The Case of Chilli Pepper Value Chain

The Case of Chilli Pepper Value Chain With the emergence of globalization and internationalization of trade, development agencies in development cooperation increasingly aim at a sustainable, growth-oriented integration of developing countries into the world economy. Value chain development has received more emphasis especially in development projects and programmes. Improvements in the productivity of subsistent farmers are pre-requisites to the achievement of full contributions of agriculture to overall growth and development. Recent global policies propose that farmers can get out of poverty by being better linked to markets. Markets in recent times are changing fast and competition is becoming increasingly fierce. If businesses aspire to stay in the market, they need to make sure that their products and services meet continuously changing market requirements and demand conditions (Matthias et al. 2009). millions of subsistent farmers and rural communities especially in Africa are working to improve their livelihoods in an environment with low or little government support for producers, processing companies and supermarkets within agricultural markets (Renà ©, 2006; Martin, 2006). While access to markets remains an important medium for achieving the Millennium Development Goals (MDGs), there remain low levels of investment in agriculture, poor infrastructure, as well as limited access to technological innovation, Business Development Services (BDS), and market information and weak commodity value chains still inhibit smallholder farmers full access to markets (Aldonas, 2009). Ghana is currently running an agrarian economy and agriculture by no doubt the largest sector. The rate of the countrys economic growth seems to fall on the performance of the agricultural sector. The agriculture sector employs at least 50.6 percent of the working population, and most of them are small-scale farmers in developing countries. This rises to above 75 percent in the rural areas (Brempong 2003). More than 35 percent of Ghanas Gross Domestic Product (GDP) comes from agriculture (FASDEP 11, 2007). Market orientation among producers and processors still remains a stumbling block. For value chains and marketing systems in agriculture, there exist mutual benefits where farmers are hooked-up to the needs of consumers, working closely with suppliers and processors to produce the specific goods consumers demand (Roduner, 2007). Similarly, consumers are link-up to the needs of farmers via information flows. Development and promotion of value chains in agriculture is often about improving access to markets and ensuring a more efficient flow of products with the assurance that all actors in the chain benefit. Government and Non-governmental Organisation (NGO) promoting value chain development have made it a core responsibility to supporting farmers to sell their products via value chains. But the question which needs deeper investigation is: do emphases on value chain development bring about an improvement in market access and income to farmers? The development of the value chain concept does not automatically result in benefits for smallholder farmers. The value chain concept is yet to assume its full potential in its intervention strategy among the chilli pepper farmers in the Tolon Kumbungu District. Value chains development can only overcome the cycle of poverty if they are deliberately designed to improve farmer livelihoods, so they need to be pro-poor (Gertan, 2009: p 2). As a new concept among development practioners, there is the tendency of selection of inappropriate value chain instruments that is not responsive to the needs of the smallholder farmers. Market in this context refers to the total supply and demand for a particular product farm products in both locally and internationally markets. The process of marketing must be customer oriented and provide profit for farmers, transporters, traders and processors otherwise they will not be able to stay in business. Value chains in this context refer to all the steps that a product takes, from its point of origin farm to the consumer. A value chain represents a specific type of supply chain where the chain actors actively seek to support each other so they can increase their efficiency and competitiveness. The actors invest in money, effort and time and build relationships with one another to reach a common goal of meeting and satisfying the needs of consumers hence, they can maximize their profits. Value chain development in agribusiness treats production as a chain of activities, each of which adds value and cost to the final product. As the product makes it way via the value chains, the value of the product increases. Actors are the specific players involved in producing, processing, trading or consuming a particular agricultural product. They include direct actors producers, traders, retailers and consumers which are commercially involved in the chain and indirect actors which provide financial or non-financial support services, such as; business service providers; bankers, credit agencies, researchers and government. The German Technical Cooperation of the Market Oriented Agriculture Programme (GTZ/MOAP), International Fertilizer Development Center (IFDC) and Savanna Agriculture Research Institute (SARI) are currently focusing on employment-oriented private sector development and agriculture. The value chain development concept has been adopted by these organizations as part of their core development strategies especially in the chilli pepper industry in the Tolon-Kumbungu District of the Northern region of Ghana since the year 2005. Their main aim of the intervention in the chilli pepper business is to reduce poverty and to stimulate the growth of the local economy by fostering sustainable relationships among actors, thereby bringing about their competitiveness in domestic, regional and export markets (MOAP, 2005). While these seem laudable, the problem of market access still exists. As a tropical crop, chilli pepper can survived in both tropical and temperate climates. In 2005 the global production amounted to 27.5 million tons (AVRDC, 2005). Considering developing countries in particular, chilli pepper is considered the most popular vegetable crop, being grown on an area of 0.73 million hectares in sub-Saharan Africa in 2005 (AVRDC, 2005). Chilli pepper is a common agricultural product produced and consumed in Ghana. The crop is used in nearly all Ghanaian dishes. The annual demand for chilli pepper is estimated at Ghc 27,000 and accounts for about 9.6% of total food expenditure in Ghana (GLSS IV, 2000), while consumption is expected to rise with increasing population. The crop is ranked the fifth most important crop in the Northern Region of Ghana. Quite a number of households and individuals are involved in its production in the region. It is estimated that about 41.3% of households in the Northern region engaged in chilli pepper production, making the region second only to the Brong-Ahafo as the region producing significant quantities of chilli pepper in the Northern sector of the country (Nsiah-Gyabaah, K. 2002). Therefore, any poverty alleviation program that includes the promotion of the crop as part of its strategies could have high potential for achieving greater impact, as chilli pepper has become an important cash crop for the majority of the people cultivating and trading in it. However, due to the effects of globalization, liberalization and increasing competition in agriculture markets, it is apparent that strategies aiming at reducing rural poverty need to move beyond a focus on increasing productivity. 1.1 Problem Statement Millions of subsistent farmers in developing countries and for that matter Ghana are working to improve their livelihoods with limited government support for producers, processing companies and supermarkets within agricultural markets (Renà ©, 2006; Martin, 2006). While access to markets remains an important medium for achieving the Millennium Development Goals (MDGs), there remain several factors including weak commodity value chains still hinders smallholder farmers to access markets (Aldonas, 2009). The main concern in development cooperation is how to reduce poverty. Many development organizations believe that agriculture value chain development is a strategic means of bringing about market access and income to farmers. Vibrant value chains are said to be more efficient in bringing products to all actors including small-scale producers and poor consumers should at least benefit from value chain development. Competitiveness in agribusiness in both local and international markets is noted to be one of the most commonly quoted objectives of value chain development. But this seems not to hit its full potential with the chilli pepper value chain in the Tolon-Kumbungu District. Chilli pepper farmers are still faced with an enormous marketing constraint of having to find credible buyers after harvest. They remain price takers and face the risk and uncertainties of fluctuating markets. The farmers feel highly vulnerable and unable to withstand the risks and achieve sufficient production to participate in value chain (Mitchell et al. 2009). Against this background, chilli pepper farmers in the study area still grapple with unassured markets for their raw materials and see themselves as price takers thinking that they have no control over prices and have to accept whatever is offered. Lack of economic equity among actors endangers the chilli pepper value chain intervention in the study district. Value chain development needs to priorities the constraints described above if they are to work for poorer farmers. As a contribution to understanding and solving these problems, an empirical research is needed to investigate into why chilli pepper farmers in the Tolon-Kumbungu district are not being paid sufficiently for their produce. 1.2 Research Questions 1.2.1 Main research question: What are the prospects and challenges of chilli pepper value chain development in the Tolon-Kumbungu District? . 1.2.2 Sub Questions 1. Does value chain development bring about an improvement in market access and income to farmers? 2 What are the entry barriers faced by farmers in the value chain marketing system? 3. What support do farmers need to function as active players of the value chain? 4. What strategies can be adopted to upgrade value chains in terms of product, process, and functions? 1.3 Research Objectives 1.3.1 Main Objective The general objective is to assess the prospects and challenges of the chilli pepper value chain development in the Tolon-Kumbungu District. 1.3.2 Sub Objectives 1. To find-out ways by which value chain development can lead to market access and income 2. To identify the entry barriers faced by farmers in the value chain marketing system. 3. To identify the requisite support required by farmers to function as active players of the value chain. 4. To identify strategies for upgrading of value chains in terms of product, process and functions. 1.4 Significance of the Study Pro-poor growth approach in recent times has become one of the key concerns of development organizations especially in developing countries. The matter with this approach lies in the promotion of economic potentials of the smallholder farmer and the disadvantaged (Altenburg, 2007). Nearly 35% of Ghanaians fall below the poverty line and a majority of these people reside in deprive communities where agriculture is the main source of livelihood. The introduction of the value chain as a development intervention tool is not only timely, but it is also appropriate. The value chain concept has gained more and more recognition in development projects and programmes with the primary aim of reduction in economic inequality by improvement in market access and income of all actors along the chain. Well functioning value chains should create a platform for efficient and mutual benefits of all actors including small scale producers and poor consumers, should benefit from value chain development. However, as a new concept among development practioners, it is likely to be engulfed with many critical operationalization problems. Hence, efforts should be stemmed up to facilitate the efficiency of the value chain development concept to aid in the attainment of the UN number one Millennium Development Goal eradication of extreme poverty and hunger. One surest way of doing this is to unearth the challenges and prospects of the value chain development concept as an intervention tool in agribusiness development among smallholder farmers, hence the study. The study is also expected to bring to bear the challenges and prospects of the chilli pepper value chain and how it can be improved to make it more pro-poor. The findings will also be useful to value chain practioners. Last but not the least, the result of the research could also serve as a basis for further research on the chilli pepper industry in the Northern Region of Ghana. 1.5 Scope of the Study The study will be organized into five chapters. Chapter one will cover the background of the study, problem statement, the research questions, the objectives of carrying out the study and significance of the study. Chapter two will explore the pertinent conceptual and empirical literature on the topic under consideration. Also, chapter three will consider the research methodology with regard to the study design, sampling method, data sources, study instruments and analytical tools and techniques. Chapter five will present the study results. Chapter five will present the discussions of the research findings while chapter six will offer the summary, the conclusion and recommendation thereof. Figure 1.1 Conceptual Frame Work Tolon-Kumbungu Chilli Pepper Value Chain Analysis 1. PRODUCERS Grow Harvest Dry 3. WHOLESALERS Fresh chilli pepper Dried chilli pepper Powdered Chilli pepper 4. TRADERS Fresh chilli pepper Dried chilli pepper Powder chilli pepper CHALLENGES PROSPECTS OF CHILLI PEPPER VALUE CHAIN IN THE TOLON-KUMBUNGU DISTRICT 2. INPUT PROVIDERS Availability of Equipment Seed Fertilizers Value chain Supporters: research extension, financial service providers, government, regulatory bodies, trust and power relations etc 6. CONSUMERS Fresh chilli pepper Dried chilli pepper Powdered pepper 5. PROCESSORS Fresh chilli pepper Dried chilli pepper 1.4.1 Conceptual Frame Work The conceptual framework portrays linkages of the main actors of the chilli pepper value chain in the Tolon-Kumbungu District that may influence the efficiency of the chain. The framework demonstrates that for chilli pepper value chain to maintain a functional level that will make it efficient and sustainable, input providers, producers, transporters, processors, wholesalers, retailers and consumers must work and coordinate effectively. Producers of chilli pepper are the most essential actors of the chain but face the most constraints and need preferential treatment though the entire actors involved in the chain must equally function well which among others include: input providers, transporters, processors, wholesalers, retailers and consumers. Value chain supporters service providers (research and extension, rural banks, regional etc), National, district, community administrations, regulatory bodies, legislations, infrastructure and Socio-cultural factors influencing business attitudes, trust and power relations all influence the efficiency and sustainability of the chain. CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter is essentially a review of past works that have been done in the field of value chain with special emphasis on value chains in agribusiness. To this extent, both published and unpublished literatures will be reviewed. Gaps in some theories and concepts will be identified, amendments done and acknowledgement made. Value addition processes Value addition consists of activities that tend to improve products with the intension to increase returns for operators in the value chain. Cramer and Jensen (1994) consider value addition in commodity marketing to consist of those efforts that affect transfer of ownership and create time, place and form utility to commodities. Time utility is created through storage, to make commodity available over time. Place satisfaction is through transportation services, making the commodity available to those wanting it. Finally, form utility is added to a commodity through the processing function. Will (2006) on the other hand identified two possibilities for Value addition: (1) Value Capturing and (2) Value Creation. Value capture is described as the process of improving current production, processing and trading structures/processes. Value creation is however seen as the process of innovation in a new product. To create value, it is necessary to identify the promising market opportunities and assess production and marketing risk. What these fails to capture is to whether smallholder farmers can position themselves to be able to meet consumer demands and be able to at least have assured markets. Value addition as preached by development organizations stresses the need for its application at every stage of the production line. No efforts is been made to find-out the possibility of participation by low income and disadvantage farmers to actual stand-up to the task. Also, development organizations operationalizing value chain intervention models need to be questioned on the successes and the way-forward regarding their methods of intervention especially among smallholder farmers. This study is geared towards addressing these gabs, and will propose strategies for value chain intervention in agribusiness among smallholder farmers. Five value addition processes have identified for horticulture especially chilli pepper (Figure 1.0 below). Chilli pepper traders, through marketing activities create, time, space and forming utilities, by buying, and/or sorting before selling fresh to capture value or create value by drying before sales (Schipmann, 2006). Indeed, the transformation processes that take places in the chilli pepper value chain include grinding of fresh pepper into a hot pepper paste, or drying to obtain a dried chilli pepper which is also the intermediary product for powdered chilli pepper when milled. The powdered chilli pepper is also used for producing Shito, a local pepper source, when cooked with other ingredients. All the transformational activities of the chilli pepper crop were rudimentarily carried-out before the introduction of the value chain intervention and even in recent times. Output from functional process by smallholders may probably not meet EuroGAP and GlobalGAP requirements hence, lacks the competitiveness for both local and international markets. Mainstreaming smallholder farmers in value chains implies the preparedness to play a facilitating and linkage roles by development organizations through the provision and maintenances of equipments for the low income farmers. Even though, the transformational change is mainly carry-out by traders and processors in and outside the district, helping the farmers to add value through minimal processing (functional upgrading) has the possibility of increasing their profit margins. What level of processing should be prescribed for producers to make them competitive and increase their profit margins? The study will unearth the possible avenues for increasing in the profit margins of the chilli pepper farmers. Figure 1.0: Value Addition Processes in the chilli pepper Chain. PRODUCTION PROCESSING PRODUCT Fresh Chilli pepper None/Sorting Fresh Chilli Pepper Chilli pepper paste Grinding Dried Chilli Pepper Drying Powdered Chilli pepper Milling Shitto Cooking Adapted from Schipmann, 2006 Smallholders all over the world are faced with increasing imperative to integrate themselves into the market to generate cash income in other to improve their livelihoods. The development of the chilli pepper value chain in the Tolon-Kumbungu district of the Northern region of Ghana is therefore seen as a means to improve the crops potential for improving the livelihoods of the population who depend on it for their livelihoods. Improving agricultural productivity through the promotion of market oriented agricultural development program is seen as a catalyst for growth and development in rural communities. For, the integration of rural population into the national and international markets is seen as one of the best options for successful poverty reduction (Stamm, 2004; OXFAM, 2002). Indeed, the development and realization of the value chain development strategy is expected to contribute to achieving a better competitiveness in the local, regional and international markets. By so doing smallholders will be empowered to be capable of managing and maintaining connections with diversified and growing markets. This, it is hoped, will also translate into increased income for all operators along the commodity chain, the creation of employment and consequently the improvement of the livelihood in rural and urban areas (Will, 2006). Although, recent economic growth in Ghana has had limited impact in reducing high poverty rates, particularly in rural areas, the emergence of value chain as a tool for development intervention in the chilli pepper sector will present a new prospects for promoting agriculture and rural development in Ghana, and expanding opportunities for inclusion of resource poor farmers in a dynamic and high value markets. The growth in chilli pepper production however poses new challenges for public policy, particularly if policy markers are concerned about integrating smallholder farmers into the export markets. Literature is currently being reviewed on the following thematic areas and would be incorporated in the final thesis document. They include but not limited to; Standardization in agribusiness in developing countries, Horticulture marketing in developing countries, FBO development, and contract farming. CHAPTER THREE METHODOLOGY 3.1 Introduction This chapter is devoted to the study design, methods and tools of the research. 3.2 Study Design This study will be descriptive and cross sectional in the sense that, data will be systematically collected at a particular point in time, analysed and presented to give a clear picture about the state of the value chain intervention strategy in the Tolon-Kumbungu District. 3.3 Profile of the study area: 3.3.1 Location and size The Tolon-Kumbungu District is one of the 45 districts created by the erstwhile Provisional National Defense Council (PNDC) Law 2007 in 1988 with Tolon as the capital. It lies between latitude 9 ° 16 and 9 ° 34 North and latitudes 0 ° 36 and 0 ° 57 West. It shares common boundaries with Savelugu/Nanton District to the North, Tamale Metropolis to the East and Central Gonja District to the South (Tolon-Kumbungu District Assembly profile, 2001). The district covers an area of about 2, 741 square kilometers with a population of 132,338 (female, 66,269, male, 66,069) (PHC, 2000). The current (2006) population is estimated as 145, 876 with the growth rate of 3%. Population density is approximately around 50 inhabitants per Kilometer Square. The District lies between latitude 10-20 north and longitude 10-50 west, shares border with West Mamprusi District in the west and south and the east with Savelugu/Nanton District and the Tamale Municipal Assembly (Tolon-Kumbungu District Assemb ly, 2001). . The major vegetable crops grown in the area are chilli pepper, tomatoes, onion, okra and garden eggs. Chilli pepper actors are among the few people to have received support services from development agencies operating in the district and outside the district (Tolon-Kumbungu District Assembly, 2001). Source: Encyclopedia of the Earth 3.2.2 Topography and Drainage The District is located 180 meters above sea level and the topography is generally undulating with shallow valley that serves as stream courses and isolated hills. This District is among the few Districts in the Northern region on which the White Volta tress passes. Other major natural water systems in the metropolis include; Dalun, Bontanga, Golinga, Jaagbo dam and Tolon dams. However, many smaller dams are also dotted around (Tolon-Kumbungu District Assembly profile, 2001). 3.2.3 Climate and Vegetation There is a unimodal rainfall pattern with a mean annual rainfall of 1100mm in the District between April/May to September/October. As a result staple crop farming is highly restricted by the short rainfall duration. The mean dry temperature range from 33 ° C to 39 ° C with mean night temperature ranging from 0 ° C to 22 ° C. The mean annual day sunshine is approximately 7.5 hours. The District exhibits both short and tall grass interspersed with drought resistant trees such as shea trees Neem, Dawadawa and Mahogany. During the rainy seasons the Distrct becomes green and making the vegetation more luxuriant. In the dry seasons, however water becomes scarce as a result of poor vegetation cover. The grasses dry up and the accompanying bushfires destroy the soil nutrients and expose the soils to serious erosion (Tolon-Kumbungu District Assembly profile, 2001). 3.2.4 Soil The types of soil that can be found in District include sandstone, mudstone and shale. These soil types are inadequately protected resulting in serious erosion during rain seasons. 3.2.5 Food security and environment The main crops cultivated per households are cereals 99.8 percent, legumes 88.3 percent, tubers 80.6 percent, vegetables 35.7 percent and 15.3 percent cultivates fruits. The major crops currently grown in the District are maize, groundnuts, yam, cassava, sorghum, rice, cowpea, millet, pegion pea, and soya-beans. Others are chilli pepper, tomatoes, onion, okra, and garden eggs. Industrial crops grown are cotton, tobacco (grown as cash crop but also for local consumption), groundnuts, cashew, sheanuts, and soya-beans (Tolon-Kumbungu District Assembly profile, 2001).. The main problem facing crop production is the hazardous environment for crop farming reflected in perennial flooding of farmlands. Unfavorable weather conditions (drought), erratic rainfall, perennial bush fires and declining soil fertility. Some of these problems are however due to poor environmental management relating to inefficient farming practices and hunting for fuel wood. 3.2.6 Agriculture potential in the District Despite the challenges facing agriculture production, the District is endowed with numerous potentials which when exploited will help transform agriculture in the district. Among these potentials are; Land potential resources which is readily available, Irrigation facilities-Bontanga and Golinga for all year cropping, Research Institutions SARI, ARI and UDS, Availability of farm labour, Research Extension Farmer Linkage- to create effective technology transfer and adoption. Others include; commercial production of legumes (soya-bean) and vegetables (chilli pepper), commercial production of roots and tubers (yam and cassava), small and large ruminant production and Industrial cash crop production. 3.2.5 Ethnicity and Cultural Values Apart from Nyankpala community in the District which is ethnic diversity, almost all people in the villages are Dagombas. Towns in the district are; Tolon, Kumbungu, Nyankpala, Dalun, Wantugu, Tali, Kasulyili, Yoggu, Gbulahagu, Kpendua, Tibung, Lungbunga, Gbullung, Grimani, Chirifoyilli, Zangbalung, Voggu, Yepeligu, Tingoli and Gundaa. 3.2.6 Religion According to the 2000 Population and Housing Census, Islam is the predominant religion in the District with 65% of the population affiliated to it. 3.2.7 Land Tenure System Land tenure systems in the District include free hold/inheritance and negotiations/temporary use. 3.2.9 Occupation The economy of the Tolon-District Assembly is dominated by agriculture, commerce and trade and services. Until the 1995s over 90% of all indigenous people in the District were farmers (PHC, 2000). 3. 4 Research Approach Research methodology is an important component of any study and provides the framework upon which the whole process is dependent (Brown, 1996). It is recommended that the methodology is conducted thoroughly to efficiently produce accurate and precise data in order to achieve the research goals and objectives. I intend to give an-in-depth explanation of the research approach and process, methods of data collection, sampling procedure, size and methods, background of study area and scope, and data analysis. The choice in using a particular research approach would depend on a number of factors: the purpose of the research, its sub-research objectives, practicability and validity, available financial resources, time, the skill of the researcher in data analysis and interpretation and social organization among others. 3.5 Sampling Method Two main sampling techniques prominently used in various research studies will be adopted and applied for the study. These are probability and non-probability sampling (Twumasi, 2001). Probability sampling gives every item in the universe an equal chance of inclusion in the sample. Under this method, the simple random sampling technique will be used to select respondents from the nine chilli pepper farmer groups in the study area. This is to make sure that each chilli pepper farmer within the nine farmer groups has an equal chance of being included. Non-probability sampling such as purposive sampling procedures will also be used (Bernard, 1998). According to Preston (2002), applying purposive sampling can yield insights and in-depth understanding rather than empirical generalizations In this sampling procedure, the researcher purposively choose the particular units of the universe to constitute the sample on the basis that the small mass that they so select out of a huge one will be typical of the whole (Yin, 1993). The judgment of the researcher plays an important part in this sampling technique. The importance of adopting this design is the relative advantage of time and money inherent in the sampling. In light of the above, the snowball or chain sampling strategy will be used, because I will be dealing with chilli pepper farmers who are beneficiaries of the value chain development concept and belong to the nine chilli pepper farmer groups and are in a best position to respond to questions. Group members will serve as linkages by recommending persons who are members of the group to be interviewed. Accordingly, it is useful for the researcher to use more than one method in data collection. The methods are selected to complement each other and to allow for triangulation. Triangulation r