Thursday, October 25, 2012

Upgrading rice value chains: The role of policy sequencing


Like many other African countries, Senegal was sorely hit by the rice price crisis of 2007 and 2008. However, in November 2008 — just 6 months after the global rice price peak and in the wake of the government’s Grande Offensive Agricole pour la Nourriture et l’Abondance (GOANA) to achieve self-sufficiency in rice by 2015 — the price of local Senegal River valley (SRV) rice dropped sharply. 

The reason? Like many productivist attempts in the past, the GOANA plan had increased production of local rice, but there was no commensurate increase in demand. 

“Historically, the Senegalese government has invested more in rice production — fertilizer, finance and infrastructure — than in rice processing and marketing,” says AfricaRice agricultural economist Matty Demont.

In colonial times, cheap broken rice was imported to feed the labor force employed to grow groundnut for export. Since independence in 1960, rice consumption has grown at a staggering 7% per year.

Senegal has one of the highest rates of urbanization in Africa —  urbanization that fuels rice consumption and demand. Rice overtook millet and sorghum as the preferred staple in Senegal’s urban centers in the 1980s and 1990s.

The reasons for the city-dwellers’ adherence to imported rice are perfectly valid: a survey conducted by AfricaRice and its partners before the food crisis showed that 40% of urban rice consumers did not know that there was any domestically produced rice!

Others complained that it was unavailable (42%) and poorly marketed (40%); while a quarter of urban dwellers said that the local rice is of inferior quality to the imported rice. Given that urban dwellers comprise 65% of all rice consumers in the country, SRV rice has a long way to go if it is going to replace the imported commodity in the drive for self-sufficiency.

With the issues of delivery and acceptance coming to the forefront as domestic rice production increases, Demont and former visiting research fellow Amy Rizzotto suggest that the government and other value chain stakeholders need to sequence policy actions to effect the required changes needed for SRV rice to lead the self-sufficiency ‘offensive’. And this based on the assumption that value chains need to be buyer-driven, if local rice is going to deliver self-sufficiency.

“We drew on a lot of data and information,” explains Demont. “We conducted semi-structured interviews with a broad range of SRV rice stakeholders from farmers, extension agents, processors and traders, to consumers and restaurateurs, and even the top three rice importers. We organized a stakeholder workshop to brainstorm in groups on marketing SRV rice. There were the pre-food crisis survey data, and information from the experimental auctions conducted in 2010 and 2011.”

From careful study of all this information, Demont and Rizzotto distilled some generic ‘policy-sequencing lessons’ that should be applicable on a wider scale than just Senegal alone.

1. Rice quality needs to be tailored to consumer requirements as expressed in market demand. In the drive for self-sufficiency in Africa, this will usually be driven by the large and often import-biased urban markets.

2. This should be followed by large-scale investment in rice productivity.

3. Processing and distribution also need to be scaled up through investment in aggregation and storage infrastructure.

4. Once local rice of the required quality is available in marketable quantities, it should be branded and advertised. This is to raise awareness and expectation among consumers, so that the new brands capture a share of the market, otherwise it may be impossible to modify long-term consumption habits and reverse the import biases in urban end-markets.

5. Quality control and generic promotion and advertising strategies need to be established and maintained, so that the brands become credible products and their market share in urban end-markets is maintained.

The application of these lessons will differ in different value-chain contexts. “For example,” says Demont, “Burkina Faso has the luxury of having an urban consumer base which is more than willing to swap imported rice for local rice at the currently available quality. Here, the priority is to increase production to meet consumers’ needs in terms of volume.” Moreover, the sequencing of the policies is not as simple as (1) followed by (2) followed by (3). 

“All actions need to be initiated more or less synchronously due to lags between investment and impact,” says Demont, “but some actions can only be effective if certain milestones in previous actions are attained.” In particular, step (5) shows that maintaining the quality of the new brands and maintaining their profile in the public arena is an ongoing process.

In Senegal, the whole value chain is skewed by historic and current investments in increasing productivity and production without similar investments in processing and marketing.

“For Senegal, we propose a three-stage approach,” explains Demont. “First, ‘we’ should look at adding value to the local rice. This will involve improving the quality so that it matches that of imported brands; facilitating contractual arrangements between adjacent links in the value chain to ensure quality — for example, between large buyers in Dakar and farmers.” This step also includes labeling and branding.

A second step for Senegal would be to increase the supply of the branded product through productivity enhancement and scaling up of the infrastructure to enable aggregation and storage. “Of course, productivity enhancement is already a major theme for the Senegalese government,” says Demont.

“The difficulty might be persuading farmers to keep increasing their production, when they have historically been punished by the market in terms of price at harvest. This is where contracting may play a crucial role.”

The third step is to raise demand for quality SRV rice through generic promotion and advertising. It also involves building the customer base by reaching potential new consumers, and ensuring that the product delivers what the publicity says it will. “Each ‘step’ is really just a milestone,” indicates Demont. “The activities of each step will continue even as the next step starts – overlap and ongoing commitment.”

“The good news,” says Demont, “is that, since the stakeholder workshop, the private sector has made its own moves to upgrade the value chain.” For example, 14 rice importers launched a joint venture with producers and processors – the Société de Promotion et de Commercialisation du Riz Sénégalais (SPCRS) – to buy, mill and market SRV rice to Senegalese consumers, controlling quality through contracts with millers and farmers. Other value-chain initiatives involve high-quality and medium-quality SRV rice, targeting different market segments.

“New aromatic rice varieties that have been recently introduced in the SRV are promising,” says Demont. “They may trigger further value-chain development such that the SRV will henceforth be able to reach demanding consumer segments in Dakar which were previously inaccessible for local rice.”

Thanks to generic promotion of SRV rice by the Senegalese government and many development partners, the continued high price of imported rice, and the quality increases already evident in branded SRV rice based on AfricaRice varieties, there has already been positive uptake of SRV rice by urban consumers.

“The awareness of SRV rice in Dakar has risen dramatically,” says Demont. “The latest round of experimental auctions in the capital (conducted in April 2012) showed an awareness level of 93% – just eight people out of 120 were not aware of SRV rice. That’s a big leap from 60% in 2006–2007!”

Generalizing from the SRV-specific case, upgrading rice value chains is complex – many synchronous actions are needed and the challenge for policy makers is finding (i) the optimal mix between supply-shifting (productivity-increasing), value-adding (quality, labeling, branding) and demand-lifting (promotion, advertising) strategies, and (ii) the optimal sequence in which these actions need to take place.

Related Journal Articles
1.     Demont, M., Rutsaert, P., Ndour, M., Verbeke, W., Seck, P.A. & Tollens, E. 2013. Experimental Auctions, Collective Induction and Choice Shift: Willingness-to-pay for Rice Quality in Senegal. European Review of Agricultural Economics, in press.
2.   Demont, M. & Rizzotto, A.C. 2012. Policy Sequencing and the Development of Rice Value Chains in Senegal. Development Policy Review, 30(4):451–472.
3.   Demont, M., Rutsaert, P., Ndour, M. & Verbeke, W. Reversing Urban Bias in African Rice Markets: Evidence from Senegal. World Development, under review.