The institutional economics of cultivated mushrooms in Swaziland : a study on value chains, transaction costs and collective action.

Abstract

This study focuses on commercial mushroom production, a relatively new economic activity in Swaziland that seeks to assist rural-based small-scale farmers to diversify and improve their economic independence and livelihoods. The mushroom programme is in line with the National Development Strategy, which, among its major objectives, aims to address povertyrelated challenges through the promotion of non-conventional high-value agricultural commodities that have not been explored by local farmers despite having a relatively high consumer demand in local and international markets. In attempting to provide an impetus to the mushroom industry, the Swaziland government currently offers free training in mushroom production, extension services, high quality spawn at a very nominal fee, and free substrate bags. Considering the geographical suitability and the magnitude of investment made towards the mushroom development programme, there is a need to understand why many farmers are not participating in the industry, and why Swaziland still imports more than 95 percent of locally consumed cultivated mushrooms. There has also been no research so far on the challenges and opportunities in producing, value adding, and marketing of mushrooms in Swaziland. This study was, therefore, an attempt to address these knowledge gaps. It also provided an opportunity to draw relevant policy and management implications to inform future strategies in the industry. The specific objectives of the study were to: (i) identify and examine the factors that influence households’ decisions to participate in mushroom production; (ii) study the underlying mushroom production and market access constraints; (iii) examine the effects of transaction cost factors that influence mushroom producers’ market channel choice decisions and the quantity of mushrooms sold in selected channels; and (iv) study the effects of organisational form on producers’ participation in collective responsibilities. Using cross-sectional data gathered from mushroom producers and non-producers, the results of the Two-Stage Conditional Maximum Likelihood and Two-Stage Probit Least Squares estimation methods revealed that farmers’ decisions to participate in the mushroom enterprise are mainly influenced by institutional factors. Farmers who have undergone training in basic oyster mushroom production, are located in close proximity to input and output markets, and have positive perceptions towards mushrooms, are likely to participate in the mushroom industry. The development of positive perceptions towards mushrooms is predominantly influenced by the knowledge gained on their nutritional and therapeutical properties.

The value chain approach was used to identify the underlying factors constraining mushroom production and producers’ participation in mainstream markets. Among the important findings, the study showed that producers’ plans to expand production capacities are hampered by the difficulty to access key inputs and services, which are centralised and fully controlled by the government. Generally, local farmers produce below capacity in relatively small low-cost structures, which are also not well equipped. As a result, farmers apply very primitive management methods that eventually affect their productivity. These constraints are partly responsible for the extremely low locally produced volumes and inconsistent market supply, prompting local mushroom traders to rely on imports. Other constraints relate to the lack of diversification as farmers currently produce only the oyster mushroom, yet consumers are mostly interested in the button mushroom, which is favoured for its appearance and taste. Currently, no cultivated mushrooms are exported from Swaziland and producers have not yet engaged in any form of mushroom processing. Instead, from what they harvest, it was found that about six to 10 percent is consumed at household level and the remainder sold through four channels identified as: (i) the farm gate; (ii) retail market (supermarkets); (iii) middlemen; and (iv) food services industry (restaurants/hotels). Among the four channels, the retail market and farm gate were, respectively, identified as the most preferred. Between the two, the retail market offers a comparatively higher producer price and a relatively more dependable market. Cragg’s regression results revealed that producers who are likely to supply the retail market are those who manage a relatively large number of spawn impregnated bags, have a high labour endowment, own cold storage facilities, and are affiliated to mushroom producing groups. However, the difficulty in accessing market information and lack of bargaining power significantly constrains other producers’ plans to supply the retail market; hence, they end up selling through less remunerative channels, such as the farm gate. Producers’ decisions on the quantity of mushrooms supplied through the retail market are significantly affected by the difficulty in accessing transport and uncertainty about meeting the retailers’ quality requirements. Over 90 percent of mushroom producers in Swaziland currently participate in the industry through farmer groups. These groups are predominantly organised in two forms, depicted as model A and B, respectively. In model A, besides establishing their own by-laws, members produce mushrooms in one growing house where they share the costs and benefits of all preproduction, production and marketing activities. In model B, members also establish their

own by-laws and share all pre-production activities. However, instead of producing under one roof, each member manages his/her own growing house and members are at liberty to make their own marketing arrangements independently. The results of the Propensity Score Matching method indicated that producers affiliated to model B groups have significantly higher levels of cooperation, which is evidenced in making joint decisions and performing shared manual activities. Participation in such groups also improves producers’ knowledge of the enterprise, and reduces the likelihood of internal free-riding. The overall results of the study point to the need to strengthen farmer training in mushroom production and value-addition. In attempting to improve producers’ access to key inputs and services, it is recommended that the government should relinquish its position (to the private sector) as the only provider of these services, allowing public institutions to assume a monitoring role. Producers’ competitiveness and sustainable participation in the mushroom value chain can be enhanced by institutionalising and strengthening collective action, which can possibly enable them to achieve economies of scale benefits in the input and product markets, and improve their bargaining position. As indicated in the empirical chapters, market availability for mushrooms is not a challenge in Swaziland. However, the lack of a market information system, expert assistance in agribusiness management, poor value chain governance, and lack of vertical coordination, predispose producers to high marketing and transaction costs such that they end up selling through less remunerative marketing channels.