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Value chain of indigenous cattle and beef products in Mwanza region, Tanzania: market access, linkages and opportunities for upgrading

Value chain of indigenous cattle and beef products in Mwanza region, Tanzania: market access, linkages and opportunities for upgrading
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  Academia Journal of Agricultural Research 1(8): 145-155, August 2013 ISSN: 2315-7739 ©2013 Academia Publishing Research Paper Value chain of indigenous cattle and beef products in Mwanza region, Tanzania: Market access, linkages and opportunities for upgrading    Accepted 18 th  July, 2013  ABSTRACT The potentials of the traditional beef cattle sector in Lake Victoria Basin (LVB) have only been utilized marginally. The sector still suffers from limited access and linkages to premium markets, lack of entrepreneurial dynamisms by actors, as well as, use of poor production and processing technologies. This paper applies the results of participatory market analysis and questionnaire surveys to map the value chain and assess profitability in each node. The study findings suggest that the value chain was generally operating inefficiently. Overall, cattle producers received lower prices and profit margins. Vertical integration of livestock farmers, beef processors, and traders was limited. The paper recommends tailor made campaigns and training that will sensitize producers to treat beef cattle keeping as a business, set aside at least few animals for sale in each year, fatten them using locally available feeds and produce animals of good quality which will earn them good money. Key words:  Value chain mapping, profit margins, agro-pastoralists, beef cattle, livestock marketing, Lake Victoria Basin INTRODUCTION The indigenous beef cattle in Tanzania comprise a rich livestock resource base with current population estimated at 19.5 million. This makes the country to be ranked as the first country in the Southern Africa Development Community (SADC) and Eastern Africa Community (EAC) regions with largest number of cattle and third in the whole of Africa, following Ethiopia and Sudan (MLFD, 2010). The sub-sector is also an important source of meat in the country contributing about 53% of the total national meat production (ibid). The Lake Victoria regions of Mwanza and Shinyanga are endowed with about 32% of the total beef cattle population in the country (ibid). They constitute the major sources of beef cattle in Tanzania. Overall, beef cattle keeping, trading and retailing of beef products are important economic activities undertaken by many residents in these regions. Even though, the potential of the beef cattle sector in these regions and in Tanzania as a whole is yet to be fully realized. Currently, the indigenous beef cattle subsector in Tanzania contributes only 4.8% of the real national Gross Domestic Product (GDP) against 56% of the overall contribution from agriculture (ibid). This contribution is relatively very small calling some sectoral reforms at different levels of the subsector. Of utmost importance is perhaps the emergence of evidence which indicates a strive for some actors in the beef cattle value chain to shift from subsistence to more commercialized businesses (Mlote et al., 2012; Mkonyi et al., 2007). Some participants in the value chain, especially traders of live cattle are adopting improved production systems such as beef cattle fattening and a few commercial producers are responding to the demand for quality beef by selling to niche and export markets. Yet, many bottlenecks still exist including the underutilization of existing genetic potential of the indigenous cattle, poor rangeland management, and limited resources and feeding technologies, as well as, poor financing and access to extension services, just to mention few. Based on this  Reuben M. J. Kadigi 1 , Ibrahim L. Kadigi 1 , Germana H. Laswai 2  and Japhet J. Kashaigili 3   1 Department of Agricultural Economics and Agribusiness, Sokoine University of Agriculture, Box 3007 Morogoro, Tanzania 2 Department of Animal Science and Production, Sokoine University of Agriculture, Box 3004 Morogoro, Tanzania 3 Faculty of Forestry and Nature Conservation, Sokoine University of Agriculture, P.O. Box 3013, Morogoro, Tanzania *Corresponding author email:      Academia Journal of Agricultural Research; Kadigi et al. 146 ground a Lake Victoria Research Initiative (VicRes) Inter- University Council for East Africa (IUCEA)’s funded  research project entitled “Improving Beef Cattle Productivity for Enhanced Food Security and Efficient Utilization of Natural Resources in the Lake Victoria Basin”  which was launched in early April 2012. The project was implemented in three countries namely; Tanzania, Uganda and Rwanda. It addresses four research components namely: effects of climate variability on natural resource base, livestock productivity and food security of the agro-pastoralists in semi arid areas of LVB; coping strategies of agro pastoral communities to the effects of climate change; rates of adoption of existing technologies for improved cattle productivity and efficient utilization of natural resources; introduction and monitoring of innovative technologies for improving quantity and quality of beef production as well as reducing rangelands degradation; and improvement of market access, opportunities and linkages in the cattle and beef products value chain. In particular this paper presents some key preliminarily findings emanating from the last component of the research project which embraces issues of markets and beef cattle value chain. The study idea springs from the general recognition that many agro-pastoralists in the LVB have the problem of selling animals at appropriate age and weight for obtaining good quality beef. In addition, the availability of market that is ready and customers who are willing to pay better prices for the produced good quality beef cattle and products is also a problem. The study is therefore intended to analyze the beef supply chain, by studying the structure, conduct and performance of the beef markets and business support services, their roles, constraints, and opportunities. Specifically the study maps the value chain for beef cattle; assesses profitability in each node and factors affecting profitability and willingness to adopt improved production technologies in the study area. Two major working hypotheses are tested. Firstly is the assumption that efficient cattle and beef product marketing value chains can translate into increased market margins of cattle for farmers. The study therefore identifies market opportunities and linkages for selling cattle and beef products to inform policies and decisions on which parts of the beef cattle value chain need strategic interventions. Secondly, the introduction and use of appropriate production technologies and marketing strategies for beef, which includes proper grading of the animals, production of beef cuts, processing and packaging, is likely to add value to the beef products, ensure attractive prices to livestock keepers and make them sell animals with high market demand. Theoretical framework Value chain analysis in the indigenous beef cattle sector is increasingly becoming a subject of interest for many researchers in developing countries (Mlote et al., 2012; Neves et al., 2012). These studies use the value chain concept to analyse the conducts and performance of the beef cattle sector and generate knowledge about the magnitude of socio-economic development of the production chain in the indigenous beef cattle sector. The value chain approach addresses principles related to various theoretical streams including market linkages and market orientation, power relationships and bargaining position, distribution of value added or margins, arrangements between actors and information asymmetry in the value chain. The term value chain was first brought up by Michael Porter (1985) alongside similar approaches like the French ‘filiere’ approach and the commodity chain concept that srcinated from World Systems Theory (Raikes et al., 2000), reflecting the value adding character of business processes within the borders of the firm. The ‘filiere’ approach was proposed by Morvan (1985) and it considers a chain (“filière”) as linked operations in the transformation of a good. It is an important tool for describing systems, for defining the role of technology in the framing of production systems, for organizing integration studies, and for analyzing industrial policies, firms, and collective strategies (Morvan, 1985). The Commodity System Approach (CSA) was developed by Goldberg (1968) in the USA in studies of citrus, wheat, and soybean production systems. The approach emphasizes the sequence of product transformations in the system. Important in value chain analysis are the relationships between different actors in the chain (producers, traders, processors etc.), vertical relationships (upstream or downstream in the chain) as well as horizontal relationships (between firms in the same link of the chain). This paper borrows this interpretation with a major focus on activities at the producer or livestock keeper level as far as these are directly connected to the production of value for a certain market. Similarly, the paper also covers some specific horizontal relationships by making comparisons of market shares between small-scale producers and traders of beef cattle and beef products with a special focus on the identification of opportunities for upgrading of the value chain of the indigenous beef cattle in the study area. The term upgrading and its options are defined and specified differently by different authors (Gibbon et al., 2008; McDermott, 2007; Guliani, 2005; Nadvi, 2004; Humphrey and Schmitz, 2002; Kaplinsky, 2000; Gereffi, 1999). McDermott (2007) defines upgrading as “ the shift from lower-to higher-value economic activities by using local innovative capacities to make continuous improvements in processes, products and functions ”. Gereffi (1999) defines upgrading as “ a process of improving the ability of a firm or an economy to move to more profitable and/or technologically sophisticated capital and skill-intensive economic niches ’’. Mitchell (2009) identifies four categories of upgrading:   Academia Journal of Agricultural Research; Kadigi et al. 147 contractualization (which can be horizontal or vertical); functional; product or process (which may involve technological and organizational reforms to increase efficiency and/or quality standards); and volume upgrading. Most of upgrading options found in literature relate to upgrading of value-added production. Humphrey and Schmitz (2002) elucidate that upgrading of value-added production can take various forms which include the upgrading of products and packaging; upgrading of processes; functional upgrading (in-sourcing production or distribution functions); and inter-sectoral upgrading (product differentiation). Upgrading may further focus on improving market access and improving arrangements (e.g. contracts) between actors in the chain (ibid). Pietrobelli and Saliola (2008) specify the following upgrading options: entering higher unit value market niches, entering new sectors, undertaking new productive functions and in all cases enlarging the technological capabilities of the firms. In their study of the Indian grape cooperative Mahagrape, Roy and Thorat (2008) conclude that upgrading was largely related to the combined attention for innovative marketing in export markets and concurrent provision of technical assistance, inputs and (market) information to the farmers. In this paper we recognize the importance of improving the technological capacity and identification of niche markets in the value chain of indigenous beef cattle in developing countries. The basis of this understanding is in line with Roy and Thorat (2008) and Trienekens and van Dijk (2012) who pinpoint the key issue for producers in developing countries as related to functional upgrading. This calls for the need to perform value adding activities at the country level instead of just being commodity producers of products to be upgraded in the North. An important condition for upgrading is the consistent ability to meet standards as defined by the market. In sense, this implies upgrading of market access possibilities which in turn may also entail upgrading of both horizontal as well as vertical relationships by taking part in the right market channel (Trienekens and Van Dijk, 2012; Roy and Thorat, 2008; Bijman, 2007; Fisman and Khanna, 2004; Rammohan and Sundaresan, 2003). However, as Trienekens and Van Dijk, (2012) argue, it is difficult in particular for small producers to move to another market channel. Alternatively, producers in developing countries might look for channels to easier accessible markets, such as lucrative markets in developing countries. This is the major thrust of the study from which this paper was developed. In a nutshell, the study underscores the need for upgrading the value chain of the indigenous beef cattle in the study area based on the understanding that the sub-sector has the potential to lift many actors out of poverty, including the poor producers at the base of the value chain. The adoption of feedlots and fattening schemes, for example, is widely reported to have significantly contributed to the achievement of multiple objectives of enhancing food security and generating adequate cash income to meet other household requirements (Pica-Camara et al., 2011; Ceyban and Hazneci, 2010; Muth et al., 2008; Umar et al., 2008; Moll, 2005). Most important in this regard is perhaps the desire to add value through the production of quality beef cattle and meat products which will enhance the competitiveness of the beef cattle subsector in Tanzania. Evidence elsewhere in the literature suggests that “ value addition ”  in the subsector can be secured by converting the locally available raw materials (of low value in their natural form) into a superior value added product (of acceptable quality and standards) for which there is a good demand that will ultimately ensure a premium price for the product (Mucharo, 2011). RESEARCH APPROACH AND METHODOLOGY The study area The study is conducted in two districts (Ilemela and Magu) of Mwanza region (Figure 1). The region is located in the northern part of Tanzania just south of Lake Victoria. The Lake Victoria waters separate the region from the neighboring countries of Kenya and Uganda. To the east, north and West are the sister lake-dominated regions of Mara and Kagera. To the south the region is boarded with Shinyanga region. Mwanza region lies between latitude 1 0   30’ and 3 0   0’ south of Equator and the longitudes 31 0   45’ and 34 0   10’ east of Greenwich.  The economy of the region is dominated by smallholder agriculture employing about 85% of the region’s population followed by the fisheries sector. Mining and Livestock sectors also command a recognizable share in the economy of the region. Livestock keeping is the third leading economic activity of the majority of people in the region making Mwanza to be the second region with the highest number of livestock in the country after Shinyanga region. Data collection and analysis Data collection for this study started in early August 2012 with a reconnaissance survey and identification of stakeholders, during which time the research team had an opportunity to meet and hold discussions with various stakeholders in the study area. The preliminary visits and discussion with stakeholders also facilitated the selection of study sites and samples in both districts (Table 1). The reconnaissance survey and stakeholder identification was followed by a Value Chain Workshop which was held on 31 st   October 2012. The workshop was attended by a total of 40 participants representing different actors, including livestock keepers, beef cattle fatteners and traders, inputs suppliers, researchers and local government officials (e.g., hydrologists, natural resources officers,   Academia Journal of Agricultural Research; Kadigi et al. 148 Figure 1.  Map showing the study districts. Table 1. Number of value chain actors interviewed by category and district. Categories District Ward Village Sample size Pastoralist Ilemela Buswelu Nyamhogolo 20 Buswelu Busenga 20 Magu Shishani Shishani 20 Nkunguru Kabila 20 Sukuma Kitongo 20 Lubugu Bubinza 20 Beef cattle traders Ilemela Buswelu Nyahongolo 26 Magu Shishani/Sukuma Shishani/Bubinza 4 Butchers Ilemela Buswelu City 18 Magu Itumbili Town 18 Total 186 veterinary officers, livestock officers, environmental officers and meat inspectors). During the workshop a participatory SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis was done to identify key issues in the beef cattle value chain. This was considered important as it would help the researchers to identify potential areas for upgrading the value chain for beef in the study area. The end of value chain workshop marked the commencement of field Participatory Rural Appraisal (PRA) and questionnaire surveys which started in early November Lake Victoria   Academia Journal of Agricultural Research; Kadigi et al. 149 2012 up to January 2012. Different actors in the value chain, including agropastoralists, cattle traders and fatteners, sellers of beef, operators of butcheries and sellers of livestock inputs were interviewed. Various PRA protocols were adopted to gather general information about the conduct and performance of the value chain. These included the Informal Meetings; Focus Group and Key Informant Discussions using checklists of information. The PRAs enabled the analysis of markets and existing marketing functions in a participatory manner. Actor-specific information was gathered during the household interviews using structured questionnaires. Specifically, the questionnaire survey covered three categories of actors (that is, agropastoralists, cattle traders and fattening unit operators) and a total number of 186 actors were interviewed (Table 1). The data which were collected during the reconnaissance survey, PRA and questionnaire survey was analysed using both qualitative and quantitative methods. The qualitative analysis of markets benefitted from participatory markets analysis during the PRA and value chain workshop. The qualitative analysis was complemented by a quantitative data analysis using the Gross Margin Approach. RESULTS AND DISCUSSION The beef cattle value chain The value chain map The information gathered during the study enabled the longitudinal mapping of the beef cattle value chain in the study area as presented in Figure 2. The value chain map illustrates the way in which beef cattle and their products flow from production areas in the study areas to end markets and how the overall beef cattle sector operates. It is a visual representation of the structure of the value chain and its main characteristics or “ a narrative description of the main characteristics of the value chain ”  (UNIDO, 2012). In the value chain map (Figure 2) the marketing functions are represented on a vertical axis on the left hand side of the diagram and the existing actors are represented using boxes with solid outlines, which may encompass several vertically integrated functions. Missing functions are represented by dashed lines. The potential new actors, markets and linkages are represented by dotted lines. The product and/or service flows between nodes are represented by arrows; for example, from production to wholesaling, from wholesaling to retail or export, or from primary wholesaling to secondary wholesaling (in the case of a series of ‘middlemen’). The movement of a good or service between nodes implies that value is added to the product. The end market segments are placed at the top of the diagram and represented by ellipses. There are several channels, or ‘strands’, in the value chain. These are denoted by numerals at the top of the diagram and defined by product types, routes to market and end market segments. The number of actors in each segment, the flow volumes and profit margins constitute an important input to the value chain. While more quantitative data collection and analysis is ongoing to inform the process of value chain mapping, yet there are interesting findings emerging from the initial mapping that are worth discussing in this paper. These are presented in the proceeding sub-sections. Marketing, value chain governance and financing Marketing of cattle is carried out at various levels of livestock markets, where pricing is mainly through negotiation and to some extent based on grading and weights normally based on visual estimation. The retailing of beef is mostly done through privately owned butcheries. The butchers face serious shortage of appropriate tools and equipment used in meat handling and cutting. Marketing information on beef, which include different marketing channels for beef and beef products, is limited. Domestic processing is considered to be insignificant. The domestic demand for quality beef is met by imported products, including premium beef cuts, sausage and canned beef. Still a big proportion of the local demand (estimated at more than 95%) is for warm “mixed beef”  (UNIDO, 2012). The beef cattle value chain in the study areas is dominated by traders and butchers –  few of them actually are of considerable size and financially endowed with access to credits –  who are able to exercise market power vis-à-vis a large number of small-scale livestock farmers and traditional herders. Integration (both vertical and horizontal) is an important concept of a net chain or “a set of networks comprised of horizontal ties between firms within a particular industry or group, such as these networks (or layers) are sequentially arranged based on the vertical ties between firms and different layers” (Lazzarini et al., 2001). The driving force is the recognition that each member of a net chain can enhance its performance and the product quality by integrating its goals and activities with other organizations to optimize the results of the entire net chain ( ibid  ). If the performance of the total net chain increases, the individual links will benefit more than in case of one individual link being optimized in isolation (Van der Vorst, 2000). Unfortunately, integration, especially the vertical integration of livestock farmers, beef processors, and traders, in the value chain of beef cattle is limited. This calls for more strategic action steps to be taken, especially by the Tanzania Meat Board (TMB) to bring together stakeholders who can articulate their needs and jointly get to build solid business relationships and a better organization of the chain. Finance is insufficient in each and every segment of the beef cattle value chain. Formal financing from banks and financial institutions is constrained due to limited
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