The Role of Small and Medium Agrifood Enterprises in Food Systems Transformation: The Case of Rice Processors in Senegal: FAO Agricultural Development Economics Technical Study 10

By Food and Agriculture Organization of the United Nations

The objective of this publication is multifold. First, it aims to learn from small and medium sized agrifood manufacturers about the role they play in food systems transformation in Senegal and the policy reforms required to harness their potential. Second, and more specifically, it gleans lessons from structured interviews with Senegalese rice millers, based on their day-to-day realities, highlighting the business creativity used by these firms in order to deal with difficult enabling environments. Third, the methodology adopts a food systems approach to analyze the target enterprises; cross fertilizing different disciplinary perspectives in order to develop evidence for the public sector on integrated policy making that better supports the role of small agrifood enterprises in sustainable transformation. Finally, the study shares ideas about innovations related to procurement, operations, logistics, finance, marketing and sales, human resources, and strategic partnerships. An important contribution of this work is to demonstrate the multidimensional and complex nature of the environment within which agrifood manufacturers do business, and the need for the public sector to harness their potential to reduce poverty through off-farm employment generation and to improve food security through the sustainable supply of affordable and nutritious food to domestic and export markets.

• Language: English
• Publisher: Food and Agriculture Organization of the United Nations
• Release date: Apr 14, 2021
• ISBN: 9789251342107

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Ilie, E.T. & Kelly, S. 2021. The role of small and medium agrifood enterprises in food systems transformation: the case of rice processors in Senegal. FAO Agricultural Development Economics Technical Study No. 10. Rome, FAO. https://doi.org/10.4060/cb3873en

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ISSN 2521-7240 [Print]

ISSN 2521-7259 [Online]

ISBN 978-92-5-134152-0

E-ISBN 978-92-5-134210-7 (EPUB)

© FAO, 2021

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Contents

Preface

Acknowledgements

Acronyms

Executive summary

1Introduction

1.1 Background

1.2 Research objective and methodology

1.3 Limitations

1.4 The business enabling environment in Senegal – policy and institutional assessment

1.5 The rice sector

1.6 Overview of the three millers

1.7 Firm profile and growth trajectory

2Procurement

2.1 Background

2.2 Contract farming in the Senegal River Valley

2.3 Developing a good practice framework for contract farming

2.4 Diversification of procurement sources

2.5 Conclusions

3Logistics

3.1 Background

3.2 Inbound activities

3.3 Food safety and quality aspects

3.4 Outbound activities

3.5 Conclusions

4Operations

4.1 Background

4.2 The milling process and its role in providing a good quality, safe and nutritious product

4.3 Distribution of direct costs for milling

4.4 Conclusions

5Finance

5.1 Background

5.2 Start-up phase

5.3 Working capital

5.4 Financing growth

5.5 Legal structure

5.6 Taxes and bookkeeping

5.7 Conclusions

6Marketing and sales

6.1 Background

6.2 Market competition

6.3 Strategy and competitive advantage

6.4 Marketing activities

6.5 Conclusions

7Human resources

7.1 Background

7.2 Use of human capital

7.3 Entrepreneur characteristics

7.4 Decent employment aspects

7.5 Relationships with the community

7.6 Conclusions

8Partnerships

8.1 Conclusions

9Overall conclusions

9.1 Directions for further research

References

Figures

Figure 1 Original Porter’s value chain framework

Figure 2 Adjusted Porter’s value chain framework to reflect the business model of a small and medium agrifood enterprise and links to FAO priority areas

Figure 3 Main actors involved in enabling the business environment of small and medium agrifood processors in Senegal

Figure 4 Number of mills in the Senegal River Valley

Figure 5 Growth trajectory of Khady Riz

Figure 6 Growth trajectory of Savoureux

Figure 7 Growth trajectory of RizElle

Figure 8 External factors affecting the procurement strategy of a small and medium agrifood enterprise

Figure 9 The millers’ procurement sources

Figure 10 Levels of vertical coordination

Figure 11 Enabling factors for contract farming with smallholders in the Senegal River Valley

Figure 12 External factors affecting the logistics of a small and medium agrifood enterprise

Figure 13 Costs of activities performed by the millers when procuring from contracted farmers for a 80 kg bag of paddy at an average distance of 25 km

Figure 14 External factors affecting the operations (processing activities) of a small and medium agrifood enterprise

Figure 15 The modern milling process carried out by a commercial mill

Figure 16 Distribution of costs for a small and medium agrifood processor

Figure 17 Costs of processing for the three millers

Figure 18 External factors affecting the finance activities of an SMAE

Figure 19 Interaction with financial institutions in rural areas of Senegal

Figure 20 Financing sources for starting agribusinesses in rural areas of Senegal

Figure 21 Costs related to the operational cycle, based on owners’ estimations

Figure 22 Types of business structures in Senegal

Figure 23 External factors impacting the marketing and sales of a small and medium agrifood enterprise

Figure 24 Porter’s Generic Strategies model

Figure 25 Factors interacting to create competitive advantage

Figure 26 External factors affecting the human resources strategy of a small and medium agrifood enterprise

Figure 27 Organigramme of RizElle

Figure 28 Organigramme of Savoureux

Figure 29 Organigramme of Khady Riz

Figure 30 Number of employees hired during the high season by type of labour

Tables

Table 1 Description of the business model components of agrifood small and medium enterprises

Table 2 Brief overview of the three interviewed millers

Table 3 Brief overview of the three interviewed millers

Table 4 Brief overview of the millers’ main market

Boxes

Box 1 Business model analysis based on Porter’s value chain framework

Box 2 World Bank Enterprise Surveys database

Box 3 Rice sector national strategies

Box 4 Overview of rice production in Senegal

Box 5 Leasing scheme

Box 6 Preconditions and guiding principles for successful and responsible contract farming

Box 7 Use of pesticides in the rice sector

Box 8 Parboiled rice

Box 9 Improving access to finance through Warehouse Receipt Systems (WRS)

Box 10 Competition with rice imports

Box 11 Market research on rice

Preface

International development debate increasingly emphasizes the importance of small and medium agro-enterprises (SMAEs) for pro-poor and sustainable growth in developing countries. Unlike companies in the non-food manufacturing industry, SMAEs are often embedded in rural communities. As such, they are familiar with local income levels, livelihoods needs and dietary habits, and are able to offer a variety of affordable local food products. In this way, they can add value to agricultural produce and create important ‘close-to-farm’ market outlets for small farmers. As they grow, SMAEs can also provide non-farm employment opportunities to young people who might otherwise move abroad or migrate to already overcrowded cities.

Despite their pivotal role, evidence shows that these important actors tend to fall through the public sector policy crevices of agricultural, trade, health and industry support, not only in the sub-Saharan Africa region but in all regions. They are also constrained by many of the same challenges that smallholders face: lack of access to credit and investment, weak infrastructure and capacity, unclear regulatory governance, and an absence of adequate support services, particularly in food safety, business development, marketing, and processing technologies. Given these challenges, SMAEs risk exclusion from rapid market growth for agricultural produce, propelled by the regional surge in population, increasing incomes and urbanization. This prospect also means that demand will continue to be served by rising imports, placing pressure on national balance of payments’ deficits and overall economic development.

Against this background, several important questions arise. Without the advantage of scale, how do SMAEs survive and grow in challenging environments? How is their business shaped by changing trends in food markets? How does the way they arrange their business model impact the community in which they operate? Given the sector’s potential to alleviate poverty, how can policymakers and development actors better support SMAEs in African food value chains?

This objective of this publication is therefore to learn from African SMAEs and, more specifically, from Senegalese rice millers, based on their day-to-day realities, constraints and business creativity in dealing with difficult circumstances. The methodology employed to analyze these enterprises is the output of a multidisciplinary team whose objective is to develop evidence for policy makers on how to better support SMAEs in order to unleash their potential as actors in food systems transformation.

This technical study aims to share ideas about innovations related to procurement, operations, logistics, finance, marketing and sales, human resources, and strategic partnerships with a wide range of stakeholders, including business service