There is no shortage of abandoned small and medium food processing plants in many African countries. After entering a community and seeing an abundance of tomatoes, mangoes, pine cones and many other types of fruit, some development agencies and ministries were forced to mobilize resources to set up a processing factory. However, a few years later, the processing plant becomes a white elephant in the community. Very few food processing and value addition businesses have survived beyond five years. Why?
Business vs development approach
It may seem that processors that do not invest in food processing and value addition at the community level have no eye for business opportunities. However, the reality is that the private sector is better at conducting informative investment analysis than government departments and development agencies. Good intentions are not enough in business. This is why most well-intentioned interventions by development agencies collapse as soon as donor funding ends. When adequate baseline information on the viability of most community-based food processing enterprises is available, companies and financial institutions would invest without the need for persuasion from government or development partners.
Development organizations that promote food processing and value addition of fruits, tomatoes, small grains and other staples often do so from a development or humanitarian perspective. The assumption is that investing in food processing and value addition will lift people out of poverty and create local jobs. A related expectation is that the establishment of a food processing plant in production areas will reduce raw material losses. While this all makes a lot of sense to well-meaning organizations and laypersons, a business perspective sees things differently and it’s often the business perspective that tends to be correct in the short term. Huge volumes of raw fruits and tomatoes have been brought to cities from rural areas, as a business case for local food processing and value addition has been very difficult to sustain.
Lack of investment analysis, business plan
What is often missing in most food processing projects, whose benefits seem obvious, is a deep and broad investment analysis. In most cases, authentic information on the level of competition, consumption habits, purchasing power of local consumers and socio-cultural aspects is lacking with too much focus on the establishment of infrastructures such as warehouses, sheds and processing equipment.
More than two years ago, a tomato processing factory was established at Tabudirira Vocational Training Center in Mutoko District. The district is famous for the production of tomatoes among other horticultural products. Funded by the African Development Bank to the tune of $1 million, the plant is a good example of the importance of investment analysis. The day it was officially launched by President Emmerson Mnangagwa was one of the few days he was seen processing tomato paste and packing vegetables. Since then, the operation has been interrupted for several reasons which could have been dealt with at the investment analysis stage.
One of the key lessons from the Mutoko case is that locating a food processing plant away from other business activities is a recipe for failure because it isolates itself from other business hubs. Another key lesson is that a single production area may not supply enough raw materials to a local processing plant to make it viable. Since fresh tomatoes have other multiple uses such as household consumption, the processing plant competes with the open market where the majority of consuming households purchase their tomatoes. Instead of establishing a food processing plant in a production area, setting it up in central locations where products can be sourced from various production areas makes business sense, as it ensures a constant supply of raw materials.
Achieve inclusive economic transformation by asking the right questions
The good thing about an investment analysis is that it seeks answers to critical business and viability questions. Some companies open often and seem to do well for a while, but close quickly without notice because investors will have ignored the fundamentals of the company. Where it seems like a food processing plant would be a better fit, asking probing questions will reveal unseen ecosystems that can make or break a new business. Instead of focusing on how to make food processing and markets work for the poor, policymakers, businesses and non-governmental organizations should turn the question around to focus on how the majority of smallholder farmers , traders, small and medium enterprises, rural populations and consumers make markets work for themselves.
If there is no appetite for processed foods in the local production area, it will be difficult to push the product elsewhere. Rural communities are not just victims waiting for donor or government help to set up a food processing plant. By paying too much attention to the potential of modern, formal, global markets, policymakers risk failing to recognize the reality of a thriving informal and hybrid local economy. This affects whether or not a new intervention such as food processing survives.
The power of income diversification
Most African economies are characterized by a diversity of smallholder livelihoods combining formal and informal, agricultural and non-agricultural, urban and rural activities that bring together small and medium enterprises, farmers, traders and other actors. to collectively shape the rules of the hybrid. economy. Food processing companies must compete in contexts where flexible informal channels link poor smallholder farmers with poor urban consumers, connected by raw food products like tomatoes that are more affordable than processed tomato sauce.
Verbal agreements explain the movement of huge volumes of agricultural products as a means of overcoming obstacles typical of commodity markets in developing countries – poor market institutions and imperfect information. What also becomes clear is that informal does not mean uncoordinated. Far from being independent, informal and traditional trade is often characterized by a high degree of coordination, based on trust-based networks through which food moves from rural to urban areas and vice versa.
Confirming that economic transformation is not a silver bullet, the livelihoods of economic actors in African hybrid economies have become complex mixes involving multiple informal arrangements.
A defining feature is the increasing intertwining of rural and urban economies, with agricultural activities being combined with non-agricultural work through growing urban-rural linkages. Traditionally, urban incomes have been so low that many people have had to supplement their wages with food from rural areas sent by relatives. The situation has changed markedly.
Extensive kinship ties allow rural farmers, for example, to rely on periodic labor in the shops and workshops of urban relatives or as servants in towns or growth points. Improved roads and increased transport between rural and urban areas facilitate travel from farm to town, and many villages have become towns. As rural markets also become stronger and more connected to urban markets, rural-urban economic relations become more fluid, blurring the boundaries between these spaces. All of this influences the demand for processed foods.
Charles Dhewa is a proactive knowledge broker and management specialist. He writes here in a personal capacity