Influences of Marketing Decisions among Small-scale Farmers

In this chapter, relevant literature will be reviewed to present the factors that influence marketing decisions among small-scale farmers. The chapter will begin by providing an overview of the concept of a small-scale farmer in South Africa’s agricultural sector, briefly define and profile small-scale farmers of the nation and province. Further, to be reviewed is the importance of a small-scale farming to the development and growth of the economy, the marketing and market access to crop production for small-scale farmers. Finally, outline the constraints faced by small-scale farmers to access and participate in markets

2.1 The concept of a small-scale farmer in South Africa’s agricultural sector

In over twenty years since 1994, because of South African history, the transition to equality in the agricultural sector divide is highly considered to be racialized. In so much, that in policy and commonly the term ‘commercial farmer’ represents a white person involved in large-scale and capital-intensive farming linked to the markets Whereas ‘subsistence’ or ‘small-scale’ farmers represent to be black, family farmers detached from markets (Okunlula et al.,2016). In South Africa, an estimated four million people engage in smallholder agriculture for various reasons, and the most common reason specified for engaging in agriculture is seen as the main source of food for survival. Although small-scale farming is driven by subsistence, it also has the potential to produce a marketable surplus to supply local regional markets (Bernstein, 2013).

According to StatsSA (2013), in population KwaZulu-Natal (KZN) is the second largest province in South Africa which approximately has households who are mainly involved in subsistence and smallholder farming. KwaZulu-Natal is the national leader in numerous agricultural products being an area of high-quality agricultural land than any other province in South Africa (KZN Top Business Portfolio, 2018). Stats SA (2011) reported that about 78% of its population resides in rural areas, and due to the limited economic opportunities, many of the rural households are engaged in agricultural production at a small-scale level for their survival and income generation. Additionally, about 38% of agricultural households in KZN are active in both irrigation and dryland of crop and vegetable production (StatsSA., 2013).

A study by (Chikazunga and Paradza, 2013) considered small-scale farming is typically associated with black farmers who are largely found in the former homelands of the country and defined by the size of land available to them. Research conducted by Matungul et al. (2002) in two rural areas of KwaZulu-Natal, indicated that allocated plots of arable land to smallholders were small, be an average of 1.8 hectares in Swayimana and 1.1 hectares in Impendle. However, Cousin (2009) citied (Kirsten and Van Zyl, 1998) that farm size is not a suitable standard for defining small farms. it was argued that a hectare of irrigated land for vegetable or herb gardening in the peri-urban area has higher an income or profit than 500 hectares of less quality in the dry Karoo. Thus, the level of net farm income defines the farm size category, not the land size. From a policy point of view, the definition of small-scale farmer is important to the government and the recommended definition for the small-scale farmer is: “anyone whose scale of operation is too small to attract the provision of the service she/she needs to be able to significantly increase his/her productivity’’. The Department of Agriculture Forestry and Fisheries (2012) defined smallholder as “those farmers owning small-based plots of land on which they grow subsistence crops and one or two cash crops relying almost exclusively on family labor”. The small-scale farmers capital base is small to participate in big scale agriculture since they get low profits from selling agriculture products (Hassan, 2015). The term smallholder can be interchangeably labeled as small-scale farmers, resource-poor farmers, peasant farmers, subsistence farmers, food deficit farmers, household food security farmers and emerging farmers (Murphy, 2010).

2.2 Importance of smallholder farming

The agricultural sector is one of the vital areas which the government can transform the economic and social outlook of rural communities (Hornby and Cousins, 2016) as it contributes to food security, poverty alleviation and job creation. The support to smallholder agriculture can have a positive impact on improving the general livelihoods of rural residents (Pierre, 2014).

According to the (FAO, 2017), the highest rural population and the world’s hungry people live in Sub-Saharan Africa. Although smallholder production is low, it is recognized to be fundamental in the effort of achieving food security in rural areas. Oxfam South Africa defines food security as a state “when everyone has at all times access to and control over sufficient quantities of good quality food for an active healthy life”. Food security means that all people always have both physical and economic access to enough food for an active, healthy life (Tsegay et al., 2014).

Food security forms a big part of the KwaZulu-Natal poverty eradication strategy as the province Department of Agriculture and Rural Development (DARD) budgeted about an additional budget of R90 million was prioritized for food and nutrition security interventions, increasing the budget to R200 million for 2017/18 food security programmes (Devereux and Waidler, 2017). To ensure long-term food security, there is a need to increase the productivity levels of smallholder farmers. This can be achieved by, among others, encouraging smallholder farmers to pursue sustainable intensification of production through improved inputs (Du Toit and Neves, 2014).

South Africa ranks among the countries with the highest rate of income inequality in the world with the Gini coefficient of 0.62 (OECD, 2018). As a result, compared to other middle-income countries, it has extremely high levels of absolute poverty growing food for subsistence or income generation provides people with nourishment and potential income. As stated by Department of Agriculture Forestry and Fisheries (2012) poverty refers to the condition of not having the means to afford basic human needs such as clean water, nutrition, health care, education, clothing and shelter It is more prevalent in rural areas, particularly in the former homelands. The households in a rural area who are engaged in agricultural production can alleviate the poverty levels (Town et al., 2013).

Smallholder producers regularly use labor-intensive methods rather than capital-intensive ones (Mhlaba and Brey, 2014). Consequently, the opportunity for more job creation in agriculture rests with the smallholder agriculture sector which faces constraints that prevent the growth of employment in this sector. Smallholder farmers contribute to employment by hiring labor to assist them with marketing their products when transporting produce to the market and when supplying hawkers (Chikazunga and Paradza, 2012). In South Africa, agriculture has the potential as a primary activity in rural areas to create one million jobs by 2030 (National Planning Commission, 2011). Furthermore, DAFF (2011) estimated that the smallholder agricultural sector provides full or part-time employment for at least 1.3 million households.

According to The KZN Department of Agriculture and Rural Development (DARD, 2015) attempts to assist smallholder farmers to a level where they start earning an income from their farming activities. This will be attained by developing food producers to supply government, local and external and markets by means of contributing to the Department of Social Development’s Nutrition Development Centres and School Nutrition Programme. In this favor, smallholder farmers will be able to alleviate poverty and earn an income.

2.3 Marketing and market access to crop production for small-scale farmers

In South Africa, the potential involvement of smallholder farmers in the economic development and growth remains inaccessible. The major challenges facing smallholder agricultural growth are closely associated with lack of marketing knowledge and opportunities and infrastructure. In marketing, the smallholder sector still resembles past Apartheid legacy, where the sector has difficulties in marketing produce through formal channels (Obi, Schalkwyk, and Tilburg, 2012). South Africa agricultural crops sold in markets are a fundamental part of strategies to improve economic development in developing countries. For smallholder farmers, by marketing their agricultural produce, households’ access to employment opportunities, food and nutritional security and rural development improve (Merwe, 2013). According to Matsane and Oyekale (2014) marketing involves various activities that are necessary to move a product from the producer to the consumer. The activities include packaging, transport, processing, storage and lastly the retail sale of agricultural products. Marketing activities also include the planning, pricing, promotion and distribution of products (Agricultural Marketing Resource Centre, 2007).

Small crop producers usually sell their crops through two main channels of formal and informal channels. To each marketing channel, has its own advantages and constraints. According (Simphiwe et al., 2016) the informal channel is by far the most significant channel for smallholder farmers in South Africa. The reasons, among others, why smallholder farmers do not frequently use formal networks is because the standard requirements and product specifications for crops in these channels are far more stringent and specific. Thus, smallholder farmers find it difficult to meet this quality demand.

Some private dealers described by Makhura (2001) attempted to buy crops from smallholder farmers and offered farmers very low prices in disagreement that they had to meet the cost of transporting the produce to the market. This refers to the reason most smallholder farmers particularly those situated in most remote rural areas sold their produce at the farm gates, whereas commercial farmers sold a larger share of their output through other channels such as retailers, wholesalers, and processors (Birthal, Jha, and Singh, 2007)

Hence, South African agricultural economy does not have a strong support system or rather little room for emerging farmers available to support previously underprivileged farmers (Chikazunga and Paradza, 2012), promoting farmers to be unable to take benefit of the various opportunities that the South African government has been introducing to access markets with a satisfactory produce (Aliber and Hall, 2012).

In the smallholder farmers framework, market access can be defined as the capability of these farmers to seize available market opportunities. In which it could serve as an income incentive and encourage farmers to increase productivity (Valle, 2010). And as acknowledged that smallholder farmers lack access to rewarding markets due to several constraints such as lack of technical support (i.e. training on aspects of production and marketing, and active involvement of extension officers), poor infrastructure (i.e. road, water access, electricity, telecommunications and storage facilities), long distance to input and output markets, lack of information (relating to markets, production, finance and environmental issues), high transport costs, low involvement in agricultural cooperatives and no record-keeping practises, among others (Jari and Fraser, 2012).

Comparable to Killick et al. (2000) market access is defined as the processes in which people access markets and the efficiency, nature, and costs of these procedures. Market access, according to these researchers is dictated by four factors. Firstly, the level of confidence in the market conduct i.e. how well markets are structured (by the government or voluntarily).  Secondly, the access to information about the product, its attributes, prices, and quality.  Thirdly, the physical costs of accessing the market, which is a function of the quality of infrastructure and the organization of the transport sector. Finally, the information about organizational transactions, and the actual prices found in the markets in which people manage; as reliability is critical if payment is not immediate (Killick et al.,2000). Technical constraints cited by Nxumalo and Oladele (2013) include the unavailability of equipment to relieve labor shortages, inadequate supply of complementary inputs (such as seeds, chemicals, and water), and insufficient human capital. These technical constraints hinder business growth and promotion of small-scale farmers to a commercial level.

2.4 Constraints Faced by Smallholder Farmers to Access Markets

There is a common discussion that reducing market access barriers could facilitate smallholder farmers into the mainstream economy. Thus, it could enhance agricultural development, food security and reduce poverty. To improve market access for smallholder farmers requires a suitable and enabling institutional environment to obtain resources to become a successful farmer (Ele, Omini, and Adinya, 2013).

2.4.1 Physical Infrastructure

A large portion of rural households continues to lack access to basic services (Birthal et al., 2007). Gnade (2013) demonstrated that South African urban areas are generally well-serviced in terms of water and sanitation, electricity, information, and communication technology (ICT), and transportation, while rural areas significantly fall short in services. A development in physical infrastructure can promote agricultural productivity and marketing of farmers produce (Ngomane, 2012). Machete (2004) explained thatcreating an enabling environment for the market linkages to be successful requires the provision of good infrastructure.

Furthermore, good infrastructural services area necessary for profitability and rural development. Business activities such as transportation of goods and storage depend upon infrastructural availability.  It is considered that for business growth to be a success, an improvement in the supply and quality of infrastructural services is crucial (Ampaire, Machethe, and Birachi, 2013).

2.4.2 Road infrastructure

Road infrastructure has an influence on smallholder market participation, particularly if they are situated far from the main shopping centers. Good roads would enable farmers to get their produce to the market in a timely secure and manner. (Makhura, 2001) suggested that farmers with access to good roads have more opportunities for various marketing channels than farmers who face poor road networks.

Poor roads increase transportation costs as transporters charge high fees to compensate for damages on their vehicles and may discourage farmers from using certain marketing channels. The accessibility of good roads reduces transportation costs, which is beneficial for farmers to make a surplus from their products and to move from farm-gate sales to other markets (Gandhi, 2007).

2.4.3 Transportation 

To connect produce to markets and business to customers, transportation plays a vital function in business activities. In addition, transportation is also used to transport inputs to the farm and if the public transport system is not available in the rural areas, inputs to plant may not be received on time (Matsane and Oyekale, 2014). Consequently, production is negatively affected and ultimately the marketing of the produce. Tembe (2008) found that transport was the main constraint for amadumbe (African type of crop) producers in KZN, Mbonambi municipality to reach the market. This revealed the challenge of maintaining continuous supply faced by smallholder farmers.

According to Clover and Darroch (2005), the lack of own transport evidently increases the transaction costs for farmers based in remote rural areas. As most of the smallholder farmers do not have their own means of transport, they rely on buses, taxis, neighbors, contractors and some expensive hired transport because of relatively small quantities of produce. Smallholders usually need to rely on some public transport because their buyers are reluctant to service them because of the poor quality of roads and accessibility. The inaccessibility of smallholder farmers can make them not to be professional because public transport may be available, however not always adequate for moving crops to markets, subsequently lose opportunities (Makhura, 2001 and Gandhi, 2007).

2.4.4 Storage and Packaging Facilities

Storage includes preserving the crop produce after the time they are harvested until they are required for consumption (Obi, Schalkwyk, and Tilburg, 2012). To be able to deliver quality products to the market and eventually to the customer demands gives the farmer a competitive edge.

The lack of storage facilities that constrain smallholder farmers to sell their produce immediately after produced to alleviate congestion and spoilage of produce. It is estimated that up to fifteen percent of production in Sub-Saharan Africa is lost between farm gates and consumers due to lack of storage facilities(Matsane and Oyekale, 2014). This causes the smallholder producers to sell their produce at lower prices and at times they experience losses because of spoilage as declared unfit for consumption. Farmers with proper storage facilities do not need to market their produce immediately after harvest when prices tend to be low (Murugani and Thamaga-Chitja, 2018). They can store their produce and sell at an optimum price in the market.

For instance, according to Gustavsson et al. (2011), vegetables straight from the farm can be spoilt in hot climates due to lack of storage and cooling facilities. And for lasting first-class storage, fresh produce needs to be maintained at proper temperatures. Unfortunately, refrigerated storage facilities require electricity and most rural area do not have access. Overall, farmers who can maintain the quality of the product will be capable participate better in the marketplace and grow marketing opportunities (Herman et al., 2012)

2.4.5 Information Access

The lack of information hinders rural producers in making decisions about the production, the quantity to produce relating to the best time to produce and capitalize on the returns. According to Shepard (2006), cited by Jari and Fraser (2009), smallholder farmers lack information about sustainable agricultural production, potential buyers, product prices at the local or regional level, about quality requirements, the best places and times to sell their products.  The availability of reliable market information can help farmers to reduce the risks associated with marketing and transactional costs. The decisions whether the prices presented are marketable, also whether to store, grow produce or diverse production. The accessibility of valid information improves communication and openness to the farmers’ bargaining power (Kindness and Gordon, 2001)

Normally smallholder farmer depends on informal networks (traders, friends, and relatives) for information are at risk of getting biased information due to the opportunistic behavior of the more informed group (Clover and Darroch, 2005). For example, Mangisoni (2006) described that smallholders regularly accept low prices for their crops when the broker informs them that their product is not of good grading and standard. Subsequently, smallholder farmers take these low prices because they are unable to negotiate from a well-informed position. In contrast to commercial farmers, they are capable of tracing price and buyer information from their private adviser, publications, websites and commodity associations. While small-scale farmers rely on government extension staffs and fellow farmers for the same information. Therefore, the necessity to make information accessible to developing farmers at the right time is important (Shepherd, 2006). Telecommunication has great potential, such as the short message system (SMS) and media broadcasts (television, radio etc.), as an instrument to be able to distribute the most crucial information to farmers. As some farmers are illiterate, broadcasts should see market information as public services, ought to be in various languages and at the most convenient time for farmers to be listening (Food and Agriculture Organisation, 2011).

Access to information should lead to higher profitability and ability to move farmer beyond subsistence production (Obi, Schalkwyk, and Tilburg, 2012) .Although, for most smallholder farmers, knowledge information transfer services will have to be compensated by extension services that will be able to assist them to understand price numbers. Market information is key for participation in the market and enables farmers to make informed decisions relating to marketing and which links to supplying necessary goods, searching for potential buyers, negotiating, administer and monitor relationships (Food and Agriculture Organisation, 2017).

2.4.6 Access to Credit

To ensure sustainability, smallholder farmers require sound capital, to finance agricultural assets, an access to credit facilities can be a great contribution to farmers. According to Zuwarimwe and Kirsten (2010), smallholder farmers face problems in attracting external finance and other needed resources to establish and expand their businesses. The poor financial status and the lack of owning assets which can serve as collateral negatively affect the creditworthiness of small-scale farmers. Creditworthiness includes the lender’s assessment of the borrower repayment ability to meet the conditions and terms of the loan (Pienaar and Traub, 2015).

This suggests that smallholder farmers find it difficult to raise money that can improve their marketing decisions. And due to the high risks related to lending to smallholder agricultural cooperatives, financial institutions have been hesitant to provide credit to them (Manganhele, 2010).

2.4.7 Grades and Standards

Consistency, packaging, and uniformity of goods in terms of texture, color, size, and taste determine the consumers purchasing decision. Also, consumers will not purchase produce unless there is an assurance that they are safe to consume. (Jari and Fraser, 2012). According to Herman et al (2012), most smallholder crops have no clear definition of grades and standards and, therefore, cannot meet the demand of consumers.

Makhura (2001) noted that for smallholder farmers to be involved in the formal market their products must meet a specific standard related to the products themselves and to the processes by which they are produced and handled. (Jari and Fraser, 2012).

However, (Okunlula, 2016) also noted that supermarkets with decentralized procurement arrangements (i.e. greengrocers and convenience stores), which are owned by family businesses or individuals operating in rural townships and areas. They do not have high standards of requirements and are less stringent in their demands in relation to the quality of produce, which is conducive for the smallholder farmer (Murugani and Thamaga-Chitja, 2018)

In contrast, the disadvantage, as much smallholder farmers do not have binding contractual agreements, which can constraint them from negotiating for better. It is not for certain, that the small independent retailers will take on their produce every time, at times farmers wait for the phone call from the buyers in vain. Therefore, it is recommended that well-organized farmers can benefit and profit from the dealings by adopting obtaining the necessary guarantee and quality control measures for their goods to consumers. (Baloyi, 2010).

2.4.8 Education

Education is essential for reducing poverty and improving the livelihoods of rural people. In SA, educated rural people to tend to find employment in other sectors than staying at home to farm (Tshuma, 2014), which suggests that full-time farming in rural areas is dominated by individuals who do not have a much formal education. Education helps an individual to learn how to think, how to work properly, and how to make decisions (Ashwin and Mcvitty, 2015). Although experience and business talent are important, education can edify an individual potential to its fullest. According to (Sinyolo, Mudhara, and Wale, 2014)  small-scale farmers understand that education is a necessity for them to improve productivity and business management.

To enhance human capital development knowledge, skills and abilities of individuals allowing farmers to reach their fullness can be improved through informal and formal educations systems (De Cock et al., 2013). Formal agricultural education training (e.g., at universities or agricultural colleges) is needed to produce capable manpower to serve in the agricultural sector through research, extension commerce and entrepreneurship. Informal agricultural education is particularly required for the training of farmers, farm households and workers and for capacity building in a wide range of community-based organizations and groups (DAFF, 2011). Education could impact rural farmers to manage their businesses profitably and sustainability to participate effectively in the economy (Collett and Gale, 2009).

2.4.9 Institutional Factors

Institutions according to Murphy(2010) affect economic, social and environmental performance, growth and development through their influence on human behaviour. Institutions, as published (North, 2015), are described as ‘rules of the game’ and comprise both formal rules, such as laws, constitutions, contracts property rights, among others; and informal constraints such self-imposed codes of conduct, norms of behaviour, agreements, customs and religion that provide the structure for human interactions. It is by both formal and informal institutions that societies are typically administered, however, barriers may arise indirectly or directly from an alleged lack of either government or private sector support (Clover and Darroch, 2005, Nxumalo and Oladele, 2013).

Institutional development impact on the activities performed on the market and transactional costs. In developing countries, constitutional laws are not always enforced and implemented appropriately, cheating and bribery are regularly not penalized (Magingxa and Kamara, 2003). In so much, that the market rules also are often not transparent to the producers and traders Due to the lack of advocacy and lobbying for smallholder farmers in the legal environment, the condition is even worse (Koch and Terblanche, 2013)

Therefore, a crucial requirement for the formation of institutional support systems and of marketing opportunities that enables integration of small farmers into national economic systems (Ncube, 2017). The current policy information emphases on the effects of policy distortions and inadequate attention being given to the serious, rooted institutional insufficiencies that limit many smallholder farmers in rural areas from taking advantage of market opportunities. For example, the lack of adequate contract systems, infrastructures, and information, etc. require a long-term intensive attention for smallholder development if globalization is to offer opportunities (Murugani and Thamaga-Chitja, 2018).

2.4.10 Summary

The chapter reviewed literature, it outlined the importance of small-scale farming and its contribution to poverty alleviation, job creation, and food security. It briefly profiled and defined a small-scale in a context of South Africa and KwaZulu Natal. The discussion on the marketing and access to markers of crop production for small-scale farmers was highlighted. The chapter provided a report on the constraints in smallholder agriculture and accessing markets.

The constraints to smallholder agriculture that caused challenges among smallholder farmers to access markets were discussed. The main technical and production factors that limit smallholder farmers to access markets include physical and road infrastructure, storage and packaging facilities, transportation, information access, access to credit, grades and standards, education and institutional factors.