture are rather the norm than the exception in most agricultural based countries.
Market Constraints
Limited purchasing power of consumers in developing countries results in low demand for processed goods. This in return limits the profitability of agribusiness. Additionally, small numbers of processing companies are insufficient to support local manufacturers or supply agents of processing equipment, packaging and ingredients, each of which acts as a brake on development of agribusiness. Trade liberalisation policies have increased competition with imported raw materials and processed goods.
Lack of Institutional Support
Coherent public agricultural, business and industrial development strategies are lacking or there are problems with implementation. Budgetary pressures have led to under-funded education sector. Also educational institutions often have insufficient understanding of the needs of farmers and agribusiness, and lack both the resources and commercial awareness to implement practical programmes of support. Additionally, their organizational structures may be geared to offering staff promotion based on publications in scientific journals rather than successful assistance to target beneficiaries. Government policies to support applied research and development may not be co-ordinated with agricultural and industrial development policies, or may even conflict with them.
Extension services often have inadequately resources. Extension agents may be technically trained, but lack marketing or business skills or skills required for improving farmers’ business opportunities and their organizations. In countries where extension services and rural banking are inadequate, traders are the only effective source of agricultural inputs or short term loans, and farmers are unwilling to enter into contracts with processors, or may be prevented by traders from doing so.
Limited Availability of Inputs
High costs of raw materials in both, farming and processing, lead to a low profitability in the agricultural and business sector. Inputs necessary for adding value to primary products are often imported while local intermediary goods suppliers cannot compete on price and quality of imports.
Restricted Market Information
Public services are under-funded so that little or no published information on markets, prices, trends, key market players. Commercial market research services are rare and costly.
