National and Regional Markets:Opportunities and Challenges for Cooperatives and Farmer Groups

 

Author(s):  Ariga ,Joshua; Nyoro, James
Introduction

It has become a general trend in the world that countries with similar political, regional, cultural, social, economic aspects and needs are merging into economic blocks. The reasons for this phenomenon are varied consisting of gaining bigger markets to achieving some political ends. A number of countries in Africa have followed this pattern and formed regional agreements of one form or another. These blocks provide a wider and bigger market that offers possibilities of diversification in production, processing, and marketing for members. Economies of scale accrue to national firms or businesses that have the capacity to strategize beyond their national borders.

Studies indicate that market participants in inputs and outputs are able to expand and increase their throughput as a result of facing larger markets. As possibilities of diversification in production and marketing and potentials for value addition increase, member states have the opportunity to raise their incomes and employment levels. It is particularly instructive for African agreements that such blocks can provide a basis of food security as surpluses and deficit areas within the block get more integrated.

Most of the developing countries within EAC and COMESA are agricultural commodity-dependent for their livelihoods. Their external trade relies mainly on exports of primary products to industrialized nations. The dependence on natural resource-based exports regime enables these countries to earn foreign exchange to finance their imports. Unlike their Latin American and South Asian counterparts, these countries have not reduced their dependency on primary products over time though the share of processed exports has expanded substantially.

The onset of trade liberalization policies – that opened markets to imports and foreign investments – and the implementation of structural adjustment programs did not herald significant increase in exports of manufactured products. Therefore agricultural products are important in these countries’ foreign trading regimes. Export growth potential, as indicated by ratio of investment to GDP, is relatively lower than other comparable countries.

When most researchers/commentators discuss the potential benefits of trade to African countries they almost universally agree on one thing. That for Africa to gain from trade she has to increase exports to EU and America. It is interesting that most studies do not look next door, at other African markets, where great opportunities exist. Preliminary data from EPC indicates that Uganda is one of the most important trading partners for Kenya. The pertinent question is whether Kenya has taken this a step further to find ways of fostering and enhancing trade output. Another question that needs to be answered is why trade has not taken off as expected when these market blocks were set up in the first place.

A 1997 survey by the International Trade Centre (ITC) assessing the extent of trade barriers in Africa showed that lack of “trade support services” – finance, telecommunication, transport, promotion - and “inappropriate government policies” – inconsistent policies, poor government-business linkages, trade regulations and taxes, customs procedures - were the main barriers to international trade. For example transport/freight costs represent a very high proportion of export value in the region.

The Institute of Development Studies (IDS) did a survey in Kenya (2000) to gauge the impact of trade support services in promoting international trade. What emerged is that most firms do not utilize existing services being offered on pre-export information (R&D and surveys) and market information (e.g EPC). Most firms are aware of the availability of these services but do not use them as a business strategy. They use own resources or business contacts to gather relevant information and data. This is symptomatic of a problem of lack of provision of appropriate information or services relevant to particular business firms by the public sector.

On the demand side, private businesses have not adjusted their strategies to the liberalized trade and competitive business environment; again the existence of “captive local markets” has not forced these firms to take full advantage of the EAC and COMESA markets. There is clearly a need for public-private partnerships in policy setups that take into account industry needs. The public sector investments should not ‘crowd out’ private investors who strive to provide similar services.

Despite the constraints that exist today, the possibilities are quite attractive and Kenya needs to organize its production base to take advantage of these opportunities. What are the available avenues and strategies that farmers in these regions can adopt in order to sell their products to a wider consumer base? Issues that are important to development and growth of the economies in the region – poverty reduction, raising incomes, agricultural production, etc- depend on expanding the markets by increasing access by farmers.

The broad objective of this report is to provide some information of the nature of national and regional markets in terms of volumes involved, opportunities, challenges, and growth potential. Who constitutes these markets and what commodities/products are traded in these markets? What are the opportunities for Kenya agricultural cooperatives and farmer groups in these markets and what are the potential and existing challenges? How can such challenges be handled in order to raise trade volumes, values, incomes, and growth in the region? These are some of the specific questions that this report will attempt to answer.

National and Regional Markets:Opportunities and Challenges for Cooperatives and Farmer Groups