Economic analysis of supermarkets as a marketing channel choice for fresh produce smallholder farmers in Eswatini.

Abstract

The growth of supermarkets in Eswatini has been dominated by South African supermarket chains that typically have access to established procurement channels from South Africa. Whilst some supermarkets do procure some fresh produce from local farmers, others exclusively procure from South Africa. This facilitation of market access for imported fresh produce in Eswatini – a threat for local farmers - differentiates this study from previous research on the impacts of supermarkets on farmers in developing countries. In particular, supermarket requirements imposed on producers in conjunction with competition from imports has important implications for local farmers’ direct access to these markets, the types of fresh produce procured, and the relationships formed, which therefore, impact on farm incomes of smallholder farmers in Eswatini. Therefore, the primary objectives of the study are to show the procurement system of vegetables in Eswatini as a complex system; analyse the nature of the farmer-buyer relationships; determine the factors affecting the choice of marketing outlets; and estimate the impact of supermarket participation on income of smallholders in Eswatini. The study focused on the procurement of fresh produce, namely cabbages, spinach and lettuce from Hhohho and Manzini, where the majority of supermarkets in Eswatini are located. A combination of sampling methods has been used in the study. A random sampling method was used to select a sample of 110 smallholder farmers supplying vegetables to traditional markets and NAMBoard, (a parastatal that, amongst other functions, assists farmers with production, processing, storage, transportation, distribution of their produce and the sale of scheduled products) and about 60 smallholders were supplying supermarkets. Informants from the vegetable supply chain were purposely selected with the view of being directly and indirectly, involved in the chain. The thesis is structured as four research papers that address the above-stated objectives. The first research paper examines the procurement system of vegetables in Eswatini as a complex system using the Theme Network Analysis (TNA). TNA allows for the identification of linkages of key themes associated with the procurement of vegetables by formal markets and other pertinent themes that can be further investigated for solutions to the system.

In the second paper, factor analysis and discriminant analysis were used to determine farmer-buyer relationships between informal and formal marketing channels based on relationship satisfaction, trust and commitment. Results from the discriminant analysis revealed that there is a statistical significant difference between formal and informal marketing channels, and those farmers supplying formal markets perceived levels of satisfaction, trust, and commitment better than for informal markets. The third research paper involved the application of the Multivariate Probit (MVP) model to estimate the factors influencing the choice of marketing outlet selection strategies. The marketing outlets observed were supermarkets, NAMBoard and traditional markets, and the results showed that these outlets were substitutes. This implies that when it comes to marketing outlet selection, farmers would select one outlet over the other based on economic and practical factors; if the conditions for supplying one market outlet are inaccessible for smallholders, another market will be selected. The selection decision is influenced by risk attitude, assets ownership, institutional variables, transaction costs and market attributes. Lastly, the fourth paper involved the application of the Endogenous Switching Regression model to determine the factors influencing participation in supermarkets and the effect participation has on income of suppliers. The results revealed structural differences between farmers supplying supermarkets and traditional markets, particularly with respect to the size of the farm and off-farm income. The result also revealed that smallholders supplying supermarkets earned a relatively higher income than those supplying traditional participants. The main conclusions of the study are as follows: the characteristics of supermarkets and farmers, as well as the nature of the product, add to the complexity of the procurement system. The TNA enhanced the understanding of the identified issues contributing to the complex procurement systems; hence, strategies for improvement can be investigated. The key challenges identified were inconsistent supply of produce, lack of finance, and transport, high procurement requirements and high transaction costs. The social responsibility approach that supermarkets use for smallholders is attributed to these procurement challenges, which means that buying from local smallholders is not one of the business strategies for retailers.

Therefore, policy regulations set to limit imports and encourage domestic procurement while developing smallholders to be able meet procurement requirements are necessary. The introduction of such policies may reduce imports, which are regarded as a threat to local farmers. Secondly, the nature of the buyer-seller relationships between the marketing channels is discrete, which is characterised by flexibility and lack of commitment between farmers and the buyers. The factors affecting the choice of marketing outlets and the effect on supermarket participation are crucial for the sustainable growth of smallholder vegetable farmers in Eswatini. The farmers’ risk preference, different assets owned, institutional factors, and the duration the marketing outlet takes to make payment for produce influence supermarket channel selection decisions. The implications of these results (factors) provide empirical guidelines necessary for farmers when selecting marketing channels. Policies aimed at the commercialization of smallholder farmers involving the establishment of institutions and the acquisitions of assets such as the provision of education (skills training), improved market information, extension services, mobile phone, transportation and farm size to produce marketable surplus are critical for the improvement of supermarket participation leading to improvement of farmers’ income. The study, therefore, recommends a coordinated and comprehensive supply chain approach, which will enhance a broader understanding of the vegetable marketing system and the achievement of a mutually beneficial relationship that will enhance smallholder farmers’ access to markets and further improve their household welfare from income earned from participating in these markets.