Improving smallholders' market participation: Insights from a business scheme for maize in Limpopo Province, South Africa

Abstract

It is widely acknowledged that lack of market participation and limited access to agricultural services contribute to keeping semi-subsistence farmers trapped in poverty. This paper discusses the potential of an innovative business scheme to enhance smallholders' situations by providing access to an integrated service provision scheme. The authors conducted an integrated analysis of farmers' production, consumption and processing patterns using case-based evidence. While confirming that the presence of rural depots can improve smallholders' access to services, they also highlight some drawbacks of private intervention and show the importance of taking into account the diversity of economic and social factors when designing smallholder support instruments.

Keywords:

• market access
• integrated service provision
• one stop shops
• isolated rural areas
• milling sector

1. Introduction

A common feature of small-scale farming systems worldwide is their lack of participation in the markets. Small farmers generally have low incomes and lack capital, and their attempts to market their products, especially food staples, are hampered by poor infrastructure and communications – problems that are compounded by the geographic dispersion of the farmers, inadequate support services and weak institutions (World Bank, 2007:247). Barrett observes that the small proportion of sales of staple crop production among rural smallholders is a common pattern in southern Africa and argues that both the lack of asset endowment and the cost of commerce or trading, especially in remote areas, strongly affect their market participation (2008:306, 313). Jayne and Jones say there is a need to move beyond the market liberalisation reform that was the focus of food marketing and pricing policy in eastern and southern Africa in the mid 1980s and 1990s and to provide effective support for semi-subsistence rural smallholders (1997:1524). Barrett further argues that meso-level interventions, as a complement to the macro marketing and pricing policy, would improve smallholders' market participation (2008:313).

In South Africa, about 1.3 million smallholders use about 14% of the farmland surface (NDA, 2011). They are mostly subsistence oriented, with low production levels due to traditional land tenure, lack of physical infrastructure and credit facilities, poor access to input markets and a high level of urban migration (Perret et al., 2005:18, 40). This population contrasts with the 40 000 commercial farmers responsible for more than 95% of formal agricultural production (StatsSA, 2009:10). For many decades, land, irrigation, credit and research have been predominantly oriented towards the commercial sector (Eastwood et al., 2006:1333). While agricultural support programmes such as the Comprehensive Agricultural Support programme and the Micro Agricultural Financial Institutions of South Africa have been set up, it is perceived that smallholders receive only limited benefits (Tregurtha et al., 2010:58). Furthermore, according to Meyer et al. (2008:101), government commitment to infrastructure development does not target agriculture.

Jayne and Jones emphasise coordination with the private sector as a means of ensuring smallholders' sustainable and integrated access to agricultural services and markets (1997:1524). In this context of lack of effective public support for small-scale farmers and increasing argument for private sector involvement, we discuss the merits of an innovative privately driven intervention operating at provincial level in South Africa. We assess the components of a scheme in which a private company processing maize combines the provision of inputs and other production related services with the provision of market outlets for smallholders by broadly distributing depots or what are also referred to as ‘one stop shops’ in villages in rural areas. Following Hussain and Perera (2004), who reviewed models of public–private partnerships for improving farmers' access to integrated agricultural services, we refer to the type of scheme under scrutiny in this paper as an ‘integrated service provision scheme’. According to these authors, these schemes are emerging in a variety of countries and can be highly beneficial, but still need to be subjected to critical scrutiny. This paper builds on a case based study of a specific integrated service provision scheme and discusses the implications for smallholders' participation in markets and for rural households' livelihoods in South Africa.

2. Background and motivation

Maize is the most important grain crop in South Africa, very commonly grown by smallholders (NDA, 2009:15). It is the major staple food for most South Africans, with up to 95% of rural and 80% of urban consumers consuming it on a regular basis (Nel & Steyn, 2002:71, 85). Maize represents about 66% of the daily energy intake of very poor nutritionally vulnerable consumers (Oldewage-Theron et al., 2005:23); and expenditure for maize meal accounts for up to 20% of low income consumers' monthly income (Watkinson& Makgetla, 2002:3).

The maize industry parallels the South African agricultural sector's duality, with a commercial sector mainly based on centralised procurement systems developed at national level and a small informal subsistence-oriented sector where local small millers operate at a very local level. The formal maize milling sector is highly concentrated, with four large companies representing 73% of the market share (Food Price Monitoring Committee, 2003:151). These millers procure grain through future contracts on the Agricultural Products Division of the Johannesburg Stock Exchange (known as the South African Futures Exchange (SAFEX) market), forward contracts with large cooperatives and commercial farmers, and spot market purchases. Smallholders, on the other hand, have only limited access to the centralised national futures markets because of the standardised quality, quantity and contract terms under which most of the trade operates in these markets and the high transaction costs involved (personal communication, P Cronje, CEO of the Limpopo Agricultural Strategic Team, LIMPAST, 12 April 2006; Jayne & Jones, 1997:1520). Despite a few successful projects based on public–private partnerships, the share of the smallholders in commercial markets is small. In 2008/09, only 464 069 tons out of the total maize crop of 12.7 million tons were produced by the smallholder sector (CEC, 2009:2). On the other hand, there still exists a small but active rural informal sector operating purely on a service milling or ‘swap milling’ basis, with customers bringing their grain in small containers (e.g. 20 litres) to be milled for a fee.1 It is estimated that rural small-scale maize mills, also referred to as local millers, absorb a very small part of the total maize production, possibly less than 5% (NFA, 2006:4). Despite their likely contribution to rural food security, these millers have not been the focus of research and political agendas.

On an intermediate level, an estimated 20% of maize grain is processed by medium-scale millers (NFA, 2006:2). Some of these millers engage in service milling, usually as a secondary activity in addition to production milling (purchasing grain to produce and sell branded maize meal). These commercial millers offer grain storage facilities on site where farmers can deposit grain, which is referred to as ‘grain credit’. Withdrawal of maize meal by the farmer from the grain credit is subject to a milling fee that depends on the type of maize meal demanded by the farmer. In addition to central grain storage and maize meal processing facilities, some commercial millers operating at provincial level have established village depots serving as maize meal purchase outlets and grain receipt points, offering access to grain storage facilities and a variety of branded maize meal types. These depots also generally provide access to inputs, extension and training support as well as a market for grain and are thus to a certain extent operating as ‘one stop shops’. Smallholders can sell their grain or their grain credit at any time at the SAFEX price of the day with no minimum amount required, which contrasts with formal national markets.

In the last 15 years most commercial millers involved in service milling have engaged in community development programmes, providing technical assistance and other support services to farmers through their depots with the support of the government or related collective organisations (e.g. the Maize Trust). These programmes are intended to increase maize productivity as a key dimension to fostering household food security and to support smallholders' market participation. As already mentioned, the wide range of services provided by these schemes can be viewed as a form of integrated service provision. At least some of these commercial millers' schemes are in an expansion phase (e.g. Noord Transvaal Kooperasie and Progress Milling in the Limpopo Province) and are developing new depots.

An active informal sector and integrated service provision schemes are prominent features of Limpopo Province (NFA, 2006:6), together with food insecurity and agricultural duality. This province, the poorest in South Africa, has a rural population of more than 85% compared to a national average of 35%, and one of the highest unemployment rates, with only 43% of income generated locally and a large proportion sourced from remittances or pensions (Provide Project, 2005:3; Eastwood et al., 2006:1331). These salient characteristics made Limpopo an appropriate focus, given the objectives of this study. Commercial maize production in Limpopo represented only 2% of the total South African production in 2007/08 (NDA, 2008:2). However, most smallholders in the province produce maize despite land being mainly unirrigated and rainfall unreliable. A 2005 ICRISAT (International Crop Research Institute for the Semi-Arid Tropics) survey involving more than 1000 smallholders found that maize was planted on more than 82% of the smallholders' cultivated area. As Figure 1 shows, most smallholders, who produce mainly on dryland (referred to as cultivated, temporary, non-commercial dryland areas on the map legend), are located in the northwestern region of the province, which used to be a homeland area under apartheid, with only a few main towns on the edge of the region.

Figure 1: Maize production in Limpopo Province

Our study focused on the Progress Milling integrated service provision scheme because of its widespread coverage. Progress Milling operates about 100 depots throughout Limpopo Province (TABJ, 2011:206), mostly in rural villages, and works with about 100 000 smallholders. While depots serve commercial purposes, they are also instrumental in implementing the Progress Community Development Programme established by Progress Milling in 1997. This programme is coordinated through a platform that involves public and private institutions – research institutions, the provincial Department of Agriculture, farmer unions and input providers (pesticide, seed and fertiliser companies). Its direct intervention consists of channelling technical support to smallholders, with public extension officers seconded to Progress Milling, and facilitating relations with input providers. It has also developed a programme whereby input providers supply smallholders with small packs of seed and fertiliser better suited to their production needs and capacity through the depots. The availability of these small packs has increased inputs purchase by smallholders where their use was previously uncommon (Minde et al., 2008:27). Furthermore, Progress Milling is establishing new depots in close relationship with communities, local tribal authorities and municipalities.

Faced with many market failures, as mentioned above, many smallholders in the study area are typically in a situation of non-separability between consumption and production decisions (De Janvry et al., 1991:1405; De Janvry & Sadoulet, 2006:156). This especially holds in the case of maize, which plays a critical role in food security in South Africa. Progress Milling, through its depots, alters these decisions by modifying the conditions for smallholders to access markets for grain, branded maize meal and maize processing services. This paper analyses the way an integrated service provision scheme can affect both market participation and maize meal procurement strategies for smallholders, and it explores the implications for rural livelihoods. We also consider how the scheme affects local informal milling sector dynamics, which are not well understood, and consider some dimensions of the local territorial system into which the scheme is penetrating, as suggested by Muchnik et al. (2007:1473). On the other hand, the paper does not assess the effect of the Progress Milling integrated service provision scheme on improving smallholders' productivity and technology adoption, since longitudinal data that would be required for this purpose are not yet available because the scheme is too recent.

3. Methodology and data collection

A major methodological stance of the paper is to propose an integrated analysis between production and consumption decisions. The analysis thus not only assesses the impact of the scheme on smallholders' farming and marketing practices, but also draws on a consumption survey and a study of the local millers to integrate local consumption patterns and processing dynamics.

We used three main information sources, which encompassed similar areas in Limpopo (Giyani and Venda, see Figure 1) and provided complementary data: comprehensive surveys of maize consumers and local millers (both carried out during 2005 and 2006) and a case study on the interaction between Progress Milling and smallholders (2006). A follow-up study consisting of key resource person interviews was conducted in July 2008.

The survey of maize consumers involved 500 personal interviews with consumers from the dominant ethnic groups in randomly selected rural and urban areas, using a survey questionnaire focusing on participation in agriculture and maize meal acquisition activities. The survey of local millers involved 25 local small-scale millers, the large majority of those operating in Limpopo. We investigated their milling technology and capacity and their milling activities. Since the study was aimed at gaining a better understanding of the impact of Progress Milling on smallholders' situations and in particular their market access, the focus of the survey was on farmers with a potential market orientation. According to StatsSA (2010:40), in the Limpopo Province agriculture is mostly used for home consumption by 95.1% of the farmers, while only 1.9% mostly sell their products. To our knowledge, no general statistics exist to characterise the population we focused on in our study. Size was used as a discriminative factor to select farmers with a market orientation. Sampling was based on a frame of farmers provided by local extension officers originating from three districts: Capricorn, Sekhukhune and Giyani. These districts were selected on the basis of different levels of involvement of Progress Milling and the presence of local millers and their remoteness. We collected farmers' household data, including productive assets and production and marketing practices. Most of our sample was the dominant type of Limpopo small-scale farmer, i.e. those with rainfed rather than irrigated farms. We also conducted semi-structured interviews with Progress Milling and LIMPAST staff.

Beyond the descriptive analysis of smallholder behaviour, we developed a basic simulation to explore the implications of the presence of depots outside the town for smallholders' production and consumption behaviour. Building on observed situations, the basic simulation consisted of determining the production cost above which producing maize for swap milling is not economically viable for a smallholder, given its location, compared with purchasing maize meal. We made these calculations for different milling and purchasing conditions and compared the results with observed smallholders' production costs to shed light on smallholders' behaviour. Distance to town is the variable used to reflect farmers' location with regard to the milling and retail outlets, and thus transport cost. This allowed us to account for the dispersed distribution of smallholders in rural areas. Maximum economically viable production costs (referred to in the paper as ‘production cost thresholds’) are calculated as a function of farmers' distance to town by equating the total cost of purchasing a bag of maize meal (consisting of the sum of the price of the bag of maize meal and the transport cost to and from the store for the producer) with the total cost of procuring the bag of maize meal through own production and swap milling (consisting of the sum of the production cost, the transport cost to and from the miller for the producer and the milling fee). The cost of purchasing an 80 kg bag of maize meal is equated with the cost of producing and swap milling a 95 kg bag of maize grain to account for the 15 kg exchange rate used by Progress Milling. Calculations were based on the 2006 data from our various surveys.

4. Results and discussion

Presentation of the results is organised as follows. We first analyse local small-scale maize production, processing and consumption patterns, and then the implications of the penetration of depots into rural areas, on the basis of the basic simulation presented in the methodological section. After this we assess the impact of the integrated service provision programme more comprehensively with regard to smallholders' market participation and practices and what the service could mean for local millers and the more vulnerable populations. We then discuss the business rationale behind the development of such private intervention schemes.

4.1 Descriptive analysis

Despite purposive sampling directed at commercially oriented smallholders, our data are consistent with Barrett's statement (2008:307) that most of the production by the smallholders is intended for subsistence and that only a small proportion of them actually participate in the markets.2 Indeed, 41 (57%) of the 72 surveyed farmers stated that they never sold their production. Only 12 (17%) were regular sellers and 19 (27%) occasional sellers. Furthermore, 26 (36%) of them were not self-sufficient, which could be related to the lack of available land, as Makhura et al. suggest (2001:466). The limited scale of production explains the limited level of their participation, since participation is generally related to the availability of surplus production, as also noted by Makhura et al. (2001:467). Consistent sellers are generally those who have access to regular non-agricultural income or who produce maize in rotation with cash crops within irrigation schemes. As Stephens and Barrett observe (2011:21), some smallholders who lack access to credit use maize sales to deal with cash flow problems. According to the farmers we surveyed, while community level local markets for maize grain do exist, and pay better than commercial millers, their size is very limited. Observed prices at community level varied from R100 to R150 (US$16.5 to US$24.7) per bag compared to about R76 (US$12.5) per bag for the SAFEX price.

Smallholders commonly use swap milling to cover household needs for maize meal. The surplus is either directly sold, or processed and stored, thus serving as a safety net or saving mechanism. Of the 500 consumers we surveyed, 42% use the services of local millers sporadically, in addition to purchasing commercially produced branded maize meal.

Branding is a critical consideration for consumers. Most of the 500 consumers (96%) stated a preference for and loyalty to specific maize meal brands. Their brand preferences even prevailed despite the higher prices of branded maize meal and their extreme poverty. The two bottom terciles of the sample had an average stated household income of R832 (US$137) per month. On the other hand, when faced with the choice between relying exclusively on commercial maize meal or on local miller meal, 39% of the consumers opted for local miller maize meal against 45% who stated a preference for commercial maize meal, which illustrates the importance of local millers for consumers. One explanation for the preference for the locally milled product is the convenience of dealing with local millers. However, another reason given by some consumers was a desire for the traditional maize meal taste, with its cultural, communal and traditional connections, and the transparency of the processing (i.e. it is their own maize that is processed, unlike the maize meal from commercial millers' centralised processing facilities).

Commercial milling capacity can be up to 100 tons per day or even more (NFA, 2006:4), but local millers operate at rural village level with basic hammer or roller mills and typical milling capacities of less than two metric tons per day, mainly custom milling small quantities of smallholders' own grain (e.g. 25 kg batches) at a fee. The local millers usually do not have grain or maize meal storage facilities, so they mainly operate during the harvesting season, when they are most in demand by smallholders. They are not badly affected by grain shortages, because their basic equipment and low maintenance costs make it possible for them to stop operating temporarily and seek alternative employment. These millers usually produce unsifted maize meal, without removing the bran and germ portions. By changing the sieve in the mill they produce a variety of consistencies to meet consumer preferences. These consistencies resemble but are not equivalent to the industrial categories.

The cost of producing a 95 kg bag of maize grain was calculated for each surveyed farmer and used to develop a typology (see Table 1). Consistent measures of family labour costs could not be elicited from the surveys and are thus not accounted for in the production cost calculation. However, given the very high rate of unemployment, family labour opportunity costs can be assumed to be very low. At the time of the 2006 survey, the sales price at Progress Milling depots (SAFEX price) was R950/ton (US$157/ton), or R76 (US$13) per bag, while the national average production cost figure for dryland commercial production in 2005/06 was about R61 (US$10) per bag (GrainSA, 2009). On the other hand, for most surveyed farmers, the SAFEX price does not even compensate for their production cost, even without accounting for the cost of transport. This hampers farmers' participation in markets and contributes to their continued subsistence orientation. Our survey of farmers showed that a major factor explaining smallholders' high production costs is the high cost of hiring a tractor, which is related to the scarcity of tractors in the communities (Minde et al., 2008:26). This illustrates the significance of the ownership of productive assets for market participation. Our survey also showed that while farmers with high production costs are subsistence oriented, high production costs are not necessarily associated with lower production levels.

Table 1: Farmers' typology according to production costs and type of farm (n = 72)

Production cost range (per 80 kg maize meal or per 100 kg maize grain)	Type of farm	Share of sample
Low cost, R30–R70	High yield (>2 tons/ha) and good soil fertility management, in particular within irrigation scheme	17 (24%)
	Cost minimisation strategy with no or low level of external labour, seed, fertiliser or tractor hiring for soil preparation (<R750/ha)
Medium cost, R70–R120	Higher level of investment in agriculture, mostly family labour and medium yields (around one ton/ha)	12 (17%)
High cost, R120–R200	Small plots under rainfed conditions	16 (22%)
	Good yields but high costs (hired labour or tractor hiring)
Very high cost, above R200	Both low yields and high level of external labour use or high cost for tractor hiring	27 (37%)
Total		72 (100%)

Comparing the range of observed production costs and maize meal prices at the time of survey confirms the importance for most small-scale farmers of considering the economic trade-off between producing maize and purchasing maize meal. This is particularly influenced by the farmers' transport costs associated with the transactions. We discuss this in the next section, which describes the basic simulation.

4.2 Economic implications of depots for smallholders

Given the remote locations of the smallholders we surveyed, depot development in rural villages significantly modifies their trading costs. Progress Milling's milling fee is the same at the various depots notwithstanding their location with regard to the central processing facilities based in Polokwane. Exploring the implications of transport costs for smallholders' production and consumption behaviour is thus an important component of assessing the impact of schemes like that run by Progress Milling.

Production cost threshold functions were calculated for the three most likely trade-offs: i) producing maize for swap milling at Progress Milling compared with buying maize meal from Progress Milling, ii) producing maize for swap milling at Progress Milling compared with buying maize meal from the SPAR supermarket, and iii) producing maize for swap milling at a local miller compared with buying maize meal from the SPAR supermarket. To determine the most likely trade-offs to work with, we accounted for the fact that 66% of the consumers purchase one type of maize meal exclusively. Our calculation of the threshold production costs according to the farmers' distance to town was for special maize meal, which was preferred by 47% of the 500 surveyed consumers as the most affordable refined maize meal option (see Table 2).

Table 2: Data and assumptions used for the calculations

	Variable	Basis for calculation or source	Data
Transport: collective taxi	Travel to depot	Estimation based on consumer and farmer survey data	R1/km
	Travel to town	Multipurpose travel^a	R0.2/km
Purchasing options	Special maize meal	SPAR	R218
		Progress Milling	R177
Milling fee options	Local miller	Survey estimation	R35
	Super maize meal	Progress Milling	R95
	Special maize meal	Progress Milling	R68
^aTo account for multipurpose travel usually undertaken when travelling to the major towns, 20% of the full taxi fare was considered as being attributable to purchasing maize meal.

For the simulation we needed to know smallholders' location relative to the various milling and retail facilities. The Tzaneen area was thus chosen for its representative features as observed during fieldwork. In this area, Progress Milling depots are located both in Tzaneen and 13 km away in a rural village, while conventional retail outlets operate only in Tzaneen. Given the widespread distribution of local millers in this area, we assumed that they operate within walking distance of smallholders and thus that no transport costs are involved when dealing with local millers.

Figure 2 shows the results of the simulation based on the costs of taxi transport, which was confirmed in the survey to be the most common means of transport. Production cost threshold functions are presented for the different options in Figure 2 against the backdrop of the production cost typology.

Figure 2: Economic analysis of the rationale for producing maize grain compared with purchasing maize meal, according to farmers' distance to Tzaneen (based on taxi costs)

As Figure 2 shows, the calculated production cost thresholds for the various options fall inside the range of observed production costs for smallholders operating around the depots. This confirms that depots in rural areas make it significantly more economical for smallholders to produce maize for swap milling than to buy maize meal. Within a 15 to 30 km radius of the depots, even smallholders with medium to high production costs (28 or 39% of the 72 farmers in our survey) would be better off producing maize for swap milling rather than buying branded maize meal. Beyond 30 km, on the other hand, producing for Progress Milling swap milling is not economically viable except for the farmers who have low production costs (only 17 or 24% of the surveyed farmers). Different depot locations and differences in prices across outlets and maize types trigger a diversity of economic trade-offs for smallholders. However, overall this simulation confirms that transport costs strongly affect smallholders, and that the presence of Progress Milling depots can make a significant contribution to improving their access to milling services and thus make it more worthwhile for them to produce their own maize for milling rather than buying the commercial product.

The simulation also showed, however, that a non-negligible proportion of the surveyed farmers (particularly those with very high production costs) who actually produce maize grain would be better off purchasing maize meal. For these farmers, the more affordable option provided by local millers can be critical. Different factors explain why smallholders are facing high production costs and may engage in non-economically viable maize production. Smallholders' yields are extremely unpredictable because of lack of irrigation and the high risk of crop devastation by animals. As observed during fieldwork, this can seriously affect their production level and therefore their production cost per bag. A significant number of them are elderly people experiencing low yields and high production costs due to hired labour or tractor services, or both, that they finance through their pension (27 or 37% of the sample). They nevertheless engage in very costly maize production because they associate maize production with status (it being a traditional activity), and also see the hiring of people as a way of contributing to community solidarity and redistributing part of their pension. The significant presence of elderly people in rural areas and their reliance on pensions and remittances from the younger migrants are widely acknowledged (Eastwood et al., 2006). While we have not per se studied changes in production practices associated with the scheme, the above aspects cast doubt on the capacity of external intervention to promote such changes among elderly people and substantially improve their farming systems. To add depth to the discussion, the following section considers further implications of the integrated service provision scheme.

4.3 Further implications of the business scheme for small holders

The integrated service provision scheme considered in our study affects smallholders on various levels. While more expensive than local millers, commercial millers provide unrestricted storage capacity to smallholders as well as the facility to pay the milling fee on withdrawal or to sell their maize at a time that is convenient to them. For self-sufficient farmers (46 or 64% of the surveyed farmers), this storage capacity helps ensure food security. On the other hand, local millers do not have storage capacity and their ‘free-run’ maize meal has a limited shelf life because it contains oily maize germs. According to the survey, a common behaviour is to store one to two years' worth of the household's maize grain with the commercial miller. Some smallholders have a grain credit well above their estimated annual needs. According to the 2006 survey, grain credit is used as a saving mechanism for survival and social purposes (e.g. burials). Follow-up interviews conducted in July 2008 confirmed that most self-sufficient farmers favour the commercial miller swap milling option to the direct marketing of maize grain, and that some have a significant amount of maize meal in stock. It was also confirmed that grain credit is perceived by smallholders as a means of savings and a capital asset similar to livestock, and also includes a dimension of pride in owning a significant quantity of bags of maize meal. The access to branded maize is also a decisive factor in smallholders' use of commercial millers, given the power and standardisation conferred by brands even for the poorest households, with many consumers being brand loyal.

Since the size of the local community grain markets is limited, as reported by smallholders, commercial millers established locally also represent the only significant grain market outlet. The penetration of depots into rural areas thus makes it easier for smallholders to access grain markets, given the significance of transport costs for smallholders, as highlighted above. Furthermore, as mentioned in Section 4.2, the company buys maize grain at the SAFEX price in all its depots, which helps to level out barriers presented by remoteness. Progress Milling considers this pan-territorial pricing at the SAFEX price as a tool for improving market access in rural areas in line with its Progress Community Development Programme. Transport cost differential is covered by Progress Milling. This could be seen to some extent as cross-subsidisation among farmers. However, it forms part of a global transport and pricing strategy, depots being both collecting and selling points. Progress Milling explained in interviews that they also ensure transport from smallholders' collection points to the depots on prior agreement when farmers deliver sufficient quantities. Another important dimension of the market access support scheme is the combined provision of SAFEX price information with the flexibility offered to farmers to store and sell their maize at any time. This provides smallholders with the opportunity not to sell their maize during the harvesting season when prices are depressed by abundant supply, and thereby increases their bargaining power. Makhura et al. (2001:467) point out that storage facility development could improve smallholders' market participation and they stress the opportunities this could present for the private sector.

4.4 Business drivers behind the scheme

The above sections have explained how depot developments can have a positive impact on smallholders. This section now explores the business rationale behind developing integrated service provision schemes. This is related to the operations in a smallholder maize-dependent area. Ensuring smallholders' access to market and services implies significant transaction costs, consisting mainly of transport, depot facility hiring and salaries for the depot controllers. To limit its costs, Progress Milling works closely with communities that show interest in establishing a depot. The company draws on their cooperation to access adequate depot facilities that it rents. Hence, in its current expansion phase, the company can use a process of ‘trial and error’ to optimise the development of depots progressively, since it incurs limited costs when exiting a non-profitable area: it is not investing in depot buildings and it can reallocate human resources to new depots.

From another perspective, the company's development activities operate in a synergistic way with its business long-term goals, as maize is at the core of its business and represents the main smallholder production in the province since it is their main staple food. Our July 2008 field research revealed that local production typically represents up to 60% of the company's procurement during the four months of harvesting, thus covering up to 20% of its annual needs. Local procurement makes it possible for the company not to depend totally on the national procurement system, where its bargaining power is low with regard to the major milling companies. Supporting maize production can be seen to some extent as an investment strategy.

The scheme also helps secure a reliable outlet for maize meal. Establishing depots in rural areas attracts and sustains customer brand loyalty, which has been shown to be significant. The swap milling programme helps to foster ‘captive’ local demand, with many small-scale producers purchasing branded maize meal during the bridging period.3 In addition, although maize consumption is slowly decreasing nationally as a result of urbanisation, income growth and changing lifestyles, this trend does not strongly affect rural areas (personal communication, Eric Schulze, Assistant Sales Manager, Progress Milling, 17 July 2006). Maize consumption by rural consumers amounts to about 906 grams per person per day, compared to only about 435 grams per person per day by urban consumers (Nel & Steyn, 2002:77, 92). Furthermore, having an extensive rural network of depots makes the company a relevant partner for public and donor agencies to reach remote communities and subsistence farmers. In recent years, the integrated service provision scheme described in this study has benefited from external resources in the form of donor funding (e.g. European Union funding) and from partnerships with public institutions and input providers, to support its development activities.

4.5 Impact on local millers and food security

The broad focus of our study, encompassing milling, production and consumption dimensions, allowed for an extensive analysis of the studied integrated service provision scheme. It is critical to consider the possible negative impact on local millers and the link to food security. Abu and Kirsten (2009:365) point out that the spreading of such a scheme in rural areas creates significant competition for local millers, who depend on local demand and are ill-prepared to deal with this competition, since their efficiency is low compared with that of medium-scale millers. While local millers show resilience to temporary grain shortages and attract specific consumption demand for traditional maize meal products, these factors may not be adequate to ensure their long-term survival when facing additional competition.

The likely impact of medium-scale miller schemes on local millers should not be disregarded. Indeed, local millers, besides satisfying specific consumption preferences, provide a critical affordable milling option for farmers with high production costs (a non-negligible proportion of the smallholders in our study). These households are generally part of the most nutritionally vulnerable population (e.g. households consisting of elders caring for children). Furthermore, since the nutritional content of local millers' maize meal is often superior to commercial maize meal, because the bran and germ portions are not removed (Mwiinga et al., 2002:2), their potential displacement by a commercial miller scheme could present a significant threat to rural food security.

5. Conclusion

This paper provides new insights into the development of meso-level broad-based policies for food marketing and food security oriented towards semi-subsistence smallholders. Our study explored the impacts of a privately driven scheme operated by a regionally based company. Our analysis of the various dimensions of smallholders' maize production and procurement strategies sheds light on the diversity of economic and social factors to be considered and contrasted for designing appropriate support instruments.

The arguments and evidence presented in this paper show the relevance of privately driven integrated service provision schemes for maize milling in isolated rural areas characterised by significant smallholder maize production and consumption. Our analysis of a scheme developed in Limpopo Province by Progress Milling, a commercial milling company, revealed that this type of intervention can be quite comprehensive, affecting smallholders on various levels. By penetrating into remote areas, the company significantly reduces the cost of trading and thus gives smallholders improved access to branded maize meal products, and also to grain markets and inputs and technical assistance, thereby enhancing their consumption and production options. The company's depots further help to reduce the barriers to market entry by providing information, not requiring standardised quality and quantity, and offering unrestricted grain storage. However, high production costs associated with the lack of productive assets, such as tractors, prevents most of the farmers in our study from benefiting from improved grain market access. As discussed, this concerns in particular the elderly people for whom external intervention may not be effective. On the other hand, the provision of unrestricted grain storage does help to make households self-sufficient in food security throughout the year (breaking the seasonality cycle), and gives them a means of saving and increased market bargaining power.

Our study also showed the value of developing ‘one stop shops’ in isolated areas with significant smallholder production and the consumption potential for a regionally based company. Indeed, despite the transaction costs involved, these shops can significantly consolidate local grain supply and the demand for milling services and final products. Our study provides case-based evidence that the private sector can take advantage of business opportunities associated with serving the needs of the poor through innovative behaviour, and thereby also contribute to community development, as pointed out by Mendoza and Thelen (2008:428).

However, privately driven schemes like these also have some potentially negative implications. Grain supply may be diverted away from local millers, who play a critical food security role for the more vulnerable population. This shows the importance of an integrated analysis approach to assess the impact of privately driven development schemes. While such private schemes can make a significant contribution to smallholders' livelihoods, it is important not to underestimate their possible drawbacks and the potential role of other actors in enhancing smallholders' access to productive assets.

Acknowledgements

The authors wish to thank Agathe Fabre, Christian Chéron, Johann Kirsten and Isaac Minde for useful comments and suggestions, and the International Water Management Institute and Food Challenge Programme and the National Fortification Alliance for their support.

Notes

¹ Service milling is commonly referred to as swap milling, as the smallholder takes his own maize home but in a different form (i.e. meal instead of grain). The two terms are used interchangeably.

²Maize production also serves to fulfil social obligations, being used for gifts and ceremonies, for example.

³This is the period during which farmers who are not self-sufficient are obliged to buy maize meal because they do not produce sufficient maize grain for the whole year.