Over the last half a year the IIAP project has been immersed in data collection, travelling around South Africa to interview small and medium sized enterprises (SMEs) in agroprocessing and other industry stakeholders about the challenges of upgrading and value chain participation. The team have conducted around 100 interviews, travelling to the Free State, Gauteng, KwaZulu Natal, Mpumalanga and Eastern Cape. We still have more to go, though at present the all data collection has been paused due to Covid19.
Our interviews have shed light on the wide range of challenges that face small agro-processing businesses as they struggle to build or maintain a foothold in their markets. These often include well-known challenges with infrastructure and public services, with unreliable electricity proving a major problem in recent months. Another common issue, however, is the fierce competition from larger businesses, that SMEs either compete with or buy or sell too. Imbalances in power have emerged as a major theme here. Particularly important is the growth of supermarket retail chains into new markets, often in more rural areas. Supplying supermarkets is often hard for SMEs that struggle to produce at the volume and consistency required, and find it harder to cope with long repayment periods and high rebates. Increased stresses from climate change are becoming a clear problem, which will hit small firms harder as they struggle to cope with the volatility of input costs.
At the same time, however, it’s clear that there are a number of highly resilient SMEs and instances of growth and upgrading which show that small business can still play a role in a more industrialised food system. Furthermore, small agro-processing businesses often play crucial roles within rural economies. They provide crucial manufacturing jobs, and link to other small businesses such as small-scale farmers and retailers.
One particularly interesting research trip in this regard was to meet with milling enterprises in the Eastern Cape province. The Eastern Cape is a marginal area for maize production, accounting for less than 1% of SAs marketed maize output. This is despite having a large rural population and areas with favourable conditions for maize growing. Eastern Cape is an economically hard pressed area, having the highest level of multi-dimensional poverty in South Africa, according to StatsSA. It also has the second highest level of households involved in agriculture, at 29%. Among this, many are small scale farmers, with 80% of those involved in agriculture in the province doing so to provide an extra source of food. For some time, there have been expectations that Eastern Cape can become a major maize producing region, and in the process improve local food security and employment. There have been many schemes to assist emerging maize farmers, but small farmers face a challenge of selling and storing their maize. W
e were visiting projects supported by the Eastern Cape Rural Development Agency, with a series of Rural Enterprise Development Hub (RED-Hub) mills linked to farming cooperatives. The images below are from the Mbizana Red-hub in the Alfred Nzo district municipality in the east of the province.
The mill site was shared with the agricultural cooperative, who stored their maize crop in the silos adjacent to the mill. Severe drought in the Eastern Cape has presented problems for the farmers in recent years.
The mill uses modern milling equipment made by Roff, a south African manufacturer of machinery based in the Free State. It can produce ‘super’ maize meal to a high standard, similar to supermarket brands. The maize meal produced here has been sold in some Spar supermarkets in the Eastern Cape, as well as to local retailers. The animal feed by product is sold to local livestock farmers.
A key challenge when supplying to major retailers and attempting to compete with established brands is ensuring quality and consistency. The mill had a small laboratory on site to test for granularity and moisture content.
The mill is a young enterprise operating in challenging circumstances, but had benefited from state assistance in being able to purchase equipment and gain access to training. Ultimately, the project hopes to be able to develop ideas for how state support can best support SME agroprocessors.