Will big retail stores herald the demise of small producers?

Opinion and Analysis

A harvester at the Dominion farms. American Dominion Farms plans to set up a sugar factory in Siaya to be supported by a 5,000-acre sugarcane plantation. PHOTO | FILE 

In Summary

• Supermarkets now stock from tomatoes to pepper and are likely to edge out middlemen, but at what cost?

For an unduly long time, Kenyan small-scale farmers and producers have been plagued by debilitating challenges; lack access to financing, infrastructure, machines and technical assistance.

But perhaps the biggest challenge has been the lack of access to markets for their produce.

Borne out of these challenges, a group of individuals have long claimed to provide the solution. They call themselves middlemen, also known as brokers or agents.

However, rather than solve the problem, this particular set of market players has been exploiting the situation further, resulting in outcry from many corners that they must be eliminated.

Yet, they have been, for the longest time, the only link to the market and the final consumer for these small-scale producers.

The retail landscape in Kenya, however, has rapidly developed in recent times owing to a number of factors; the growing population, the expanding middle class, rapid pace of urbanisation, advancement in technology and the financial and money transfer sectors.

All these factors have resulted in a welcome increase in average amount spent on consumption per household. This should be music to the ears of producers; if only they could ride that gravy train.

Large retail outlets—supermarkets, fast food outlets— are now the fastest channels through which household consumables like vegetables are reaching the consumer.

Formal retail chains, will be (if not already), the single biggest buyers and sellers of fresh produce and other domestic consumables, moving more volumes than any other channel.

This change in the delivery system of both food and non-food household consumables should ideally be presenting a huge opportunity for small and medium-scale farmers and producers.

The entry of large retail chains and the expansion of the existing ones, should signal that, for the first time in decades, there is a chance to finally ‘uproot’ the unscrupulous middleman from their supply chains.

Is this assumption realistic? Will the entry and consolidation of these gigantic retail chains really do small and medium producers more good or it will do more harm than has been done by the middlemen?

There are no guarantees that these retail giants will deal fairly with farmers or any other small suppliers. How this scene plays out in the next five years highly depends on initial rules of engagements and this is where the government needs foresight.

With these supermarkets setting up in the region, we will experience shift in buying power.

It is not far-fetched therefore, to think that they may act with high handedness given such massive power and continue the same exploitative tendencies in sourcing as the middlemen have.

Even if it may not be the intention, the rate of multiplication of these retail chains is likely to sink them into fierce price battles with each other, resulting in oppressive prices being offered to suppliers so as to compete on the shelves.

Whatever the reason, these retail chains have in them the potential to squeeze local suppliers’ margins to the point of financial unsustainability. With big names entering the market, Carrefour, Choppies, Shoprite and with the massive expansion by Kenyan retail chains, it is time to ask the hard questions.

Will our micro local producers remain standing or will industrial-sized farms and large-scale businesses count the gains?

The supermarkets have already swallowed the corner dukas. Will the cottage industry (jua-kali) sector and other small production outfits including farmers face the same fate?

The existing restriction that a specific percentage of merchandise sold through retail stores must be locally produced, while well-meaning, is too general.

This is because there is no prescription as to what part of that local produce is to come from small-scale producers. There is hardly one simple way of keeping track either.

While it is an onerous task, we must attempt to tie the influx and growth of large retail businesses, both local and multinational, with the growth and empowerment of small-scale producers in both food and non-food items.

It has never had to be the necessity for retailers to source sustainably, perhaps responsibly, but not sustainably.  But there is a need to change this mind-set. Retailers need to go the extra mile and look for ways to lift the small and medium-sized enterprise (SME) sector.

They must buy in a manner that demonstrates they aspire to economically sustain low-scale producers and especially farmers as the agricultural sector is by far the largest employer.

They could achieve this by seeking out models that can assist them reach and buy from the smallest of producers. This could be, for instance, by creating aggregation mechanisms.

They could also register producer or farmer groups as part of this initiative. They would also need to tailor the terms of payment to accommodate this type of supplier.

Sure, it is less of a headache and more economical to buy from a single large producer or an industrial-sized farm. But is it will be an imbalanced relationship with the local environment.

Both large and small businesses exist side by side and both need to be recognised if we are serious about growing the economy.

Big buyer power comes with an equal measure of responsibility. Responsible and sustainable sourcing for the retail sector means going that extra mile and agreeing to take on the challenge of rewarding the spirit of entrepreneurship throughout all tiers of production.

Farmers and other producers too must not sit back. They too need to rise up to the challenge by coming together and creating an environment that will make it easier for them to approach these big buyers and be taken seriously