Linking Smallholders to Markets: A Supplier Development Program for Vegetable Farmers in Lesotho Linking Smallholders to Markets: A Supplier Development Program for Vegetable Farmers in Lesotho © 2019 The International Bank for Reconstruction and Development/The World Bank, 1818 H Street NW, Washington, DC 20433 USA This volume is a product of the World Bank staff. The findings, interpretations and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank Group or the governments they represent. The World Bank does not guar- antee the accuracy of the data included in this work. Images: World Bank Photo Library (Elita Banda); photos B3.1 and B3.2 are courtesy of Alosang Farm The report was edited by Sandra Gain and designed by Diego Catto Val. Table of Contents Acknowledgments 5 Abbreviations and Acronyms 6 Executive Summary 7 Introduction 10 Part I. Demand for Fresh Vegetables 12 1.1. Demand for vegetables at the national level and regulation of imports 13 1.2. Main actors in the fresh produce market in Maseru 15 1.3. Sourcing strategies of different buyers and requirements for suppliers 18 Part II. Production and Marketing Practices of Commercial Vegetable Farmers in Maseru 24 2.1. General findings 25 2.2. Challenges in production and farm management 29 2.3. Record keeping and marketing 31 Part III. Linking Farmers to Markets: A Supplier Development Program 36 3.1. Objectives and focus of the fresh vegetable Supplier Development Program 39 3.2. Implementation modality and components of the SDP 41 3.3. Expected results and monitoring and evaluation 44 3.4. SDP’s staffing, work program, and budget 46 References 49 Annex A. Estimated monthly demand for vegetables in Maseru (kilograms) 50 Annex B. Illustration of the demand volumes of hotels and restaurants 51 Annex C. List of individual vegetable traders with import permits 52 Annex D. Strengths and weaknesses of the potential SDP implementation models 53 Annex E. Illustration of the work program, by month 54 4 LINKING SMALLHOLDERS TO MARKETS Acknowledgements This study was prepared by Anna Reva (Private Sector Development Specialist and Task Team Leader) with support from Steven Gid- dings (Consultant). The team thanks Douglas Pearce (Manager, GFCAS), Janet Entwistle (Country Representative), and Paul Noumba Um (Country Director) for their overall guidance and support to the project. The paper benefitted from contributions and comments from John Gabriel Goddard (Lead Economist), Meeta Sehgal (Senior Agriculture Specialist), Bobojon Yatimov (Senior Agriculture Specialist), Sebastien Dessus (Program Leader), Ellen Olafsen (Senior Private Sector Specialist), and Motselisi Ratii (Consultant). The team is grateful to Justin Hill (Senior Private Sector Specialist) and Dietrich Fischer (Senior Operations Officer), peer reviewers, for their comments. The team expresses its gratitude to the Government of the Kingdom of Lesotho for the cooperation and support extended throughout the preparation of this document. The team is very grateful to the Ministry of Small Business Development, Cooperatives and Marketing for sharing their experience of working with farmers and buyers and for organizing field trips. The team also thanks the staff of the Ministry of Agriculture and Food Security, the Ministry of Trade and Industry, the Lesotho National Development Corporation, as well as farmers, farmer associations, and civil society leaders. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 5 Abbreviations and Acronyms BEDCO Basotho Enterprise Development Corporation C Celsius EIF Enhanced Integrated Framework ha hectare IFC International Finance Corporation kg kilogram M maloti MSBDCM Ministry of Small Business Development, Cooperatives and Marketing SADP Smallholder Agriculture Development Project SDP Supplier Development Program sqm square meters VAT value-added tax 6 LINKING SMALLHOLDERS TO MARKETS Executive Summary BACKGROUND Lesotho has good potential to increase vegetable production, Supplier Development Program to improve formal market access reduce imports, and increase the incomes of farmers. Protected for smallholder farmers. The analysis is focused on Maseru, as it is vegetable farming1 has taken off in the past five years in Lesotho, the main demand center in the country. The paper builds on the thanks to donor and government support. Cultivation of many findings of the recent World Bank report “Unlocking the Potential of vegetables is scale neutral and even smallholder farmers with Lesotho’s Private Sector: A Focus on Apparel, Horticulture and ICT” less than a hectare of land can operate at a profit in Lesotho. As (Reva 2018), which remain highly relevant. is the case globally, investments in horticulture can create jobs and reduce poverty, because the sector is highly labor intensive. We hope the results of the analysis will be of interest to Interviews with buyers suggested that there is strong demand for government officials, potential investors, producers, and the fresh produce in Lesotho, which is met primarily through imports. donor agencies working on agricultural entrepreneurship Supermarkets and grocery stores reported that over 80 percent in Lesotho. The Government of Lesotho is trying to attract of vegetables are imported from South Africa, even during the investment in primary agriculture, the Market Center in Ha Tikoe, growing season. Trade statistics shows that imports of vegetables and agroprocessing. These efforts would benefit from the detailed were worth $18.7 million in 2017 (UNCOMTRADE). However, all the assessment of demand, buyer sourcing strategies, and a program buyers are willing to increase local sourcing, citing the convenience, to upgrade farmers so that they can better meet the requirements cost competitiveness, and freshness of local produce. of formal markets. The paper is also relevant for two World Bank Projects—the Second Smallholder Agriculture Development This study aims to (1) assess the demand for vegetables from Project and the Second Private Sector Development and Economic the main buyers in Maseru, (2) examine the current production Competitiveness Project—as well as the work of other donors and marketing strategies of commercial vegetable producers supporting agriculture and entrepreneurship. practicing protected farming, and (3) suggest the design of the pilot 1. By “protected vegetable farming” we mean cultivation under greenhouses or hail nets A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 7 DEMAND SUPPLY There are multiple actors in the fresh produce market in Government and donor support provided a major impetus to the Maseru. The main players are the branches of four South African development of protected vegetable farming and contributed supermarkets, three local grocery stores (in the bus stop area), five to the emergence of agricultural entrepreneurs. The provision Chinese-owned stores, and about 25 individual traders (with import of greenhouses, hail nets, and small-scale irrigation systems was permits) who typically sell on the street. The three local grocery often a starting point for the emergence of commercial farming stores have the largest market share, at 35 percent, followed by the enterprises. The two largest donor-funded projects provided grants supermarkets, at 31 percent; individual traders, at 20 percent; and for protected farming to about 400 farmers in several districts of Chinese-owned stores, at 15 percent.2 There are no fresh produce the country. Although few vegetable producers keep good records, aggregators or agro-processors in Lesotho. Our estimates suggest our estimates suggest that protected vegetable farming is a viable that more than 1,400 tons of vegetables are traded monthly business in Lesotho. Based on the data reported by farmers, the in Maseru. The vegetables in highest demand are cabbages, profits of the most successful vegetable producers can reach M potatoes, carrots, beetroots, and tomatoes, which account for 1 million (US$71,428) per season in per hectare (ha) equivalent. 87 percent of total trade. Investments in protected farming and irrigation can have a The main constraints reported by the buyers are reliability transformational impact on farmers’ incomes, yet obtaining of supply, varying quality, and low volumes. The problems of a greenhouse is not necessarily a path to success. Transition quantity and reliability of supply are primarily due to most farmers to intensive vegetable production requires acquisition of skills being smallholders and not spacing production or coordinating in modern agronomic practices, which has not yet happened for deliveries. The quality requirements currently relate mainly most farmers. As a result, most vegetable producers report low to product visual appearance and packaging. Global Gap and yields. Some of the common knowledge gaps include seed variety other standards are not imposed, and buyers do not conduct selection, plant spacing, and pest management. Furthermore, lack phytosanitary tests. Lack of food certification is an important of soil testing often results in the incorrect use of fertilizers and area of concern for supermarkets that may introduce food safety chemicals. As a result, yields are often lower than expected. For standards in the future due to corporate requirements. example, reported tomato yields ranged between 8-12 kilograms (kg) per plant per season among top performing farmers and just 1 All the buyers want to increase local purchasing, and they kg for struggling farmers. Local extension officers and input service find that local produce is cost-competitive relative to imports. providers lack knowledge on greenhouse vegetable cultivation, Yet, some of their sourcing strategies may preclude the formation and there are no microbiological facilities in Lesotho, which makes of a sustainable supply chain. Contracts are not practiced by any it difficult to identify plant diseases. More advanced farmers tend of the buyers, and there is rarely a strong commitment to purchase to purchase inputs in South Africa and, when needed, seek advice a certain quantity of a product. Pick n Pay supermarket practices from South African agro-dealers on pest and disease management. an inclusive strategy by giving many farmers a chance to deliver their produce if it meets the quality requirements. However, Although most farmers can sell their produce, relatively few the approach disadvantages growth-oriented farmers, as they have regular formal customers. There are multiple distribution are subject to rationing and quotas. Shoprite supermarket works channels, which can take most of the common produce, from poor closely with Freshmark, its distribution center in South Africa. quality to first grade. Yet, fragmentation of production, frequent Due to the small scale of local suppliers, none is registered with losses of crops to diseases, poor sorting and grading, and lack of the distribution center, and local purchasing tends to happen on packaging make it difficult for many farmers to establish regular an ad hoc basis. Overall, lack of certainty in the market precludes relationships with formal buyers. specialization in high-value crops (red and yellow peppers, broccoli, cauliflower, baby vegetables, and others), which can be sold only to supermarkets. 2. Based on the Buyer survey conducted for this study and analysis of import declarations 8 LINKING SMALLHOLDERS TO MARKETS PROPOSED PILOT SUPPLIER DEVELOPMENT PROGRAM The main objective of the pilot Supplier Development Program Program participants will be chosen through a competitive (SDP) is to increase farmers’ productivity and link them to selection process. The program will focus on growth-oriented formal markets. Most of the formal buyers who were interviewed farmers and include the following selection criteria: (1) having a in Maseru expressed strong interest in participating in a market greenhouse or shade net as well as year-round access to irrigation, linkage intervention. Specifically, the program can improve the (2) a minimum of three years of farm management experience, agronomic practices and management capabilities of farmers and (3) positive sales trends in the past two years (provided there strengthen the profitability of their enterprises. It can also increase was no adverse weather event), and (4) at least some experience buyers’ trust in working with local farmers. The proposed SDP pilot selling to formal buyers. We suggest that the initial pilot will last focuses on technical assistance for beneficiary farmers and no for 18 months and focus on Maseru. At the end of that period, the financial support is envisaged. The program will provide training program should be evaluated, the scope of activities and level of on optimizing cash flow and strengthening financial management, support adjusted as needed, and the intervention scaled up to which will increase farmers’ ability to access bank loans. include more farmers and locations. The program duration could be extended to five years or longer (depending on farmers’ needs The pilot program has three main components: (1) improving and resource availability). linkages with buyers, (2) providing technical assistance to farmers, and (3) improving linkages with input suppliers. The The SDP can contribute to strengthening the vegetable supply first component will include continuous monitoring of buyer chain and making Lesotho a more attractive investment demand for the crops and volumes needed, quality (size, color, destination for agrobusiness. In the short term, the program and stage of ripening), and delivery timing requirements. Technical can contribute to improved yields and incomes of farmers. In the assistance to farmers will include seed variety selection, cultivation medium term, the program can have a strong positive impact on practices, soil nutrient testing and amelioration, pest and disease the volume of locally available produce, which would encourage management, water management, product standards, and financial investment in aggregation and agroprocessing. Lastly, the lessons management. The SDP should also work with local agro-dealers learned from the demand-driven SDP aimed at growth-oriented to raise their awareness of the inputs that are frequently needed businesses could inform the design of entrepreneurship projects by vegetable farmers, the types of seed varieties that do well in in other sectors. Lesotho’s climate conditions, use of plant protection products, and crop husbandry practices. The objective of the last component is to improve the product and service offerings of the local input providers and capacitate them to support farmers. It is proposed that the SDP will target wholesale and retail buyers in Maseru over consumer or end markets. The focus on these buyers is justified because their knowledge of demand requirements is more formal and there is greater potential for demand scalability, that is, increased production could be more easily absorbed. Direct supply to end users, such as restaurants and hotels, may serve as a “sink” in cases where supply exceeds demand from the wholesale and retail markets. It is also proposed that the SDP will focus on several crops for which there is strong demand from buyers and that farmers are comfortable growing. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 9 Introduction Agriculture plays a significant role in Lesotho’s economy. The Government of Lesotho has prioritized the development Lesotho is among the poorest countries in Southern Africa, with of horticulture industry and mobilized donor support for the 57 percent of the population living below the poverty line. About sector. Agriculture, including vegetable farming, is one of the 70 percent of the population lives in rural areas and depends four priority sectors under the National Strategic Development on agriculture for their livelihoods. Most farmers are involved in Plan 2018/19–2022/23. The government and donors’ support to subsistence cultivation of cereals, where the country does not vegetable farming has mostly focused on providing grant funding have a competitive advantage due to the agroclimatic conditions, for greenhouses and hail nets as well as initial basic training on small farm size, and lack of mechanization. This contributes to protected farming. The largest programs that have supported widespread poverty in rural areas, which account for 87 percent protected vegetable farming include the World Bank’s Smallholder of the poor. Agriculture Development Project (SADP) and the World Trade Organization’s Enhanced Integrated Framework (EIF) project. Vegetable production has a good potential for growth in Lesotho. These programs have provided grants to about 400 farmers. Several factors can support commercial vegetable cultivation in the country: (1) a favorable climate, (2) increasing local and regional Although vegetable production has reportedly increased, demand for healthy food, (3) interest from key buyers to source emerging commercial farmers often suffer from low productivity locally, and (4) opportunity for import substitution—supermarkets and challenges in accessing formal markets. Many farmers sell and grocery stores in Lesotho report that over 80 percent of their produce to street vendors and in informal community markets fresh produce is imported even during the growing season. rather than to formal buyers that offer better prices. There are no Furthermore, the cultivation of many vegetables is scale neutral packing houses, aggregators, or agro-processors in any of the crop and therefore suitable for Lesotho’s smallholders, who constitute value chains in Lesotho (except Lesotho Flour Mills, which imports most of the farmers. Indeed, most of the Basotho farms are small, most of the raw material from South Africa). and over 60 percent of the households have plots that are smaller than 1.5 hectares (ha) (Bureau of Statistics 2009/2010 Agricultural Census). 10 LINKING SMALLHOLDERS TO MARKETS Lack of data on vegetable production volumes, yields, and farm vegetable farmers, and (3) suggest the design of the pilot Supplier revenues complicates analysis of the industry and policy efforts Development Program (SDP) to improve formal market access to support the sector. The first pilot commercial horticulture for smallholder farmers. The focus of this study is on Maseru, as survey identified 198 “commercial vegetable farmers,” defined as it is the main center of demand in the country. The study relies on those who produced primarily for the market and used irrigation several data sources: a buyer survey in Maseru, semi-structured (Bureau of Statistics 2016). The survey covered a limited number interviews with commercial farmers, and administrative and import of variables, including area planted to different crops and the data. To our knowledge, this is the first demand-driven assessment educational attainment and age of farmers. There are no data on of business opportunities in the horticulture industry in Lesotho. yields or farm turnover. The results suggest that a little more than 600 ha were planted to vegetables by the surveyed farmers. The The results of the analysis can inform public and private most common crops were spinach, spaile (traditional green leaf investments and further donor support to the industry. In vegetable), and pumpkins. particular, it is expected that the findings of this study will inform implementation of the second phase of the World Bank’s SADP This study builds on the findings of a World Bank report, project, which is currently under preparation. The findings will also “Unlocking the Potential of Lesotho’s Private Sector: A Focus be relevant for the World Bank’s Competitiveness and Economic on Apparel, Horticulture and ICT.” The report identifies good Diversification project, which provides support to the development opportunities for horticulture development and suggests the of fruit farming, among other interventions. The results of the following measures to support the sector: (1) conduct land titling analysis will also be of interest to several government agencies that and enable development of the land market (only 232 farmers are supporting commercialization of agriculture and development have land titles, which prevents them from using land as collateral of entrepreneurship and to development practitioners in Lesotho and deters new investment in the sector), (2) prioritize the areas who are working on designing projects for growth-oriented suitable for horticulture development for investments in irrigation entrepreneurs. Lastly, the study should be of interest to potential and other rural infrastructure, and (3) incentivize market linkages investors in the Market Center in Ha Tikoe Industrial Estate, as well (through productive alliances between farmers and potential as to vegetable producers. buyers) and invest in skills (Reva 2018). These recommendations remain relevant. The rest of this paper is organized as follows. Part 1 describes the demand for fresh produce and sourcing strategies of buyers in The objectives of this study are to (1) assess the demand for Maseru. Part 2 discusses the production and marketing practices vegetables from formal buyers in Lesotho, (2) examine the of commercial vegetable farmers. Part 3 outlines the design of the current production and marketing strategies of commercial pilot SDP. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 11 PART I. Demand for Fresh Vegetables DEMAND FOR 1.1 VEGETABLES AT THE NATIONAL LEVEL AND REGULATION OF IMPORTS The growing urban population and increased awareness of healthy diets contribute to rising demand for fresh produce, which is met primarily through imports. The urban population in Lesotho has doubled since 1990 and grown at an average rate of 2.9 percent over the past decade (World Bank 2019). Maseru is the main urban center, with a population of more than 500,000. Domestic production of fresh vegetables by commercial farmers is low, and most of the demand is met through imports from South Africa. Imports of vegetables have grown by 45 percent cumulatively since 2010 and constituted $18.7 million in 2017 (UNCOMTRADE mirror data). Actual imports could be larger, as imports by small-scale traders may be undocumented. In 2017, more than 28,000 tons of vegetables were imported from South Africa (UNCOMTRADE). The highest volumes were for potatoes, cabbages, and tomatoes, accounting for 83 percent of all vegetable imports (figure 1). A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 13 FIGURE 1: Potatoes, cabbages, and tomatoes are the most commonly imported vegetables in Lesotho 10,136 12,000 10,000 6,078 8,000 4,247 6,000 2,180 1,674 4,000 1,049 940 927 194 2,000 187 172 56 61 55 53 53 13 9 0 5 ry To ale ts ow Bee s ot ge oli s rs Le s s s ce c ts s Sp s h s s ek es toe s & toe p Cu ble an le a nt rli ac lo ou be le tro Pe c ni ttu ab Ga k la Le Be oc rro hal in Ce ur ta r ta a m d gp sp et m br an t Po cu s eg & Eg s & ve el ts sv er ss on ag er ou ru th ni bb Ca B in O ifl O Ca m ul gu Ca Le Source: UNCOMTRADE mirror data. Fresh produce imports are duty-free, but traders must have Import permits are not rigorously enforced; nevertheless, they a valid import permit issued by the Ministry of Small Business seem to encourage large buyers such as supermarkets to give Development, Cooperatives and Marketing (MSBDCM) on a local farmers a chance. Import permits could be withheld if monthly basis. As a member of the Southern African Customs local produce has not been sold. However, this rarely happens in Union, Lesotho does not impose customs duties on imports practice, as local production levels are low, and most farmers do from other member countries. However, fresh produce imports not experience problems selling their produce. Some traders do are regulated through an import permit system. MSBDCM issues not purchase any vegetables locally and are still granted permits. permits for a specific quantity of each vegetable crop at the district Furthermore, it seems to be difficult to enforce the system, as there level, based on the ministry’s knowledge of the fresh produce are no representatives of MSBDCM at the border. So, if one has a volumes available from local suppliers in the district. The ministry permit for imports of 100 kilograms (kg) of cabbage but imports also organizes regular buyer-seller meetings in each district to a larger volume, it will likely go unnoticed by MSBDCM. However, encourage traders to source more products locally. Farmers can importers complained that they must pay a value-added tax (VAT) contact and inform the market officers in their district about the at the border on the value of the consignment. Some of the produce anticipated volumes of their crops before harvest, and the ministry will not be sold or will be sold at a discounted price, but the VAT is encourages local buyers to source locally. There is no regulation/ never adjusted. This practice seems to hurt small, local traders the formula prescribing the percentage of produce that should be most, as their margins and overall volumes are low. bought locally by different traders (for example, supermarkets versus local grocery shops). 14 LINKING SMALLHOLDERS TO MARKETS 1.2 MAIN ACTORS IN THE FRESH PRODUCE MARKET IN MASERU The main actors in the fresh produce market in Maseru are branches of four South African supermarkets, local wholesale/retail grocery stores, the so-called “Chinese stores,” and individual traders typically selling in the street (figure 2). The supermarket chains in Maseru include Pick n Pay, Shoprite, Fruit and Veg, and Game. Shoprite has seven stores in and around Maseru (three Shoprite stores and four Usave stores); the rest currently have one store. There are three local wholesale/retail stores, five Chinese-owned stores, and about 25 registered individual traders with import permits operating in the district (the number of individual importers fluctuates over the year). Hotels and restaurants import produce from South Africa, buy it directly from local farmers, or buy from the supermarkets in Maseru. An unknown number of informal street vendors sells small quantities of vegetables throughout the city. This study focuses on formal private buyers and excludes public institutions (hospitals, schools, and prisons) from the analysis. FIGURE 2: Main actors in the fresh produce market in Maseru The main actors in the fresh produce market in Maseru FOUR THREE LOCAL FIVE 25 SUPERMARKET GROCERY CHINESE-OWNED REGISTERED CHAINS: STORES: STORES: INDIVIDUAL TRADERS • Pick n Pay • Bay Fruits and Veg, • Z&Z Enterprise WITH • Fruit and Veg • Redline Fruit • Long River Group IMPORT LICENSES • Game and Veg of Companies • Shoprite ( 7 stores: • Upper Qeme • Hero Flower So Maseru. SS Chinese Food Maseru Mall, • Jei Rui Brothers SS Sefika, UU • Lotho Enterprise Busrank, UU Main South Borokh, UU Thetsane, UU Kingsway Maseru) Hotels and Restaurants Farmers A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 15 There are few statistics on fresh produce sales and import FIGURE 3: Local grocery stores have the highest market volumes at the district level. Importers provide monthly reports share for 20 commonly traded vegetables in Maseru on the volumes and values of imported fruits and vegetables to MSBDCM. The forms are filled out by hand and importers often use ESTIMATED MARKET SHARE (%) BASED ON non-standardized measurement units, for example, cabbage heads, THE VOLUME OF MONTHLY SALES/IMPORTS OF 20 COMMONLY TRADED VEGETABLES spinach bunches, bags, pallets, or packets, which vary by weight even for the same commodity. The data provided by supermarkets are particularly difficult to aggregate, as the supermarkets sell produce in a variety of configurations (loose vegetables, 1 kg bags, 15% 20% Chinese-owned Individual 3 kg bags, and so forth) and the exact measurement units are not stores traders always provided in the forms. The data on import volumes are therefore difficult to systematize and have never been analyzed. We surveyed a representative number of buyers in Maseru to understand the volumes and key parameters of demand, willingness to source locally, and main requirements for suppliers. Structured interviews were organized with 20 buyers, which included all the supermarkets and local grocery stores, four hotels, and nine restaurants. Language issues made it difficult to survey the Chinese store owners, so only one such interview was done. We also interviewed one formal and six informal 35% 31% Local stores Supermarkets street vendors. Although all the buyers were willing to share their experience of working with local suppliers, we could not obtain information on sale volumes from one of the local grocery store owners and the Chinese-owned stores. So, we estimated the Source: World Bank Fresh Produce Buyer Survey 2019, for approximate market shares of each of the key buyers by combining supermarkets and two local grocery stores; Ministry of Small the data from the interviews with data from import declarations for Business Development, Cooperatives and Marketing for the the Chinese-owned stores, one of the local grocery stores, and the Chinese-owned stores, one local grocery store, and individual 25 registered individual traders. traders (based on import declaration data for November 2018). Local grocery stores have the largest market share (by volume) Note: Vegetables include cabbages, tomatoes, potatoes, butternuts, relative to their competitors. The local grocery stores—Bay Fruits carrots, beetroots, onions, lettuce, green peppers, green beans, and Veg (operating out of the Basotho Enterprise Development cucumbers, eggplants, cauliflower, broccoli, chilies, colored Corporation (BEDCO) Trade Center), Redline, and Upper Qeme— peppers, spinach, cocktail tomatoes, baby marrows, and patty pans. specialize in products that are in highest demand by local consumers (regardless of income level) and have the largest market share compared with other players based on the data for 20 commonly traded vegetables (figure 3 and annex A). Three products—cabbages, potatoes, and tomatoes—account for over 60 percent of the local stores’ sales of vegetables on average. Figure 4 shows that local stores sell the highest volumes of tomatoes and onions relative to their competitors. The Chinese-owned stores operate similarly to the local shops and focus on a few vegetables that are in high demand by consumers. The Chinese-owned shops sell the most cabbages relative to other market operators (figure 4). The supermarkets offer a much larger variety of vegetables and are the only stores selling cauliflower, broccoli, baby marrows/patty pans, cocktail tomatoes, mixed greens, and other niche products. Most produce is packaged and some is sold cut, sliced, or shredded. Individual traders typically sell one or two vegetable types; they sell the most potatoes relative to other market players (figure 4). 16 LINKING SMALLHOLDERS TO MARKETS FIGURE 4: Local stores sell the most tomatoes and onions compared with the other market players ESTIMATED MONTHLY DEMAND FOR THE 10 MOST COMMONLY TRADED VEGETABLES, BY BUYER (TONS) 180 160 160 140 125 119 120 108 100 94 86 81 79 80 76 64 68 60 50 45 40 38 34 34 30 20 14 9 8 6 9 2 0.1 10 10 9 4 1 4 0 8 1 0.2 0.1 1 0 2 2 0 0 Cabbages Tomatoes Potatoes Butternuts Carrots Beetroot Onions Lettuce Green Cucumbers peppers Supermarkets Local stores Chinese-owned stores Individual traders Source: World Bank Fresh Produce Buyer Survey 2019, for supermarkets and two local grocery stores; Ministry of Small Business Development, Cooperatives and Marketing for the Chinese-owned stores, one local grocery store, and individual traders (based on import declaration data for November 2018). Demand for most vegetables is stable throughout the year, except for cabbages (and possibly spinach), for which local grocery stores reported a decline in demand during the rainy season because many households plant for self-consumption. Demand for these crops does not change much in supermarkets, as they cater to better-off consumers. Sales tend to peak in December due to the Christmas holidays. Our estimates suggest that more than 1,400 tons of vegetables are sold monthly in Maseru. The five vegetables in highest demand are cabbages, potatoes, carrots, beetroots, and tomatoes (annex A); these products account for 87 percent of total trade in vegetables. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 17 SOURCING STRATEGIES OF DIFFERENT 1.3 BUYERS AND REQUIREMENTS FOR SUPPLIERS GENERAL FINDINGS Most buyers have some experience purchasing from local their production or coordinate deliveries with other farmers. As a farmers and would like to increase local sourcing. All 20 result, the market could be flooded with a particular vegetable at interviewees covered by the Fresh Produce Buyer Survey had the peak of the growth season, but few farmers can supply the same some experience sourcing from local farmers, and the majority product several weeks after the production peak. Furthermore, currently works with local vegetable suppliers. All but one buyer farmers routinely fail to deliver the agreed upon amount and/or considered local suppliers to be cost-competitive relative to quality of produce or do not show up on the agreed upon date South African imports. Local vegetables also tend to be fresher without any explanation. Many buyers complained about lack of than imported vegetables due to frequent delays at the border. product consistency—that is, farmers bring a good sample, but the Nevertheless, local produce constitutes less than 20 percent of the quality of the produce declines after the first two deliveries. The total purchases of all the interviewed buyers. quality requirements currently relate primarily to products’ visual appearance and packaging. Global Gap or other standards are not Poor reliability of supply, varying quality, and low volumes are imposed, and buyers do not conduct phytosanitary tests. However, the main constraints to greater local sourcing (figure 5). The supermarkets may start applying phytosanitary standards in problems of quantity and reliability of supply are primarily due to the future. most farmers being smallholders and because few farmers space FIGURE 5: Reliability, quality, and quantity of produce are the top ranked constraints to local sourcing IMPORTANCE OF FACTORS CONSTRAINING SOURCING FROM LOCAL FARMERS (% OF RESPONDENTS WHO SELECTED THE ANSWER) Lack of reliable suppliers 65 30 5 Suppliers do not comply with quality standards 45 25 30 Suppliers are not able to deliver the quantity we need 40 30 30 It’s too time consuming to identify Basotho suppliers 35 30 35 Suppliers do not use packaging 10 40 50 Lack of basic food certifications 10 5 85 Informality 5 20 75 0 10 20 30 40 50 60 70 80 90 100 Source: World Bank Fresh Produce Buyer Survey 2019. The ranking of constraints varies by type of buyer. For example, Contracts with suppliers are not practiced by any of the buyers. low volumes were considered a critical constraint for large Neither buyers nor farmers viewed contracts as desirable. Farmers buyers—supermarkets and local grocery stores—but were not an felt that adverse weather events could significantly reduce obstacle for most restaurants. Similarly, lack of food certification production, and buyers did not want the administrative burden of and packaging was considered a critical constraint for the Pick n dealing with multiple small contracts. Furthermore, many buyers Pay and Shoprite supermarkets, which have corporate standards felt that contracts would be difficult to enforce. Specifically, they on these issues, but these factors were not problematic for local were concerned that if the quality of produce declined after the grocery stores, Fruit and Veg, and many restaurants. first two or three deliveries, which is frequently the case, farmers may still demand the price that was agreed in the contract without understanding that the original price was linked to the quality of the produce. 18 LINKING SMALLHOLDERS TO MARKETS Most buyers would welcome market linkage projects. Several Buyers would also welcome the emergence of aggregators that potential interventions were discussed with the buyers and they felt could source from multiple farmers and provide continuous supply. that the following initiatives would be the most useful for increasing Lastly, all the interviewed buyers would be interested in participating local sourcing: access to a vetted fresh produce supplier database; in a supplier development program by providing advance notice of technical assistance to farmers on production and business the expected demand for different crops, opening opportunities for management; as well as buyer-seller meetings, where potential new suppliers, and increasing local sourcing if reliable supply could buyers can meet local farmers and see their samples. Nearly all be assured. the interviewees also felt that an information technology platform where buyers can post offers and farmers can respond would be The following narrative discusses the sourcing strategies, useful, although a few buyers thought that this would not work experience of buying locally, and key requirements for suppliers out, as farmers would make unrealistic commitments on quantities for each type of buyer. and quality of produce, indicating that there are some trust issues. SUPERMARKETS Supermarkets rely on their distribution centers in South Africa and purchases from wholesale fresh produce markets (primarily in Johannesburg) as the key sources of supply. The supermarkets established their operations in Lesotho over the past decade and have quickly grown in popularity. Each supermarket branch receives several deliveries of fresh produce from South Africa per week. Cabbages, carrots, and potatoes dominate supermarket sales in Lesotho, reflecting consumer demand (figure 6). However, there are opportunities for import substitution in almost every crop, as the share of locally sourced vegetables does not exceed 20 percent. Pick n Pay localized the highest share of its supply relative to the other supermarkets, but Game does not source any vegetables locally. Although all the supermarkets would like to buy local produce, none is actively engaged in identifying new suppliers. Farmers come themselves and bring product samples. FIGURE 6: Cabbages, carrots, and potatoes have the highest sales by volume at supermarkets ESTIMATED AVERAGE MONTHLY SUPERMARKET DEMAND FOR VEGETABLES (TONS) 100 86.1 90 80 76.2 70 64.1 60 50.4 50 37.7 40 33.7 34.3 30 20 10.1 9.5 9.7 9.0 10 4.8 1.1 1.1 3.3 0.9 0.9 0.4 0.8 0.03 0 er es s rs h ce li es s Be ts O t ns rs Eg ers ts s ns Co een es om s s o an oe w co oe ut ac rro by lan be pe ow ro io pa ag to ili ttu ro rn pp be at oc at in Ch et n ta um ep Ca ar Ba gp bb ifl tte Le tty Sp m pe Br Po m ul p To Ca c Bu Pa il t Ca w Cu d/ en Gr ta llo re ck ye G Re Source: World Bank Fresh Produce Buyer Survey 2019. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 19 PICK N PAY Pick n Pay has a distribution center in South Africa, but it sources However, some of the store’s sourcing strategies may more produce locally compared with the other supermarkets. discourage the formation of a sustainable supply chain and The following vegetables are currently sourced in Lesotho: hurt growth-oriented farmers. In the words of the store manager, spinach, lettuce, tomatoes, onions, butternuts, beetroots, cabbages the supermarket tries to give everyone a chance to supply their and red cabbages, eggplants, peppers of all colors, green beans, produce, given the poverty and high unemployment rate in the garlic, and herbs. The supermarket would like to source potatoes country. This approach may also reflect the supermarket’s risk as well, but local farmers do not grow the variety needed by the mitigation strategy whereby it is trying to reduce the nondelivery store—large, white potatoes. Pick n Pay has six regular suppliers risk by sourcing relatively small volumes of the same product and multiple suppliers deliver from time to time. The supermarket from multiple suppliers rather than committing to buy a large named lack of packaging by local farmers among the important quantity from a few preferred farmers. For example, one green constraints to greater local sourcing. The store often provides pepper farmer will be asked to supply produce for two weeks, then farmers packaging material and barcodes. Another important another farmer for another week, then a third farmer, and then the problem is lack of coordination among farmers in production first farmer again. and marketing. As a result, some crops may be oversupplied at the peak of the season—for example, cabbages are sometimes Rationing of deliveries hurts better performing farmers, as they oversupplied in winter. are not assured of a market for their products. Lack of certainty that Pick n Pay (or Shoprite) would buy their vegetables prevents This supermarket also demands higher quality and gives specialization in crops with higher prices but relatively limited local farmers the best price relative to other buyers in Maseru. All demand—such as red and yellow peppers, baby marrows, cocktail the interviewed farmers considered Pick n Pay the best buyer. tomatoes, broccoli, and cauliflower. If supermarkets do not buy Freshness, color, and size are the key quality requirements; the these crops, it is difficult to sell them to local or Chinese-owned store does not conduct any testing. Packaging is highly desirable stores, and farmers will incur a loss. but not mandatory for most products. Payments are done on a weekly basis; smaller amounts are paid in cash and larger amounts are paid by check. 20 LINKING SMALLHOLDERS TO MARKETS SHOPRITE Shoprite is the supermarket with the largest presence in the Shoprite has several requirements for its suppliers. The ability country. It has 14 stores in Lesotho, seven of which are in Maseru to deliver large volumes seems to be more important for Shoprite (including Usave stores). Shoprite sources primarily from its compared with the other supermarkets. Shoprite prefers to work distribution center in South Africa—Freshmark, which provides with local farmers who can cover the supply of a particular crop(s) Shoprite with rebates. Rebates generally make it more attractive for at least one of its stores and provide deliveries at least three to source produce from Freshmark compared with buying it times a week (most stores get deliveries on Tuesday, Thursday, and locally. If production volumes in Lesotho grow, Shoprite would Saturday; big stores have four delivery days a week). Furthermore, consider opening a mini-packhouse in the country. Shoprite has the supermarket wants farmers to have the capacity to deliver about four or five regular vegetable suppliers in Lesotho. Crops within 24 hours if there is shortage of a particular product. In that are sourced locally include cabbages, spinach, tomatoes, and addition, farmers need to buy their own packaging and barcodes (in green peppers. The fresh produce procurement manager felt that the past, these were provided by Shoprite). Lastly, farmers should the key constraints to sourcing more produce locally were low certify their produce at the Agricultural Research Department, volumes, lack of product consistency, poor reliability of supply, Ministry of Agriculture and Food Security, and have a quality and lack of packaging. He was also concerned that farmers often assurance company do a hygiene inspection (in the absence of do not understand Shoprite’s volume requirements and make such company, the service is provided by the National University unrealistic commitments, judging by the quantity of products in of Lesotho). Farmers must supply at or below Freshmark’s price. the display area without realizing how often it is replenished. In None of the farmers is large enough to be officially registered with addition, most farmers do not space production and want to deliver the Freshmark Distribution Center, and they are paid through a all their harvest at once, quickly running out of produce. Lastly, petty cash account. the absence of a quality assurance company that can ensure compliance with hygiene and phytosanitary standards is a major concern for the store. FRUIT AND VEG Fruit and Veg sources most of its produce from Joburg Fresh farmers are paid by check two weeks after delivery. The store has Produce Market. The following products are bought locally: green some minimum quantity requirements (for example, at least 50 kg beans, green peppers, lettuce, spinach, butternuts, cabbages, for green beans), but they are not prohibitive for most commercial sometimes potatoes (medium size), and eggplants (although local farmers. Packaging is done inhouse and is not considered an area production is very small). The store manager was satisfied with the of concern for this store. Interviews with farmers revealed that the local potato varieties, but they are not washed, packaged, or dried. supermarket is accessible for local suppliers, yet it offers lower The store manager was willing to increase local sourcing for all prices than Pick n Pay and Shoprite, as it sells to final consumers vegetables if farmers can address the volume, reliability of supply, at lower prices as well. Payment is done two weeks after delivery. and quality consistency issues. Prices are determined by the The quality requirements seem to be less stringent than at Pick n Joburg price less the handling fees and transportation costs, and Pay and Shoprite. GAME Game buys all its vegetables from the Mass Fresh distribution they are interested in working with Basotho suppliers, this does not center in South Africa and is the only store that is not purchasing appear to be the case in practice. The fresh produce procurement any fresh produce in Lesotho at all. Procurement decisions are manager is based in Johannesburg and was not available to made in South Africa. Although the store management said that comment on the store’s purchasing strategy. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 21 LOCAL GROCERY STORES The local grocery stores operate as wholesale and retail businesses and cater to a variety of consumers. They have been in operation for 15-20 years and have many established customers. All three stores—Bay Fruits and Veg (operating out of the BEDCO Trade Center), Redline, and Upper Qeme—are located in the busy bus stop area and cater to a variety of consumers. Informal street traders (operating in the city and nearby villages) visit the stores in the morning to buy a day’s worth of supplies. The stores also sell to small restaurants, caterers, and end consumers. All three stores import most of the produce from South Africa; deliveries are daily or several times a week. All the stores also buy some produce locally (table 1). TABLE 1: Vegetables sourced locally The key requirements are the quantity and quality of the produce. The prices must be cheaper than in South Africa because local farmers supplying these stores cannot offer the same quality. LOCAL GROCERY STORE VEGETABLES All three shops can buy unpackaged produce in nonstandard units (for example, buckets, boxes, bags, and so forth). Upper Qeme does sorting and packaging itself. The rest sell produce that is loose, in Cabbages, butternuts, green BAY FRUITS boxes (for example, for tomatoes), or in net bags (for example, for peppers, green beans, onions, AND VEG potatoes). However, proper packaging can significantly improve potatoes, and tomatoes the quality and shelf life of vegetables and would be a win-win for farmers and shop owners. The quality standards of local stores are less stringent relative to the supermarkets’ requirements, and Mainly green beans purchasing price tends to be lower as well. REDLINE and butternuts The local stores use somewhat different business models. Redline and Upper Qeme pay on delivery and take the risk if the produce is not sold. Bay Fruits and Veg prefers to buy based on UPPER Spinach, tomatoes, the spot price and add a commission (paying farmers once the QEME cabbages, and potatoes produce is sold). This model is similar to the one practiced by South African fresh produce markets. Box 1 provides more information on Source: World Bank Fresh Produce Buyer Survey 2019. Bay Fruits and Veg. BOX 1 BAY FRUITS AND VEG BUSINESS MODEL Bay Fruits and Veg provides a platform for farmers to sell their produce and operates on commission. The commission can vary based on the volume and quality of the produce and is typically around 10 percent. Prices fluctuate daily, and the store manager will call the farmer if the product is not selling, to discuss price reductions; similarly, prices increase if the market is good. Most of the store’s local suppliers have bank accounts and are paid through a bank transfer after the produce is sold; the store manager is also ready to pay upon delivery for small suppliers. Produce quality is not a significant problem if the price is right, because the store has different types of customers. Vendors that sell in the city want first-grade produce, while those that sell in the villages are willing to buy low-grade and low-price products. Low-income households mostly consume cooked vegetables (in stews as opposed to fresh salads), so lower grade produce can typically find a customer. Nevertheless, demand for first grade produce is rising. The store manager would like 70 percent of his perishable produce, such as tomatoes, to be top grade. He also wants vegetables to be sorted by color and size and would be willing to pay more for such produce. The store manager prefers to buy local produce and is even willing to send his truck to collect vegetables from the local farms, as the transportation costs would be lower than importing from South Africa. He thought that it would be very useful to have a database of active commercial farmers to facilitate linkages between farmers and buyers. The store manager also felt that vegetable farming and fresh produce retail sectors have good opportunities for growth in Lesotho. 22 LINKING SMALLHOLDERS TO MARKETS CHINESE-OWNED STORES Chinese-owned stores sell a variety of products, from flour and The other three stores sell small amounts of vegetables and tend sugar to fresh fruits and vegetables. There are five Chinese- to focus on produce with a relatively long shelf life, with lettuce, owned stores in Maseru district that are registered with MBSDCM for tomatoes, and green peppers accounting for a small share of fresh produce import permits. Two of the stores—Z&Z Enterprises imports/sales. The interview with one of the Chinese store owners and Long River—run relatively large operations, importing more and Basotho farmers suggested that Chinese-owned stores are than 90 tons of vegetables a month each (based on MSBDCM very open to buying locally and not very demanding on quality, but data for November 2018). Cabbages and potatoes account for they tend to offer lower prices than other buyers and pass them on over 80 percent of the stores’ imports (MSBDCM, November 2018). to consumers. HOTELS AND RESTAURANTS We interviewed four of the largest hotels in Maseru and nine critical constraints (many restaurants had negative experiences restaurants. The interviewed hotels—Avani (Avani Maseru and with farmers promising to deliver on a particular date but then not Avani Lesotho), Kick4Life, Lancer’s Inn, and Mpilo—have regular showing up, without any notice). Most restaurants can work with restaurant and conference services. There are at least 10 more formal and informal suppliers and pay cash on delivery if needed. lodges and bed and breakfasts in Maseru, but they do not offer regular meal services other than breakfast. The nine restaurants Weekly volume requirements are small (annex B) and delivery include a mix of fast food and higher end establishments as well must be once or twice a week. Some hotels and restaurants want as different cuisines. There are many more restaurants in Maseru. farmers to deliver at short notice (that is, the same day), while others Our analysis is illustrative of the average volumes of fresh produce are able to plan delivery dates and volumes in advance. Average they require and the sourcing strategies they employ. We also weekly demand ranges from 95 kg for potatoes to 6 kg for cucumbers interviewed several catering companies, but their volumes were and 1.7 kg for garlic, for those that buy these products. Many higher too small and delivery times too unpredictable to be of interest for end hotels and restaurants want farmers to produce niche products, the fresh produce market linkages program. such as microgreens, heirloom and cocktail tomatoes, and baby vegetables, yet the weekly demand for these products is low even Most of the hotels and restaurants buy the bulk of their produce among the restaurants that have these vegetables on their regular from supermarkets and local or Chinese-owned grocery menus. For example, weekly demand for cocktail tomatoes ranges stores. However, almost 70 percent of the interviewed hotels from 1.8 to 20 kg, depending on the restaurant, which is too low to and restaurants source at least some of their produce directly incentivize specialization in this crop. from farmers, and all the interviewees would like to increase local sourcing. The main reason for wishing to buy more directly from farmers is lower prices, but some of the managers were ready to pay the Pick n Pay price and their main motivation was to support local production. Convenience (farmers deliver to the restaurants’ doors) and product freshness were also mentioned among important factors in favor of buying directly from farmers. The constraints were similar to those mentioned by the other buyers, with reliability of supply and business ethics mentioned as the most INDIVIDUAL FORMAL AND INFORMAL TRADERS In Maseru, there are 25 individual traders with import permits other busy locations. The informal traders buy produce from the (annex C) and an unknown number of informal traders. Two- three local wholesale stores, the Chinese-owned stores, and direct thirds of the registered individual traders import just one or two from farmers. Most farmers need to deliver to street vendors, yet product categories, typically cabbages and potatoes. There is also some traders own or rent trucks and buy produce at the farm an unknown number of informal traders who operate near the bus gate, paying farmers on the spot. None of the informal traders has stop area, close to industrial estates, in the downtown area, and in warehouse facilities and all trade small volumes. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 23 PART II. Production and Marketing Practices of Commercial Vegetable Farmers in Maseru 2.1 GENERAL FINDINGS Protected vegetable farming is a relatively new economic activity in Lesotho and most farmers have been growing under shade nets or greenhouses for five years or fewer. Open field cultivation is quite risky for Lesotho’s climate, due to frequent adverse weather events such as hail, so for many crops, commercialization requires the use of protective equipment. Government and donor support provided a major impetus to the development of protected farming and contributed to the emergence of entrepreneurial vegetable farmers, some of whom can meet the standards of supermarkets and local wholesalers. The government and donor support mostly focused on the provision of grants for greenhouses, hail nets, and small-scale irrigation systems, as well as basic training on production and record keeping. Although this support was sufficient to help the most entrepreneurial farmers take off, it was not always enough to help them efficiently compete with imported produce in formal markets. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 25 We conducted semi-structured interviews with 30 vegetable owned their land (although some were also renting additional farmers and farmers associations to understand their production plots for open field cultivation). The typical farm size was about and marketing strategies. In addition, we met with the owner of 0.7 ha but ranged from 0.04 to 30 ha (including crops under open Alosang farm, a leading supplier of tomatoes, peppers, and onions field cultivation). Agriculture was the main occupation for all but to Lesotho’s supermarkets (given that she is not a typical farmer, three farmers (two combined it with government jobs and one her experience is discussed separately). All but three interviews with a private sector job). The majority of farmers (70 percent) was were done through on-farm visits, so we could directly observe focused solely on vegetable crops; the rest also cultivated maize farmers’ cultivation practices. The farmers were identified through and/or had livestock. About 80 percent of the interviewed farmers (1) meetings with buyers (supermarkets, local grocery stores, benefited from EIF or SADP support and some had received grants hotels, and restaurants) who provided the contact information from both programs. For many, the provision of tunnels, shade of their suppliers, (2) the databases of beneficiaries of the SADP nets, boreholes, and irrigation systems was the starting point, or an and EIF projects and (3) referrals from the surveyed farmers. The expansion point, for a commercially oriented farming enterprise. All focus was deliberately on market-oriented farmers currently in the interviewed farmers used irrigation, mostly drip, for crops grown production. The objective was to understand the constraints on and under greenhouses/shade nets. Although drip irrigation allows opportunities for further business expansion. All the interviewed for the efficient use of water, farmers can still experience water farmers were from Maseru and Berea districts within an hour’s drive shortages in times of drought if the borehole/community damn from the capital city, the main center of demand in the country. dries up. Fifty percent of the commercial farmers were men, 13 percent were family-owned businesses or associations, and the Most of the interviewed commercial farmers own their land, are rest were owned by women. Table 2 provides a snapshot of the registered as businesses, and use irrigation. All but one farmer farmer profile. TABLE 2: Characteristics of the interviewed commercial vegetable farmers CHARACTERISTIC MEASURE Land ownership: own their land (%) 97 Formality: registered businesses (%) 90 Median farm size (ha) 0.7 Area under protected farming: farmers with less than 0.1 ha under greenhouse or hail net (%) 80 Diversification: grow only vegetables (%) 70 Benefitted from donor support (%) 80 Experience in protected vegetable farming (years) 1-5 Farms fully or partially female owned (%) 50 Commercial vegetable farmers grow a variety of crops, with lettuce, tomatoes, and cabbages being the most popular (figure 7). The main factor in crop selection was perceived demand from buyers. Large farmers often grow multiple vegetables, including niche crops such as patty pans, broccoli, cauliflower, and colored peppers, and crop selection is influenced by the demand from supermarkets. Farmers with less than a hectare under protected farming usually grow one or two crops. Tomatoes and green peppers are commonly grown in the summer and cabbages, spinach, green beans, or lettuce in the winter. In addition, cabbages, potatoes, onions, and butternuts are often grown in the open field. 26 LINKING SMALLHOLDERS TO MARKETS FIGURE 7: Lettuce, tomatoes, and cabbages are the most popular crops % OF FARMERS GROWING A CROP 80 70 60 50 40 30 20 10 0 cu er m e bb s Gr Sp s pe ch s s ifl i ye utt ers pe ts s es abb e s es Ba Ch s m ies tty s Po ns O s Be ns tte t s Ca c ts as ul ol Bu troo Pa row ee er er Ca oe e an ve age rb e ut rli To tuc p rro w nu Cu ow Pe pa Ca occ o ag bl to a a by ill Ga rn p B b pp He be at ni ee in R ta ta llo er p m t e ar Le Br ge n c n Gr d e Re in d/ Ch Re Source: World Bank 2019 Commercial Vegetable Farmer Survey. Less experienced/knowledgeable smallholders sometimes commonly grown vegetables, which enabled sale at reasonable diversify across multiple crops as a risk management strategy prices. It was also apparent that these distribution channels to avoid potential income loss due to pest infestation or other can take most of the “common” produce, from poor quality to crop diseases. For example, one interviewed farmer with 0.1 ha of first grade. land was growing seven types of crops during the summer season to mitigate climate and pest-related risks. By contrast, more Emerging commercial farmers in Lesotho are not uniform in their advanced smallholders have realized the benefits of specialization production practices and entrepreneurial capabilities. There and grow one crop per season, which allows them to offer greater is dramatic variation in yields (linked to agronomic knowledge), volumes and more stable product supply to buyers. record keeping, marketing, and business management skills. Table 3 provides a schematic description of the different types of farmers. There is market demand for niche produce, such as patty pans and baby marrows, but it is fraught with risk. First, offtake demand is limited and usually only bought by Pick n Pay, Shoprite, and hotels and restaurants. Second, demand is erratic, with no firm offtake agreements driving production schedules. The risk is that when production reaches the volume required for sale, the offtaker has already secured stock from elsewhere. Even a week can put the size of baby marrows outside the requirement window, leaving the producer without a market. Lack of purchase agreements with buyers is a key constraint for growing niche products where profit margins tend to be larger, but the market prospects are uncertain. Crop choices are therefore made primarily based on the level of belief that produce can be sold rather than on the expected price. Market price determination was seen to be fair regardless of what was produced, and multiple distribution channels existed for A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 27 TABLE 3: Commercial vegetable farmers are at different stages in their development CATEGORIES OF COMMERCIAL VEGETABLE FARMERS CATEGORY 1 CATEGORY 2 CATEGORY 3 • Farmers are knowledgeable • Farmers are less knowledgeable • Farmers have basic knowledge about production practices. about production practices and of production practices, but this is have been exposed to disease not adequate to maintain consis- • The quality of the produce is and pest attacks that they have tent production; the farmers often good to high and the yields are struggled to manage. experience massive losses to good to excellent. pests and diseases. • Farmers produce crops that have • The quality of produce and good and sustained access to the production yields are average. • The quality of produce is average Although the farmers can supply and production yields are low. wholesale and retail markets. wholesale and retail markets, their • Record keeping and knowledge • Markets tend to be local and end supply has been variable. The consumer–driven or focused on of business management is above farmers often target hotels and small stores and street vendors average (for Lesotho). restaurants. because of volume and continuity • Farmers have commercial mind- • Farmers’ record keeping is not constraints. sets, are entrepreneurial, and complete and they have limited have an interest in expanding. • Farmers aim to produce enough business management skills. to stay in business; it is premature • Farmers’ ability to raise capital • Farmers aim to increase produc- for them to consider commercial or access additional resources is tion, but their entrepreneurial expansion. Many of the farmers relatively good. capacity and limited ability to are currently operating at a loss access additional resources may and are financially constrained. limit their growth. Our fieldwork revealed that some entrepreneurial farmers The third group of farmers is the least entrepreneurial. Their crop in Lesotho treat agriculture as a business, have invested in yields are extremely low, and the main markets are informal traders, learning, proactively reach out to buyers, and manage to end consumers in rural markets, and small local stores. Given that foster good relationships with their key customers (typically our focus was deliberatively on growth-oriented farmers, only 10 supermarkets or local wholesalers). About 30 percent of the percent of our interviewees fell into this category. Their share in the interviewees belong to this category. The second type of farmers general population must be larger. achieve average yields and have realized some sales to wholesale and retail markets. Their lack of knowledge on agronomic practices makes them vulnerable to pests and plant diseases. As a result, these farmers provide occasional supplies to retailers and street vendors or focus on hotels and restaurants that require relatively small volumes. Overall, the second group of farmers is the most diverse and includes farmers with potential to transition into the first group if proper support is provided. About 60 percent of the interviewees falls in this category. Category 1 farmers are disproportionately men, while women-headed businesses tend to fall into category 2 enterprises. This may be indicative of some barriers to growth for women-headed farms that could include time, access to knowledge, or lack of collateral. 28 LINKING SMALLHOLDERS TO MARKETS Despite the differences among the categories of farmers, some of the constraints to growth they face are similar. These include the following: • Access to and cost of water for irrigation (impacts all categories of farmers). Three main sources of water were used by the interviewed farmers—borehole, municipal water, and surface water. Those with boreholes often do not have enough water to pump or report that the costs of petrol for pumping can be prohibitively high. Municipal water is expensive, can contain unwanted substances, and the supply is not always reliable. Some farmers complained that municipal water can be turned off for two weeks at the peak of the production season, requiring the purchase of even more expensive bulk water. In one extreme case, the farmer was paying workers to carry water in buckets and manually water the plants. Lastly, community damn water users have to operate within the boundaries of fair usage, and this severely limits production in the dry season and during droughts. • Lack of a functioning land market (key constraint to new investors). As described in Reva (2018), lack of a functioning land market is a major constraint for new investors and farmers who want to expand production. There is no website or database of land that is available for sale. Farmers wishing to acquire new land plots must go from village to village looking for available land. Information on average land prices by location is also lacking. Some farmers have started with renting land before they acquired their plots; this arrangement has some risks, as rental agreements are typically informal, and landlords do not always honor them. • Knowledge gaps on agronomic practices and business management. The severity of knowledge gaps on input use, pest management, marketing, and financial management varies significantly by type of farmer, yet even the best performing farmers would benefit from deepening their skills in production and business management. Overall, none of the interviewed farmers had any educational background in horticulture. They moved into commercial vegetable cultivation after being engaged in other agricultural activities (such as chicken production), subsistence farming, or a different field such as accounting. • Weak understanding of the demand in the formal market and the requirements to supply it. Although farmers can sell their produce, they are not always able to sell it in the formal market due to lack of knowledge on the volumes and standards required. The latter two issues are described in greater detail in the following subsections. 2.2 CHALLENGES IN PRODUCTION AND FARM MANAGEMENT Common constraints to production include lack of knowledge Lack of soil testing often results in the suboptimal use of on cultivation under greenhouses, plant spacing, and variety inputs and has a negative impact on yields. Soil testing is critical choice. Category 3 and some of the category 2 farmers are still in for proper application of fertilizer and chemicals and for variety the process of figuring out the kinds of varieties that are best suited selection. Two-thirds of the farmers have done soil testing at least for greenhouse cultivation, and many are experimenting with once, but some have never received the results. The government multiple cultivars. Similarly, emerging farmers often do not know facility offers soil testing at low cost, but it does not always have the the recommended plant spacing, and planting too far apart or too needed chemicals and the wait time to get back the results often close together has been reported. Furthermore, there is extreme exceeds six months. Some of the category 1 farmers invested in heat, humidity, and lack of air circulation in some greenhouses their own soil testing kits (although these kits measure a limited (particularly among SADP beneficiaries), possibly linked to flaws in set of variables) or took their soil samples to South Africa. Lack of design or that many farmers do not open the upper compartments proper soil assessments contributes to inappropriate use of fertilizer to allow for ventilation. The resulting extreme temperatures may and chemicals. Many farmers use kraal manure as an alternative to hurt plant development and contribute to the spread of pests. chemical fertilizer due to lower costs; however, without soil testing this may offer little value. The interviewed farmers who spend more on inputs do not necessarily have higher yields. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 29 There are significant yield gaps between the different types Poor agronomic practices and disease and pest management of farmers. Many farmers do not accurately measure yields, yet contribute to significant crop losses, particularly among category most admit that they are lower than expected. There are significant 2 and category 3 farmers. Improper water and soil nutrient yield gaps between the top and bottom performing farmers living management, pruning, plant spacing, as well as pest and disease within an hour’s drive of each other, which suggests that there are control have often resulted in massive crop losses. For example, good opportunities for catch up based on the knowledge already most tomato farmers have been attacked by Tuta absoluta, a pest available in the country. For example, reported tomato yields were that in some cases has destroyed an entire crop. Although many 8-12 kg per plant per season among the top performing farmers, farmers have been impacted by this disease, few have identified which is in line with expectations for the varieties used. The average an effective treatment and some of the interviewed farmers have yield was around 6 kg per plant, while some of the category 3 switched to other crops to avoid further losses. Other common farmers reported yields of just 1 kg per plant. Furthermore, product pests and plant diseases include aphids, nematodes, early and late waste due to plant diseases or appearance ranges from 5 to 10 blight, end rot, spider mite, and cracking of tomatoes. (Photos 1 to percent for the best performing farmers to over 70 percent for the 4 show examples of diseased plants.) Most of the farmers said that struggling farmers. This situation is not peculiar to Lesotho; it has many of the observed plant diseases are not common for open also been documented in other low-income economies (IFC 2019). field vegetable cultivation and therefore were new to them. PHOTOS 1 TO 4. DISEASED TOMATO PLANTS IN BEREA 1 2 3 4 Input suppliers in South Africa were the most effective recourse Several local stores sell agrochemicals, but the selection is for farmers experiencing plant diseases. The interviewed farmers limited and the guidance on input use offered by these providers used different strategies to prevent and cope with plant diseases. is not comparable to that of South Africa. Several stores in The best performing farmers emphasized disease prevention, had Maseru sell seeds, artificial fertilizers, and agrochemicals. The regular consultations with the South African input suppliers, and main supplier is Garden Centre, which provides access to a range followed the prescribed regime of spraying and applying other of inputs at prices that are somewhat higher than those in South inputs. If they did have a disease outbreak, they would send a photo Africa; however, the cost of travel to South Africa for purchasing with a description to the South African input supplier and ask for small quantities or specific items would negate any savings. Among advice or bring a sample to South Africa in person. Farmers often farmers who buy some inputs locally, this is the most popular store. emphasized that there was no expertise on disease management There is also a Metcash store that offers a small selection of inputs locally. Other common coping mechanisms included talking to (primarily for households and noncommercial farmers) as well as other farmers in the community and trying to identify the problem the government store, which provides inputs at subsidized prices. and solution online. The latter offers limited choice on a “first come, first served basis.” Furthermore, some farmers complained that the government store sells seeds of lower quality compared with the Garden Centre, which results in poor germination rates. Overall, more than half the farmers purchase at least some of their inputs in South Africa. 30 LINKING SMALLHOLDERS TO MARKETS The main issue with inputs is that local stores have limited RECORD KEEPING varieties that are not necessarily best suited for the season or for farmers’ needs. For example, lettuce can be grown all year round 2.3 AND MARKETING if the correct variety is chosen: Musketeer tolerates heat well and Esky tolerates cold well; Major tolerates heat and frost and has a Although most farmers keep some records (for example, on low incidence of bottom rot. Furthermore, issues with thermo- sales or spending), few have good enough data to enable dormancy in germinating lettuce seeds (occurring at temperatures knowledge-based decisions on future production practices and above 20-25 C) can be managed by procuring primed seed or estimate profitability. Very few farmers keep detailed records on controlling the environment, but these options were not known to production, such as planting and harvesting dates, varieties planted, the farmers. Variety selection is very important to ensure the correct germination rates, number of seedlings transplanted, success environment, yields and disease resistance3. Local stores stock very rate of transplanted seedlings, or yields. This was also apparent few varieties and as a result, farmers are not typically planting the in disease and pest management data, such as application dates, optimal variety for each season or for their growing environments. impacts, reapplication, or use of alternative products. The net outcome is that there are largely no data to estimate the financial Extension services are typically unable to offer much help impacts of production decisions (such as yield obtained versus to farmers. All but three of the farmers did not find extension input costs) and plan the next production cycle. services helpful in resolving their problems. The farmers felt that the extension service staff was not properly trained on vegetable Our estimates show that vegetable farming is a viable business cultivation under greenhouses. The local universities do not and many category 1 and some category 2 farmers have healthy offer degrees in horticulture, and greenhouse vegetable farming profits. The major costs were labor, petrol for water pumping has only taken off over the past five years, so there are few and transportation, as well as inputs. Many farmers seem to be specialists in this field. Category 1 farmers felt that they were more using more workers per hectare than is typically the case in other knowledgeable than the extension service staff and did not reach countries, suggesting that there are inefficiencies in production. out to the extension office for help. Most farmers who did contact Profitability depends on many factors, including (1) agronomic extension services said that they never came despite multiple calls. practices and ability to manage pests and (2) achieving some Lack of staff and transport may contribute to the low response scale to ensure continuity of supply (by acquiring more land or rate from the extension services. A few farmers mentioned that specializing in a few crops). Those selling primarily to formal buyers the extension service specialist had to use her own vehicle to visit tend to be more profitable. Given the poor accounting practices the farm. Lastly, there are no microbiological facilities in Lesotho, and lack of willingness of some farmers to share their records, it which makes it difficult to identify plant diseases. was not possible to establish average profitability. Although we met some farmers who were operating at a loss, the majority registered Owing to government and donor support, farmer networks have some profit. Among the farmers who kept records, estimated profits emerged recently and are enabling better information flows. Most ranged from M 110,000 ($7,857) to more than M 1 million ($71,429) of the farmers who were interviewed are part of What’s Up groups. per season in per hectare equivalent (for vegetables grown under Some have also joined formal or informal farmer associations and nets or in greenhouses).4 Most of the interviewees reported lower attend monthly farmer meetings. Farmers use these networks profits, as few of them have more than 0.1 ha under protected mostly to consult with each other on variety selection and pest and farming. Box 2 highlights the experiences of three farmers. disease management. Nevertheless, members often lack sufficient knowledge to deal effectively with situations that are new (such as Tuta absoluta infestations) or spreading rapidly. There is also little collaboration around joint purchase of fertilizer, chemicals, and seeds, which could reduce costs, particularly for those buying inputs in South Africa. Only one such example was identified during the interviews. Members of the Fresh Produce Farmer Association (which consists of six former EIF beneficiaries) purchase some inputs jointly; they are also considering planting the same varieties next season and doing some marketing together. 3. See for example the website of the Sakata seed company for information on sweet pepper variety characteristics, https://sakata.co.za/wp-content/ uploads/2019/01/SWEET-PEPPER-QUICK-REFERENCE-TABLE.pdf. 4 We do not have data on the production costs and sales of South African vegetable producers, so we cannot compare the profitability of farmers in the two countries. Interviews with buyers suggested that local produce is cost-competitive relative to imports. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 31 BOX 2 SMALLHOLDER VEGETABLE FARMING IS A PROFITABLE BUSINESS IN LESOTHO GREEN PEPPER FARMER, MAHLOENYENG A young accountant from Maseru District decided to move into vegetable farming because he saw a business opportunity. He got an Enhanced Integrated Framework (EIF) greenhouse and a shade net in 2016. The farmer has approximately 408 square meters (sqm) of land under protected farming and another 1,200 sqm under open field cultivation. In the summer, the farmer specializes in growing green peppers on the entire area of the green house and shade net. He has done soil testing, buys seedlings and other inputs in South Africa, and follows the recommended pest control program. The farmer sells most of his green peppers to Pick n Pay and the Chinese-owned store in the community (when the supermarket cannot absorb all of his harvest). His profit for the summer season is M 64,527 ($4,609), which is equivalent to more than M 1.5 million ($107,143) in per hectare equivalent. During the winter, the farmer cultivates cabbages and spinach in the open field and under the net/greenhouse and obtains an additional profit of M 16,160 (or M 101,000 in per hectare equivalent) ($1,154 and $7,214, respectively). The farmer sees good opportunities for growth. He feels that improved access to water for irrigation (he is currently using a diesel generator for pumping) and better skills are the key enablers for further business expansion. TOMATO FAMILY FARM, SEKAMANENG A family from Berea has been growing vegetables in the open field since 2010 using traditional techniques. In 2017, they got two greenhouses from the Smallholder Agriculture Development Project (600 sqm total). They are now planting tomatoes in the summer season and cabbages and green beans in the winter season. They sell mostly to the local store in the community and occasionally to hawkers and supermarkets in Maseru. The price for tomatoes is M 50 per box for the community store and M 60 for individual consumers ($3.6 and $4.3, respectively), which is similar to Maseru’s prices. The farm owners buy seeds in the government store and most inputs from the Garden Centre in Maseru. The family farm experiences problems with pest management. They believed they had blight but did not know what to do about it and could not find help in Maseru. As a result, yields were 6 kilograms (kg) per tomato plant compared with the expected 12 kg for the variety planted. Nevertheless, the farmers had a net profit of M 11,116 ($794) for the summer season (for 600 sqm of land under tomato cultivation in the greenhouses), which is equivalent to M 185,266 ($13,233) per hectare. The farmers identified two factors that can strengthen their business—training on protected vegetable cultivation from South Africa and better soil testing, which they believed was too slow and unreliable. CHINESE CABBAGE AND BOK CHOY FARMER, HA TIKOE A young automotive engineer started farming in 2014, inspired by the success of his neighbor who got an EIF grant. The farmer subsequently received the grant as well. Similar to other EIF beneficiaries, he initially planted tomatoes, green peppers, cucumbers, and lettuce. Yet, he soon realized that there is strong demand and hardly any competition for the Chinese vegetables - bok choy and Chinese cabbage. Both vegetables are easy to cultivate and command higher prices among the Chinese-owned stores and restaurants compared with the more commonly grown produce. Indeed, one Chinese cabbage can be sold at M 27 compared with about M 10 for the regular cabbage. Chinese cabbages and bok choy can be grown for two seasons in the winter and rotated for tomatoes and green peppers in the summer. The farmer estimates that his small farm of 408 sqm brings him a profit of about M 49,254 ($3,518) for the Chinese vegetables. This is equivalent to M 1.2 million ($85,714) per hectare. In addition, the farmer makes a profit of M 15,415 ($1,101) on tomatoes and peppers over the summer or M 375,976 ($26,855) per hectare. The farmer’s current clients are two Chinese restaurants, but the demand is much stronger than he can possibly satisfy with his small farm. The farmer wants to grow his business, which in his view will require overcoming the following obstacles: (1) identifying affordable land in peri-urban Maseru (he believes it will cost M 80,000 to M 200,000), (2) improving access to water by investing in a borehole (he currently has Water and Sewerage Company of Lesotho water, which is unreliable), and (3) improving skills through continuous training. Note: The estimates of profitability are based on expenditure and sales data reported by the farmers. 32 LINKING SMALLHOLDERS TO MARKETS There is strong evidence of rationality in market selection. The their produce. The interviewed informal traders in the bus stop more ambitious farmers and those with larger volumes target area reported buying four boxes of tomatoes (about 6 kg each) supermarkets and wholesalers, while the less productive focus and one box of green peppers on average. Farmers with limited on informal vendors. Pick n Pay is universally considered the best production and who live farther away from Maseru tend to sell buyer, as it offers the highest prices for good quality produce (table most of their produce in the village market (that is, to small local 4). Wholesalers offer lower prices compared with supermarkets, or Chinese-owned shops or directly to consumers). Interestingly, as wholesalers buy in bulk. This arrangement works well for village prices are not always lower than those in Maseru, likely due relatively large farmers or those focused on one crop with good to the low supply and lack of competition in rural markets. Hotels volume. Informal traders offer higher prices than wholesalers and and restaurants are “add-on” buyers for the relatively large farmers Chinese-owned stores, but informal traders buy in small quantities. who regularly bring their produce to town and for the small, peri- Smallholder farmers who target informal traders often must spend urban producers for whom they are the main market. a considerable amount of time going from vendor to vendor to sell TABLE 4: Prices vary substantially by buyer PRODUCT BUYER PRICE (M) Pick n Pay 12-13 Shoprite 10 Cabbages (per head) Upper Qeme 7 Chinese-owned store 7-8 Pick n Pay 12 Fruit and Veg 9 Tomatoes Chinese-owned stores 6 -6.7 (M 35 – 40 per box of 6-7 kg) (per kg) Bay Fruits and Veg (local wholesaler 6.7 (M 40 per box) operating out of BEDCO Trade Center) Informal traders 10 (M 50-60 per box) Pick n Pay 28-45 (depending on the time of the year) Green peppers (per kg) Chinese-owned store 20 Pick n Pay 8.50 Herbs (per box) Shoprite 5 Source: Based on interviews with farmers. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 33 Two farmers have realized some exports to South Africa. One of product appearance could increase the price that supermarkets of them sold spinach to SPAR, and the other sold broccoli and and formal retailers would be willing to pay, but few farmers seem cauliflower in Bloemfontein market. Although the farmers exported to realize this. Photos 5 and 6 compare locally packaged and because the local supermarkets could not absorb their produce, South African tomatoes sold at Bay Fruits and Veg (BEDCO Trade both farmers learned from this experience and would like to Center). The packaging materials include cardboard boxes for explore export opportunities in the future. Furthermore, two more tomatoes; polystyrene trays and clear plastic clingwrap for lettuce; farmers are considering growing higher value niche crops (for and small, clear plastic punnets for herbs. To reduce costs, most example, broccoli and cocktail tomatoes), for which the domestic tomato boxes are reused ZZ2 boxes (from a major South African market is quite small, so they want to export to South Africa. Trade supplier), although two farmers were importing generic boxes from statistics show that overall vegetable exports from Lesotho are South Africa. Overall, packaging material is mostly sourced locally, negligible; they were worth just $27,000 in 2017. although some farmers complained about the lack of certain products in Maseru, for example, clingwrap being too thick and not Most farmers who supply formal buyers sort and package their tightly molding around lettuce heads, which affects presentation. produce. Although many farmers report sorting and grading their Costs could be reduced if farmers collaborated and bought produce prior to delivery, the color, size, and quality of vegetables materials in bulk, but this was not evident. in the same batch are often not uniform. Improving the consistency PHOTO 5 AND 6. COMPARISON OF LOCAL AND IMPORTED TOMATOES 5 6 Note: Local tomatoes are in the white box in photo 5 (and in front of it in photo 6) and have different colors and sizes; imported tomatoes are in the yellow box in photo 5 and the plastic bag in photo 6 and have uniform size and color. There were no examples of smallholder farmers working None of the local farms has taken a strong role in aggregation. together to space production of the same crop and take turns None of the current suppliers to formal buyers has considered supplying it to wholesalers or retailers. These actions could allow systematic sourcing from other farmers. Furthermore, despite a high mitigating scale and volume constraints and ensure more stable share of third grade produce, there are no processing enterprises. supply. Fear of competition is one of the factors that is limiting Alosang farm is the most advanced vegetable farm in the vicinity collaboration on marketing issues, such as sharing information on of Maseru (box 3). The owners sometimes buy produce from a few the products that command a higher price or are in high demand neighboring farmers when they have a large order that cannot be by formal buyers. This is particularly true for niche products whose fulfilled with their own production. It is also the only farm enterprise prices are relatively high, but demand is limited. For example, one that has a cooling facility and some processing equipment. Although interviewed farmer reported that he used to be the only person the owners are open to sourcing from other farmers, close linkages supplying red cabbages to Pick n Pay; however, once this became with smallholders have not emerged. This could be partly because known, other farmers approached Pick n Pay with the same of competition issues (ambitious smallholder farmers want to product and the first farmer experienced a decline in sales to supply directly to buyers) and because less advanced farmers may the supermarket. not have thought of contacting Alosang and may not be able to meet the quality expectations of the owners. 34 LINKING SMALLHOLDERS TO MARKETS BOX 3 ALOSANG FARM RUNS A SOPHISTICATED OPERATION AND COULD POTENTIALLY PLAY A ROLE IN AGGREGATION Alosang farm is a trusted supplier of Pick n Pay and Shoprite supermarkets. It is the only farm that provides a continuous supply of products (mostly tomatoes, colored and green peppers, and onions) to supermarkets and is not subject to quotas or volume rationing. The owners have about 10 hectares of vegetables under protected farming and 10 hectares under the open field. The farm has 30 permanent employees. The enterprise has its own packing house and cooling facility as well as cutting and frying equipment. Most vegetables are packaged prior to delivery, and plain and branded packaging is used, depending on the buyer’s requirements. The cooling facility is used at 5-10 percent of capacity and the farmer is open to sourcing from smallholders, packaging, and delivering to supermarkets. PHOTO B3.1. SORTING AND PACKING B3.1 PHOTO B3.2. FACILITIES B3.2 A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 35 PART III. Linking Farmers to Markets: A Supplier Development Program Multiple stakeholders support commercial vegetable farming in Lesotho and the upcoming SADP II project will address several challenges facing the sector. There is strong interest among many stakeholders to strengthen commercial vegetable farming in Lesotho to create jobs, increase incomes, and improve the efficiency of the supply chain and quality of products available to final consumers (box 4). The upcoming SADP II project will address several of the important problems documented in part II of this study. Specifically, the project will support (1) development of irrigation infrastructure; (2) establishment of a soil testing laboratory and fertilizer blending facility (the latter will help formulate fertilizers to address site-specific soil deficiencies and meet crop nutrient requirements); (3) training of extension officers, farmers, and agro-input dealers in climate-smart agricultural technologies; and (4) improvement of data availability on commercial agriculture (including vegetable farming) and development of agri-weather services, among other interventions. The project will also provide matching grant support for increasing smallholder productivity (for example, to support investments in greenhouses, shade nets, small- scale irrigation systems, and water storage equipment) and aim to build horizontal alliances between farmers and potential offtakers. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 37 BOX 4 OVERVIEW OF THE GOVERNMENT’S INITIATIVES TO PROMOTE VEGETABLE FARMING Several ministries organize training workshops for farmers. With the support of the Enhanced Integrated Framework, These are useful initiatives, but there is room to improve the government has invested in establishing the Fresh government coordination and better target the curriculum Produce Market Center. A factory shell on the Ha Tikoe to farmers’ needs. The Ministry of Agriculture, Ministry industrial estate was converted into a Market Center and of Trade and Industry, and Ministry of Small Business equipped with a cold room and some cutting and processing Development, Cooperatives and Marketing (MSBDCM) equipment (photo B4.1). The Market Center has been idle for organize short workshops on specific issues related to over a year. The government is currently in negotiations with production or marketing. Farmers often find these events the South African investor to operate it. The exact modality useful for networking and gaining new knowledge; however, is not yet known, but the Market Center can potentially the training sessions tend to be too short and often are not address many of the problems associated with sorting, targeted to farmers’ needs. Farmers who are at different grading, packaging, and warehousing and provide bulk levels of commercialization are often invited to attend offtake opportunities for larger farmers. the same session. As a result, the specific needs of the different categories of farmers are not addressed. Similarly, PHOTO B4.1. MARKET CENTER IN HA TIKOE MSBDCM organizes regular buyer-seller meetings to B4.1 encourage linkages. Several of the farmers and buyers who were interviewed found these events useful for developing business relations. The format of the events could be further improved if buyers are matched with the relevant types of farmers. That is, the Ministry should invite wholesalers to meetings with farmers who can produce at some scale and restaurant owners to meetings with smallholders. It would also be useful to create a database of active commercial vegetable producers and beneficiaries of the various grant projects who are still engaged in farming; it seems that every ministry is working with its own group of farmers. Lastly, it will be important to promote land titling, as this will enable farmers to use their land as collateral, among other benefits. In this context, we propose to implement a Supplier Development Program (SDP) that will build on the ongoing government initiatives and catalyze the activities planned under the SADP II project. Implementation of the proposed program would develop agricultural entrepreneurship, increase incomes, reduce vegetable imports, and increase the efficiency of the fresh produce supply chain. Furthermore, it would aid in the government’s efforts to attract investment in the Fresh Produce Market Center, packing houses across the country, and Basotho Cannery. Having a pool of vegetable suppliers that can produce at scale and meet buyers’ requirements will make Lesotho a more attractive investment destination for agribusiness. Lastly, the lessons learned from a demand-driven SDP aimed at growth-oriented entrepreneurs would inform the design of entrepreneurship projects in other sectors. 38 LINKING SMALLHOLDERS TO MARKETS OBJECTIVES AND FOCUS OF THE FRESH 3.1 VEGETABLE SUPPLIER DEVELOPMENT PROGRAM The main objective of the pilot SDP is to increase farmers’ scalability (increased production can be better assimilated), (2) productivity and link them with formal buyers. This initiative is marketing efficiency (increased production can be marketed more motivated by the interest expressed by most of the interviewed economically), and (3) reduced risks related to offtake demand buyers in Maseru to participate in the program, which will match (knowledge of demand requirements is more formal). Direct vegetable buyers’ needs with production. The intervention will supply to end users such as restaurants and hotels may serve as a help farmers improve agronomic practices, financial management, “sink” in cases where supply exceeds demand from the wholesale and profitability. It will also improve the sourcing experience for and retail markets. Offtake agreements would preferably be buyers by providing them with fresher produce (compared with formal. However, initially, given the need to build trust between imports) in a timely manner. The results will be achieved through suppliers and buyers, increase the capacity of farmers to supply continuous work with the buyers on demand forecasting, facilitated to buyers’ specifications, and improve buyers’ forecast accuracy, interactions between farmers and buyers, as well as intensive the agreements will likely be transient and negotiated for very tailor-made technical assistance to farmers. Furthermore, support short timeframes. should also be provided to local input suppliers to strengthen their ability to advise farmers on product choice. The SDP could be focused on several crops that are in high demand by buyers. These should also be the crops that farmers The SDP requires matching buyer demand with supplier are comfortable growing. It is proposed that the following capabilities, which entails (1) determination of buyers’ needs for vegetables form the basis of the SDP: tomatoes, green peppers, types of products, quality, quantity, pricing, and delivery timing lettuce, and cabbages (table 5 provides the production schedule to ensure purchasing activity (demand-side management); for these crops). These vegetables are proposed because demand (2) determination of suppliers’ capability in quality, quantity, is centered across multiple buyers, there is clear potential for costing, and delivery timing to ensure profitability (supply-side import substitution, and there is a need for quantity and quality management); and (3) management of the interface between improvements to satisfy buyers’ purchasing decisions and gain buyers and farmers. their trust. Furthermore, some of the proposed crops (cabbages and lettuce) can be grown year-round to provide farmers with It is proposed that the SDP targets wholesale and retail buyers income and buyers with supply certainty. Lastly, the cultivation in Maseru over consumer or end markets. Specifically, the target practices for these crops, although not optimized, are known to the buyers include supermarkets, three local wholesale/retail stores farmers and their belief in viable and accessible markets is high. in the bus stop area, as well as the Market Center if it becomes Other crops, such as green beans, colored peppers, cucumbers, operational during the project implementation. The focus on these broccoli, and cauliflower, could be considered if buyers make a buyers is justified because there is greater potential for (1) demand commitment to purchase specific quantities of these vegetables. TABLE 5: Estimated production schedule for core SDP crops CROP JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Tomatoes H H H H H P P P P/H Green peppers H H H H P P P/H P/H P/H Lettuce H P P P P/H P/H P/H P/H P/H P/H H H Cabbages H P P P P/H P/H P/H P/H P/H P/H H Note: H = harvest; P = plant. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 39 Program participants should be chosen through a competitive selection process. The program should focus on growth-oriented farmers and include the following selection criteria: (1) having a greenhouse or a shade net as well as year-round access to irrigation (in Lesotho’s climate conditions, open field farming has high risks due to frequent wind and hail storms as well as drought), (2) a minimum of three years of farm management experience, (3) an increase in sales in the past two years, and (4) at least some experience selling to formal buyers. To ensure trust and a positive experience for buyers, it is proposed that the program initially focuses primarily on category 1 farmers, with some support to category 2 farmers. Given the multiple negative experiences of buyers when farmers were not able to deliver the quantity and quality needed, building trust will be a key objective of the first phase of the SDP. Therefore, it is logical for the SDP to target category 1 farmers. These farmers are most likely to meet the buyers’ requirements. Category 1 farmers also have the mindset that embraces business development as well as some of the needed resources for scaling their operations. Category 2 farmers are not uniform in their resources and capabilities, and some of them may be on the way to growing their businesses. It is therefore proposed that the SDP focuses primarily on category 1 farmers but includes support activities to encourage selected category 2 farmers, to increase the quality and quantity of production and their access to improved markets. The category 2 farmers who show potential could then be integrated into category 1 in the first phase of the SDP or in future phases. Farmers in different groups would receive somewhat different assistance packages. The difference in the mode of support would be that category 1 farmers would receive on-farm support targeted at their specific circumstances along with group support in workshops, training classes, and field visits. Category 2 farmers would only receive group support, for example, workshops on plant diseases in tomatoes or record keeping, and the occasional farm visit. The group support approach would allow the SDP to increase reach and help improve production and pest management in a cost-effective manner, while identifying the potential of each category 2 farmer to become a category 1 farmer. The focus of resources would be 70 percent to category 1 farmers and 30 percent to category 2 farmers. The pilot SDP would run for 18 months and include at least one summer season and one winter season. It is envisaged that several months will be needed for finding the project team and organizing a competitive selection of farmers. Upon the end of the 18-month period, the program should be evaluated, and the results of the evaluation should inform adjustment in the scope of activities, level of support to farmers, as well as program expansion to cover more farmers and locations. 40 LINKING SMALLHOLDERS TO MARKETS 3.2 IMPLEMENTATION MODALITY AND COMPONENTS OF THE SDP Several potential models were considered for SDP staff. It also requires trust and close collaboration among farmers, implementation (table 6). Independent farmer production with which may be difficult to achieve in the short time period. Moving direct delivery to buyers (model 1) appears to be the most viable toward model 2 could be an objective for the second phase of the model for the first phase of the SDP. This approach may have SDP and elements of it may be targeted in the first phase. Model 3 the highest benefit-to-cost ratio and build trust in buyers that has multiple advantages but requires the existence of a functional local farmers can gradually increase outputs in terms of quality, aggregation facility, such as the Market Center, which is not yet quantity, and consistency to supply their requirements over time. operational. Therefore, it is not currently an option but should be Model 2 would allow for meeting larger orders and extending considered if the Market Center is opened during the lifespan of the supply season; however, it comes with serious challenges the program. Annex D provides a description of the advantages involving significant coordination and quality assurance by the SDP and disadvantages of the three models. TABLE 6: Potential SDP models 1. 2. 3. INDEPENDENT FARMER PRODUCTION COORDINATED FARMER PRODUCTION INDEPENDENT OR COORDINATED WITH DIRECT DELIVERY TO WITH DIRECT DELIVERY TO FARMER PRODUCTION WITH DELIVERY WHOLESALE AND RETAIL BUYERS WHOLESALE AND RETAIL BUYERS TO AN AGGREGATION FACILITY This is currently the model in operation for This model requires that farmers agree This model calls for delivery of farmers’ the surveyed farmers. Individual farmers to collaborate around a supply schedule produce to an aggregation facility as an produce vegetables independently and deliver directly to the buyers. In intermediate step between the farm and and deliver directly to the buyers on an effect, this is a producer cooperative wholesale/retail buyers. independent basis. model. The SDP intervention would rely on the The SDP intervention requires that the The SDP intervention requires that the aggregation facility, which will provide quality, quantity, and timing for delivery to quality, quantity, and timing for delivery cleaning, sorting, grading, storage, the buyers is met by each farmer and will to the buyers is adhered to across packaging, and distribution to wholesale add value by helping farmers to improve a group of farmers. This will require and retail buyers and allow for increased production and by facilitating linkages considerable coordination among management of the supply/demand between individual farmers and buyers. farmers and oversight, but the model interface to ensure that quality, quantity, does not call for aggregation prior to and delivery match buyers’ requirements. This model does not require coordinated independent delivery to buyers. production nor facilities for aggregation, This intervention requires functioning as each farmer will provide produce and aggregation facilities, which are not supply directly to the buyers. currently available. PROPOSED MODEL FOR PHASE 1 POTENTIAL MODEL FOR FUTURE PHASES In the medium-long term, it will be important to incentivize the credit to install cold room facilities. Lastly, Alosang Farm, which establishment of aggregators. Operationalizing the Market Center has a cold room and some cutting equipment, has expressed is the most obvious scenario. If an open tender is announced, the interest in sourcing produce from other farmers, but this has not Market Center could potentially attract interest from multiple happened in practice. Regardless of the option, the emergence South African investors. For example, the management of Tshwane of aggregation facilities is crucial for sustainable development Market, who were interviewed for this study, were interested in 5 of the fresh produce supply chain and providing farmers with a visiting Maseru to understand the characteristics of the local market that offers bulk offtake potential. It may also have additional market and explore business opportunities. Other options that benefits. For example, an investor may be interested in working with could be explored include upgrading local wholesale grocery the farmers to standardize the varieties and production techniques, stores through training on food hygiene and facilitated access to provide inputs, and develop outgrower schemes. 5. Tshwane Market is the second largest fresh produce market in South Africa. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 41 The SDP’s support package will be focused on technical assistance to beneficiary farmers and no financial support is envisaged. Category 1 farmers are in the best position to manage the operational requirements. The SDP will provide support in optimizing cash flow and strengthening financial management. This may provide motivation to banks to make financing available to program beneficiaries. The program will not provide grants or direct financial support to the beneficiaries. The proposed SDP would have three main components: (1) improving linkages with buyers, (2) providing technical assistance to farmers, and (3) building linkages with input suppliers. Whenever possible, the program will also support interactions with extension offices and business development providers working on agricultural entrepreneurship. Interviews with the farmers and the local Small, Micro and Medium Enterprises Network revealed that there is a shortage of public and private providers with expertise in protected vegetable farming. So, including them in the project will help mitigate knowledge gaps. IMPROVING LINKAGES WITH BUYERS Buyers’ quantity and delivery timing requirements need to be regularly forecasted and made known to farmers. Quantity requirements are variable across all the buyers that were surveyed. However, historical and typical volume ranges could be used as indicators of demand on a weekly or monthly basis. There is a need for constant monitoring of demand volumes for target crops, with feedback to farmers. Similarly, delivery timing requirements will need to be agreed with buyers and farmers in advance. Buyers’ quality requirements may include size, color, stage of ripening, acceptable production practices (for example, correct use of agrochemicals), and packaging. These requirements need to be communicated to farmers prior to production. TECHNICAL ASSISTANCE TO FARMERS Technical assistance to farmers will include interventions to interactions will be strongly encouraged, to build trust and improve the quantity and quality of supply. Improving product collaboration among the farmers. Furthermore, the SDP can assist quantity and quality will involve addressing one or more of the farmers in purchasing inputs and packaging materials in bulk to following knowledge gaps: seed variety selection, cultivation reduce costs. practices, soil nutrient testing and amelioration, pest and disease management, water management, tunnel management practices, The SDP will also coordinate the timing of delivery to the buyers, yield determination and benchmarking, product standards, and to avoid oversupply and undersupply and maintain the buyers’ financial management. To achieve these objectives, category 1 trust in the program. The SDP would advise farmers on production farmers will receive intensive on-farm assistance combined with planning before the start of the growing season and on crop group training. Category 2 farmers will be supported primarily spacing, to help them gain from low-season price increases and through group training, with limited on-farm activity. Group participate in high-season price falls. 42 LINKING SMALLHOLDERS TO MARKETS BUILDING LINKAGES WITH INPUT SUPPLIERS The SDP will work with local input suppliers to improve linkages and infrastructure suppliers are present in Lesotho through their within the value chain. It will be important to raise awareness among distributors, but there is a need to improve the flow of more local agro-dealers about the inputs that are frequently needed appropriate products and knowledge.6 Seed suppliers, such as by vegetable farmers, the types of seed varieties that do well in Syngenta, Stark-Ayres, Sakata, and Rijk Zwaan, all have a presence Lesotho’s climate conditions, use of plant protection products, and in South Africa and some in the neighboring Free State, and their crop husbandry practices. In doing so, the program management support personnel could play an important role in knowledge could consider partnering with Scope Insight and the International transfer and the identification of varieties that are best suited to Finance Corporation, which have developed an assessment tool the agroclimatic conditions in Lesotho. For example, trial plots on and training program to improve the capacity of agro-dealers. the land of participating farmers could have a significant impact Observations during the field study indicated that there is a base on the ability of farmers to select varieties that are better suited from which to expand technical knowledge and product ranges. for their markets. This could be facilitated by the project team However, there are gaps in both areas that include the absence of with support from these commercial suppliers. The same is true certain artificial fertilizers and lack of knowledge around fertilizer for agrochemical suppliers, such as Bayer, and the application of mixes for optimizing production. Even less is understood about different products to disease and pest infestations could identify plant nutrition and product taste profiles. Developing an interface more effective treatment regimes. The motivation for foreign input between local input suppliers and the project team will help agro- suppliers to participate in this initiative would be to improve their input providers not only to increase application knowledge, but position as suppliers to the growing Lesotho vegetable sector. also to adapt their product range to assist farmers in buying more effective products. Finally, facilitation of these linkages may also result in lower cost of seeds and agrochemicals during the project period due to bulk purchases. The SDP will also explore opportunities to connect input suppliers in Maseru with foreign-based counterparts. The objective is to improve the product and service offerings of the local input providers and capacitate them to support farmers. Seed, fertilizer, weed, pesticide, and disease control companies KNOWLEDGE TRANSFER TO EXTENSION STAFF AND PRIVATE SERVICE PROVIDERS The SDP should involve existing public and private service BOX 5 PROPOSED TRAINING AREAS providers in the project activities, such as relevant training sessions and on-farm visits. Although the project will not specifically focus on these groups, there are clear synergies • Variety selection and planting cycles for optimal production and market access between their work and the SDP’s activities. The SDP will have skilled personnel to support category 1 and category 2 farmers, • Soil chemical analysis and remedial actions which offers opportunities to undertake capacity building and • Disease and pest management knowledge transfer to the extension service, private sector consultants, and staff of other donor or government projects. • Cultivation practices The two-way flow of information would also assist the SDP • Input/output record keeping team in better contextualizing its approach. Specifically, the SDP could include extension staff, agricultural research staff, private • Yield calculations consultants, and staff from relevant government and donor • Harvesting and sorting projects in providing “action learning” in the field and invite them to • Good agricultural practices and marketing (such as the training workshops (Box 5 summarizes the key training themes). market selection, presentation, and pricing). This approach would strengthen the availability of local expertise that should last beyond the project duration. 6. An example of the gap was cited by some farmers affected by the Tuta absoluta infestation who could not locally obtain an effective product to deal with this disease. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 43 3.3 EXPECTED RESULTS AND MONITORING AND EVALUATION The SDP is expected to contribute to several results. In the emerging commercial farmers that can then be scaled to include short term, the pilot program will contribute to increased volumes more farmers and locations. In the medium term, the increase in of vegetable production, yields, sales, and profits of beneficiary domestic production would encourage investment in aggregation farmers and stronger links with the formal market. It will also and agroprocessing activities. Figure 8 illustrates the theory of produce a tested model for providing technical assistance to change. FIGURE 8: Theory of change for the pilot intervention Project design and results chain Problems Inputs Activities Outputs Outcomes Low • Staff COMPONENT 1: Farmers Farmers productivity • Consultants Improve linkages trained improved Increased due to with buyers on good agronomic productivity Replication poor • Training agronomic • Identify interested practices and sales to other agronomic materials practices buyers to purchase and business to formal locations practices • Field trips produce from and business management buyers target farmers management skills • Understand buyer quantity, quality Beneficiary Buyers report and delivery timing farmers greater Favorable Weak requirements and understand satisfaction weather linkages of make them known the with the conditions Increased vegetable to participating requirements ability of farmers of formal farmers to profits among farmers buyers meet their beneficiary with formal requirements farmers buyers COMPONENT 2: due to 1) Provide technical Linkages quantity, assistance to established quality, and farmers with formal reliability buyers • Select farmers Increased of supply for program volumes issues; participation Input of locally 2) lack of farmer • Provide continuous suppliers grown fresh knowledge of training increased produce the buyers’ to farmers on their incentivize requirements good agronomic awareness emergence of and 3) lack practices, pest on farmers’ aggregators of buyer management, needs for and agro- trust. production products and processors planning and technical record keeping assistance OUTSIDE OF COMPONENT 3: THE PILOT Improve linkages INTERVENTION with input suppliers • Educate local agro-dealers about the type of inputs frequently needed by farmers and strengthen their capacity to provide advisory services to farmers 44 LINKING SMALLHOLDERS TO MARKETS The program should be continuously monitored throughout the A final evaluation is strongly recommended to compare changes implementation period to allow for course corrections. At the in the yields, sales, and profitability of beneficiary farmers over start of the program, it will be important to collect baseline data the duration of the program, using the baseline data and midterm on key parameters such as yields, production volumes, sales, and assessment to determine the impact of the support interventions. profitability. Some farmers do not keep records and efforts should The final evaluation should also include a review of the entire be made to estimate the baseline figures as accurately as possible. program against the set objectives and provide recommendations A midterm assessment is recommended after the first harvest for the next phase of the program. An impact evaluation, such cycle, to measure the progress on the key parameters. Changes as a randomized control trial, where the results achieved by the in yields and profitability could occur due to crop choices as well program participants are compared with those of farmers with as external environmental and market effects. The assessment similar characteristics who did not benefit from the program, would should account for these factors and make recommendations to provide robust estimates of the SDP’s results. Table 7 presents the inform project implementation. monitoring and evaluation plan. TABLE 7: Proposed monitoring and evaluation plan for the pilot SDP Results Indicators Data collection methods OUTCOMES • Category 1 farmers increased yields by at least 15% At the start of the program, the and reduced production losses by at least 20%. previous year’s data on yields, Beneficiary farmers production losses, sales, and improved productivity • Category 2 farmers increased yields by at least profitability should be collected 10% and reduced production losses by at least 15%. (based on interviews with beneficiaries and farm visits) to • Category 1 farmers increased sales to wholesale Beneficiary farmers increased sales establish the baseline. Similarly, and retail markets by at least 20% and category to the wholesale and retail markets data should be collected before 2 farmers by at least 15%. and after each harvest season and Beneficiary farmers • Category 1 farmers increased profitability by the final evaluation should be done increased profitability at least 15% and category 2 farmers by at least 10%. at the end of the program. OUTPUTS • 12 category 1 farmers and 15 category 2 Farmers improve their knowledge farmers trained on good agronomic practices Satisfaction survey after training; of agronomic practices and and business management skills. on-farm assessments of business management skills • At least 70% of farmers are satisfied productivity with the training received. Buyers report greater satisfaction • 70% of target buyers report improvements with the ability of beneficiary in farmer ability to meet their quantity, quality, Buyer interviews farmers to meet their requirements and delivery timing requirements. • Workshops organized for the local input suppliers Input suppliers learn about to discuss the types of seed varieties that do well in the products in high demand Satisfaction survey Lesotho’s climate conditions, use of plant protection by vegetable farmers products, and crop husbandry practices. Knowledge generated on the • Lessons learned note on the implementation To be prepared by the Supplier demand-driven approach to of the Supplier Development Program to inform Development Program team based development of entrepreneurship future interventions. on the project records projects in horticulture Note: The numbers of category 1 and category 2 farmers are indicative; the actual numbers will depend on the number and quality of applications and the project budget. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 45 3.4 SDP’S STAFFING, WORK PROGRAM, AND BUDGET The SDPwill require a staff of at least three people in addition to the in selling price negotiations, helping farmers with record keeping, program coordinator. It is assumed that the SDP will be sponsored and overseeing quality commitments. An administrative assistant by a government agency or donor organization that will appoint will provide overall program support. a program coordinator. The SDP will need a qualified vegetable production specialist, a business manager, and an administrative Table 8 provides a summary of the indicative 18-month work assistant. A vegetable production specialist will work with farmers program and delineates key activities and deliverables. The on issues such as seed variety selection; rotation, germination, program will start with appointment of the team members, and planting sequences to match offtake requirements; soil and selection of category 1 and category 2 farmers, and presentation fertilizer management; pest and disease management; tunnel, of the SDP to formal buyers. The SDP team will then engage in shade net, and open field cultivation practices; water management; supply negotiations with key buyers, ensure technical assistance to yield management; and harvesting and post-harvest grading, farmers, provide ongoing market linkage support, and organize the storage, and transportation. A business manager will interface with midterm and final project evaluations. Annex E provides a timeline buyers and farmers in identifying supply and offtake commitments, of activities. supporting group procurement of inputs and packaging, assisting TABLE 8: Indicative work program Activity Measurable deliverable 1. IDENTIFICATION OF CATEGORY 1 AND CATEGORY 2 FARMER PARTICIPANTS 1.1. Development of selection criteria for category 1.1.1. Selection criteria identified 1 and category 2 farmer identification 1.2. Publication of criteria and call for applications 1.2.1. Advertisement copy 1.3. Application by, and preselection of, 12 category 1 1.3.1. Applicant database and selection process records farmers and up to 15 category 2 farmers 1.4.1. Workshop record with 15 category 1 farmers 1.4. Orientation to SDP and objectives in two workshops and up to 20 category 2 farmers 1.5. Baseline survey of each potential category 1 farmers 1.5.1. Baseline survey report on farming practices, yields, sales, and costs 1.6. Contracting with 12 category 1 farmers 1.6.1. Confirmed commitment of 12 participating and up to 15 category 2 farmers category 1 farmers and 15 category 2 farmers 2. MARKET LINKAGE DEVELOPMENT 2.1. Presentation of project to market offtakers 2.1.1. Records of meetings and presentations 2.2. Supply negotiations and commitments by lead offtak- 2.2.1. Offtake volumes per month from ers category 1 farmers by lead offtakers 2.3. Ongoing market linkage development with 2.3.1. Increase in offtake volumes month existing and new offtakers on month (%) from category 1 farmers 2.3.2. Monthly activity reports for category 1 and category 2 farmers 46 LINKING SMALLHOLDERS TO MARKETS Activity Measurable deliverable 3. INPUT LINKAGES 3.1. Identification of input supplier linkages 3.1.1. Report identifying input suppliers to be targeted 3.2.1. Agreements for support by input suppliers 3.2. Negotiation of support packages with input suppliers 3.2.2. Monthly records of input supplier interactions 4. PRODUCTION SUPPORT 4.1. Agreement on year 1 production cycles 4.1.1. Master production schedule per category 1 farm 4.2.1. Records of finance raising initiatives 4.2. Financial obligations and facilitation of access to finance for category 1 farmers 4.3. Input selection and ongoing management support 4.3.1. Input management records for category 1 farmers 4.4.1. Monthly activity records and monthly 4.4. Production support farm production reports for category 1 farmers 4.4.2. Workshop and meeting records for category 2 farmers 4.5.1. Monthly activity records and monthly 4.5. Business management support farm accounts for category 1 farmers 4.5.2. Workshop and meeting records for category 2 farmers 5. EVALUATION 5.1.1. Evaluation reports for category 1 and category 2 farmers 5.1. Midterm production and profitability assessment on changes in key metrics such as yields, sales, and profits over baseline data and recommendations for improvement 5.2.1. Evaluation reports for category 1 and category 2 farmers 5.2. Final production and profitability assessment on changes in yields, sales, and profits over baseline and mid- term data and recommendations for phase 2 interventions 5.3. Overall program outcome report 5.3.1. Final report on program outcomes The project budget will be influenced by several factors and borne by the government or donor agency sponsoring the program. significant cost savings could be achieved if the SDP team shares The expenditures associated with the program coordinator are not the office, administrative support staff, and vehicle expenditures included in the calculations here. A business manager who will be with another program (for example, if the SDP staff are located in responsible for interactions with buyers could be found locally. the office of the government or donor organization and no rent is However, in Lesotho there is a dire shortage of experienced required). Table 9 illustrates potential expenditure categories and agronomists with knowledge of greenhouse vegetable cultivation. provides some rough estimates of key costs. So, a vegetable production specialist will likely need to be hired in South Africa. Depending on the arrangement, the project may SDP staff costs are the main expenditure category. It is assumed need to provide for relocation benefits, which may increase the that the salary, benefits, and any related travel of the program staff-related expenditures relative to the estimates in table 9. coordinator responsible for the overall SDP implementation will be A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 47 TABLE 9: Illustrative SDP budget for an 18-month period Expenditure Item US$ 1. STAFF BUDGET Vegetable Production Specialist (18 months) @ US$5,000/month 90,000 Business Manager (18 months) @ US$3,000/month 54,000 Project Assistant (18 months) @ 1,000/month 18,000 Consultant to prepare the SDP evaluation report and recommendations for Phase II 10,000 172,000 2. VEHICLES Two 4 x 2 double cab vehicles on 18-month full maintenance lease at $2,500/month 45,000 Fuel assuming 10,000km/month @ $1.2/liter 32,400 Transport incidentals (oil, puncture repairs, and so forth) 1,000 78,400 3. OFFICE ACCOMMODATION 18 months rental @ $700/month 12,600 Furnishings (3 x desks, 3 x chairs, meeting table with 6 chairs) 2,500 3 x laptops 2,000 Photocopier rental for 18 months (including consumables) 2,500 3 x cell phone contracts 6,000 Insurance 1,500 27,100 4. TRAVEL AND ACCOMMODATION Accommodation: 18 nights x 2 rooms @ $100/night 3,600 Subsistence allowance @ $40/day 1,440 5,040 5. MEETING ROOM/SEMINAR ROOM HIRE WITH CATERING 3 x per month @ $400/meeting 21,600 Subtotal 304,140 Contingency of 5% 15,207 Total 319,347 48 LINKING SMALLHOLDERS TO MARKETS References Bureau of Statistics. 2010. 2009/2010 Agricultural Census. Maseru, Lesotho: Bureau of Statistics. ———. 2016. Horticulture Statistics Report 2015/16. Maseru, Lesotho: Bureau of Statistics. IFC (International Finance Corporation). 2019. Working with Smallholders: A Handbook for Firms Building Sustainable Supply Chains. Washington, DC: IFC. Reva, Anna. 2018. Unlocking the Potential of Lesotho’s Private Sector: A Focus on Apparel, Horticulture and ICT. Washington, DC: World Bank Group. World Bank. 2019. World Development Indicators. Washington, DC: World Bank. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 49 ANNEX A. ESTIMATED MONTHLY DEMAND FOR VEGETABLES IN MASERU (KILOGRAMS) Supermarkets: Local Stores: Chinese stores: Individual Pick n Pay, Bay Fruit and Veg Z&Z Enterprise, Long traders: Buyer Shoprite, Fruit (BEDCO Trade River, Hero Flower 25 registered Total type and Veg Center), Red Line, Chinese Food, Jei traders with and Game Upper Qeme Rui Brothers, Lotho import permitst Enterprise Cabbages 76,198 80,595 119,220 108,420 384,433 Tomatoes 33,671 93,582 8,809 4,416 140,478 Potatoes 64,138 124,700 45,130 159,750 393,718 Butternuts 37,718 7,738 6,040 500 51,996 Carrots 86,068 67,500 8,695 515 162,778 Beetroot 34,347 29,740 4,000 200 68,287 Onions 50,356 78,578 13,566 8,400 150,900 Lettuce 8,957 150 66 100 9,273 Green peppers 9,723 9,832 1,063 127 20,745 Green beans 4,805 1,560 1,224 6 7,595 Cucumbers 9,495 1,720 1,601 12,816 Eggplants 384 166 550 Broccoli 1,119 1,119 Cauliflower 1,123 1,123 Chilies 844 60 910 1,814 Red/yellow peppers 3,269 20 3,289 Cocktail tomatoes 928 928 Baby marrows 933 933 Patty pans 33 33 Spinach 10,105 12 10,117 Total 434,214 495,755 210,510 282,446 1,422,925 Sources: World Bank Fresh Produce Buyer Survey 2019, for supermarkets and two local grocery stores; Ministry of Small Business Development, Cooperatives and Marketing for the Chinese-owned stores, one local grocery store, and individual traders (based on the import declaration data for November 2018). 50 LINKING SMALLHOLDERS TO MARKETS ANNEX B. ILLUSTRATION OF THE DEMAND VOLUMES OF HOTELS AND RESTAURANTS MONTHLY DEMAND FOR VEGETABLES BY FOUR HOTELS AND NINE RESTAURANTS (KG) Product Hotels Restaurants Total Potatoes 1,690 3,028 4,718 Butternuts 862 1,372 2,234 Onions 829 1,136 1,965 Spinach 130 1,652 1,782 Tomatoes 805 908 1,713 Carrots 635 492 1,127 Lettuce 164 644 808 Cabbages 253 518 771 Green peppers 195 432 627 Cucumbers 203 258 461 Baby marrows 319 50 369 Red/yellow peppers 170 164 334 Beetroots 126 200 326 Green beans 27 194 221 Cauliflower 169 16 185 Mixed lettuce leaves 104 70 173 Broccoli 149 0 149 Cocktail tomatoes No data 110 110 Chilies 25 69 94 Eggplants 68 24 92 Pumpkins 60 0 60 Garlic 30 15 45 Source: World Bank Fresh Produce Buyer Survey 2019. Note: The survey covered the following hotels: Avani (Avani Maseru and Avani Lesotho), Mpilo, Kick4Life, and Lancer’s Inn; and restaurants: Barcello’s at Pioneer Mall, Steers at Pioneer Mall, Spur at Pioneer Mall, Piri Piri, Regal, Capello, Kingdom Lounge, Primi Piatti, and Roman’s Pizza. A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 51 ANNEX C. LIST OF INDIVIDUAL VEGETABLE TRADERS WITH IMPORT PERMITS # Trader or company name 1 Teboho Motemekoane 2 Khoarai Khoarai, Cathedral, Maseru 3 Nthabiseng Mphale, Maseru 4 Mafilipi Likotsi 5 Mameisi Kafobane, Lithabaneng, Maseru 6 Maphethiso Banginyama, Seapoint Maseru 7 Bafokeng G Café, Lower Thamae, Maseru 8 Mohobo G. Cafe, Koalabata, Maseru 9 Motlatsi Ramphielo, Fairways Maseru 10 Mohato Ncholu, Rothe Maseru 11 A.A. Enterprise (Pty) Ltd, Seipobi Building, Maseru 12 Malqole Malikalike 13 Call Caters, Industrial, Maseru 14 Alber Fruits and Veg 15 Lebohang Chabeli, Machache, Maseru 16 Moseti Fruits n Veg, Arrival Centre, Maseru 17 M.Mphasa, Maseru 18 Tlali Lebesa, Thetsane, Maseru 19 Mafilipi Likotsi 20 Patlo Ncheke, Qoaling, Maseru 21 Maletsema Putsoa, Manonyane, Maseru 22 Makuena Lekholoane, Maseru 23 Thabang Makosane, Maseru 24 Mohato Ncholu, Thetsane, Maseru 25 Puleng Senyane, Ellof Bus stop, Maseru 52 LINKING SMALLHOLDERS TO MARKETS ANNEX D. STRENGTHS AND WEAKNESSES OF THE POTENTIAL SDP IMPLEMENTATION MODELS MODEL 1. Independent MODEL 2. Coordinated MODEL 3. Independent or coordinated farmer farmer production farmer production production with delivery to aggregation facility with direct delivery to with direct delivery to wholesale and retail wholesale and retail Existing facility New facility buyers buyers ADVANTAGES 1. Easily implemented 1. Larger orders can be met 1. Will facilitate more 1. Will facilitate more consistent quality and consistent quality and 2. Focuses on farmers 2. Potential for longer quantity of supply quantity of supply who can meet demand season supply requirements 2. Will allow management of 2. Will allow management 3. Increased trust by buyers increased supply (for example, of increased supply (for 3. Very adaptable in matching in suppliers reduce losses) example, reduce losses) supply and demand 3. Immediate access if usage 3. Can be independently agreed with owner run/owned 4. More consistent quality for buyers DISADVANTAGES 1. More difficult to meet 1. High degree of farmer 1. Controlled by third party 1. Cost of establishment quantity and quality collaboration and coordination 2. External suppliers may not 2. Time for establishment requirements of bulk buyers needed, which is untested receive priority if capacity is 3. Viability undetermined 2. Potential for erratic supply 2. Relies on each farmer fully utilized (especially in light of the having the capacity to meet already constructed Market requirements Center) 3. Absence of aggregation activity can result in produce quality variability A SUPPLIER DEVELOPMENT PROGRAM FOR VEGETABLE FARMERS IN LESOTHO 53 ANNEX E. ILLUSTRATION OF THE WORK PROGRAM, BY MONTH Month # Main activity Sub-activity Responsibility 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Development of detailed Project terms of reference coordinator Project Advertisement coordinator Short listing and Project interviews coordinator Appointment Project 1 of project Appointment coordinator staff Relocation (as needed) Project staff Project Identification of offices coordinator Equipping of office Project staff Process for selection Project identified (capability) coordinator Implementation of Project staff selection process Project Advertisement Farmer coordinator 2 selection Project Receipt of applications coordinator Evaluation of applications Project and site visits coordinator Project Farmers selected coordinator Presentation of project to Project market buyers coordinator Market Supply negotiations Project 3 linkages and commitments staff+farmers Ongoing market Project Staff linkage development Identification of input Project Staff supplier linkages 4 Input supply Negotiation of Project Staff support packages Agreement on year Project 1 production cycles staff+farmers Financial obligations Project and facilitation staff+farmers Input selection Project 5 Farmer support and support staff+farmers Production support Project staff Business Project staff management support Baseline production and Project profitability assessment staff+assessor Midterm production and Project 6 Evaluation profitability assessment staff+assessor Final production and Project profitability assessment staff+assessor 54 LINKING SMALLHOLDERS TO MARKETS