When we contemplate developing private sector, we often think of attracting new investments, neglecting existing enterprises. In this blog, we consider micro and small enterprises, which play a critical role in the last mile of delivering inputs and services to farmers. They play a role downstream of farmers too, often taking the market to the farm gates. What kinds of services do they provide? They sell agrochemicals including fertilizer in village markets. They rent out equipment such as sprayers and pumps. They plow the fields and harvest crops using their tractors and equipment. They buy at the farm gate to process using traditional technologies, resell in nearby markets, or to feed to an aggregator in a nearby or a distant market. A survey of service providers in two districts each in the transitional and savanna zones of Ghana revealed a lot about them.
The service providers were mostly farmers who had plowed their profits from agriculture into businesses to meet the needs of other farmers. They continued to farm, earning as much as one half of their incomes from agriculture. Their gender influenced what they were most likely to be engaged in. Women were more likely to trade and process. Men dominated the rest. Most of them operated their businesses individually; the rest partnered with a spouse, relative or a friend.
Diversifying to these enterprises came naturally to them. Those with sufficiently large holdings begin to produce certified seeds because it gives them higher profits than producing grains. Setting up a shop to sell agrochemicals does not require much of an investment—maintaining an inventory of fertilizers might. The equivalent of profits from cultivating about 15 acres of maize can get them started. Tractor service providers who collect a bag of grains for plowing an acre find themselves trading in grains. The women who earn a share for harvesting groundnuts, process them for oil, making use of milling facilities in their communities.
Their businesses encourage them to invest in capital goods needed to service others. Medium to large scale farmers who buy tractors to plow their fields also use them to offer services to other farmers. The prospect of earning money by plowing others’ fields might encourage them to buy in the first place. Finding it profitable, they might invest in a second one if they can. Someone owning a chemical shop would also find it beneficial to rent out Knapsack sprayers to potential customers who don’t own one. Maize traders invest in shellers to attract farmers who are looking for shelling services as well. The women trading in rice, for example, invest in drying yards and mills to attract farmers. Hundreds of three wheeled transport vehicles that have now become available for hiring in northern Ghana suggests the potential for investments and entrepreneurship in rural and semiurban communities.
Offering services in their communities, the entrepreneurs respond quickly to needs. Producers of most commodities suggest that they have access to traders in their communities. They also take input supplies close to farmers. In an experiment in northern Ghana, the farmers who were given the opportunity to have inputs delivered at their doorstep did not invest in more inputs compared to farmers who had to travel to the nearest shops. The input stores were close enough. But that need not always be the case. Farmers in northern Ghana complain about how hard it is for them to find a tractor service provider. Limited profits from plowing during a single season in the northern parts might explain the limited supply.
The service providers also do not seem to be able to exploit their customers because they almost always have someone competing with them. A third of them felt that if they increased their charges by ten percent, they would lose their clients.
What role could these micro and small enterprises play in developing agricultural enterprises to better serve farmers? They can only offer limited services; what they can offer depends on how well developed the activities are upstream of them. The seed producers can only multiply the varieties whose foundation seeds are available. Tractor service providers have proliferated in Ghana only because used tractors which cost half as much of new ones are imported into country. Similarly, the import of relatively inexpensive Chinese-made three wheelers have enabled affordable transport services in rural communities. The informal fringe of micro enterprises can effectively extend the developments upstream of them to rural communities.
They have a role in developing the last mile, because they, in many cases, are more effective than the networks of formal enterprises, which face difficulties reaching rural areas because of poorly developed infrastructure. Individual farmers who own tractors often service other farmers better than mechanization centres. Improving activities upstream of them—supply of products and services and public facilities—and enforcing regulations better would improve their services and increase their profits. For example, tractor owners would benefit from better access to spares and services. Seed producers would benefit from access to foundation seeds of varieties that farmers are demanding—with the extension system generating the demand. And if spurious seeds are taken out of the market. Contemplating a role for micro and small agricultural enterprises in improving services to farmers can lead to strategies that could also help them diversify their operations and exploit the potential in rural communities to make small investments.