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TIPS DEVELOPMENT DIALOGUE Breaking The Cycle Of 2nd Economy Poverty: Strategic Options To Link Marginalized, Small Producers To 1 st Economy Value Chains “Work in progress Update” Sandy Lowitt 25 July 2008. Project Context. 15 Year Review of Second Economy Key findings:
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TIPS DEVELOPMENT DIALOGUEBreaking The Cycle Of 2nd Economy Poverty: Strategic Options To Link Marginalized, Small Producers To 1st Economy Value Chains“Work in progress Update” Sandy Lowitt25 July 2008
Project Context • 15 Year Review of Second Economy • Key findings: • Delivery of social services has been significant and at scale • Delivery of market based employment opportunities has been modest to poor • Reasons for poor performance of market based employment programmes: • Under funding/low appetite for risk • Lack of advocacy/voice • Problems with market interfaces • Project level focus • Downward raiding
The market interface problem *External mkt = any 1st economy Mkt eg. Local hotel, urban retailer Provincial processor, national Wholesaler, export mkt
What we are trying to accomplish • Develop a framework and tool kit to analyse : markets, market interfaces and the distribution of income • Develop a strategy which will: support systemic change in the interactions between the 1st and 2nd economies so that marginalized small producers can be lifted out of poverty • Success will constitute: sustainable, scalable linkages that result in returns to 2nd economy participants that are sufficient to lift them out of poverty. i.e. not just increased transaction but increased transactions where the distribution of income supports poverty alleviation
Theoretical Paradigm • Chosen to use value chain analysis because : • It emphasizes issues of governance and power which create barriers to entry ( and opportunities) for 2nd economy producers • It directly addresses how and why economic and other rents are distributed across a chain • Upgrading is an intrinsic part of its theory and hence capacity issues of 2nd economy producers can be dealt with endogenously • It is a demand driven approach which supports pull rather than push interventions and strategies
Theory versus Reality: Our approach to bridge the divide • FRAMEWORK • 3 Foundation Chpts • Value chains • Product selection • Linkage options REAL ON THE GROUND ISSUES • STRATEGY • What to do • How to do it
How to approach developing a strategy? • Our framework informed our list of ‘on the ground real issues’ • The aim of the strategy is to find ways to deal with these issues ( there are lots of them and they are complicated!!) • Our big point of departure in the strategy is that we feel that government and its agencies should directly deal with as few of these issues as possible and get the private sector to deal with them instead. • Private has the expertise (mkt’s, methods) • Private sector is better positioned to deliver on ground • Private sector has experience and skills • Private sector can provide scalability • Government should focus on facilitating this private sector activity.
First Prize • First Prize would be to get the private sector to change their buying behaviour – i.e. to want to source products from small, marginalized 2nd economy producers thereby increasing demand and competition for their output. • Could try to force them to change behaviour (moral suasion, legislation). Not likely to yield good results • Better option is to make them WANT to change their behaviour by incentivizing them to do so and assisting them to make the shift.
Strategy 1: shifting private sector buying behaviour 2 1 • Gov to provide • services to private • sector directly in • areas where PS • has NO competency • Setting up ‘co-op’s’/equi • Facilitating skills, up • grades of ‘co-op’ memb • Dealing with tribal • issues; hierch issues • Options • Specialized limited • life span SPV, small, • highly skilled 3 Implementing Complementary Strategies ( see Next slide) • Provide strong enough • financial incentive to • induce required behaviour • change. • BEE scorecard and gov tender • preference system equivalent. • Options: • 0 rate VAT from 2nd econ prod • Tax rebate on profits • Other ?
Strategy 2 and 3: Complementary Programmes • Programmes which stand on their own merit, but which will aid private sector in increasing demand for 2nd economy outputs • Lead farmer programme: link 2nd economy farmers to commercial farmers – commercial farmer remains supplier to lead firms but includes 2nd economy producers output with their own. Gov to partner with commercial farmers to set up the programme. • Local Trader Programme: Develop more and better local traders. Gov to set up programme to support development of middlemen (quantity and quality). Can create easy first level aggregation for private sector by improving conduit.
Strategy 4: New Product Development • Stand alone strategy, but may also be service to private sector i.e. Strategy 1 (3) • Government to set up mechanism using existing resources ( universities, agri research centers, CSIR, private sector consultants) to research and develop ‘new’ products and how to bring them to market. E.g. Marula story(new), Kiwi fruit (trade marked), coffee (credence, branded) • Must offer proactive and reactive service, programme must provide funding ( possibly on cost recovery basis); access to skills ( slate tender) • Not sure on how to feed outputs of programme into the market place i.e. how to implement ( needs additional work)
Strategy 5: Improve government procurement from 2nd economy • Cannot ask or expect private sector to rise to this challenge if government doesn’t do the same • Preferential procurement not happening on the ground. • Several options ( still undeveloped needs work) • Local trader programme ( strategy 3) should help or design it to definitely help • Marketing co-op’s specifically designed to service hospitals, schools, SANDF bases • Specific programme/intervention for companies with government catering contracts (stick or carrot options available) • Municipal support programmes to develop above options
A sixth strategy??? • We are receiving some pressure to include a strategy to establish marketing co-op’s. • Literature and case studies show them to be highly problematic • We believe the private sector will find a way to aggregate that is more efficient than co-op’s and that the development of local traders and the lead farmer programme will also help • Not sure about this – views/opinions??
Specific area where help/advice is required • Literature/people who can assist in developing product selection information in relation to the merits of certain types of crops for 2nd economy producers e.g.. High skills in pastoral products but limited by land constraints. Field crops and industrial crops a no no econs of scale. Horticultural crops good but tree based crops versus annually sown crops? What are the necessary characteristics? Where should the focus be? • Literature/people who can help in unpacking the idea of a demand side measure and point towards examples where it has and hasn’t worked. Seems an obvious option but cant find anything on it – am I missing something big??
