Governance structures in smallholder pig value chains in Uganda: constraints and

opportunities for upgrading

Emily Ouma, Justus Ochieng, Michel Dione and Danilo Pezo

5th International Association of Agricultural Economists ConferenceUNCC – Addis Ababa, Ethiopia

23-26th September 2016

Motivation

Transformation of agri-food value chain systems in developing countries

Shift to more coordinated linkages and value chain governance

Driven by increased demand from consumers for food safety and better food quality specifications

Risk of SMEs being left out as value chains get more organised to meet changing patterns of consumer demand

Motivation

Challenges for developing country SMEs

Being competitive in agri-food value chains

Asymmetric power relationships that impact on distribution of costs and benefits

Need for governance systems and upgrading interventions that enhance benefits for the SMEs Focus - Uganda pig VC

Why pig value chains in Uganda?

Dynamic and rapidly growing pig sector in Uganda.Pig population increased from 0.19 to 3.2 million pigs (last 3 decades).Highest per capita consumption (3.4 kg/person/year) of pork in the region:

10 times increase in the last 30 years, whereas beef is declining.

Agribusiness opportunities for SMEs (farmers, traders, processors, transporters)

Growing and changing demandIdentified by Livestock and Fish CGIAR Research Program – potential for pro-poor development

Objective• Analyze value chain governance structures and its

determinants in the smallholder pig value chain & identify opportunities for value chain upgrading

• Value chain governance structures definition₋ Relationships among buyers, sellers, service providers and

regulatory institutions that influence range of activities required to bring a product from its inception to end use.

₋ Power and ability of a firm to exert control in the chain

• Study sites₋ 4 districts (Masaka, Kamuli, Mukono and Kampala) representing

high supply and demand areas₋ Cross sectional survey data: random samples of 376 pig farmers,

101 pig traders, 36 veterinary service providers, and 36 livestock feed stockists.

Methods

• Application of the New Institutional Economics framework:

₋ Transaction cost economics (TCE) to assess rationale for governance structures and relations in the value chain

₋ TCE offers rules on how trading partners choose governance structures to mitigate contractual hazards to minimize transaction costs

₋ Important properties of underlying transactions that influence governance structures (asset specificity, uncertainty, frequency and complexity of transactions)

• MNL to assess determinants of levels of vertical integration among pig traders

Village breeding boars Agro-veterinary stockists, Livestock feed stockists, private and government

vets

Pig value chain map

Production

Collection/bulking

Slaughter

Processing

Retail

Consumption

Inputs and services

Key actors

Pig slaughter slabs Kampala slaughterhouse

Pork butchers Supermarkets Processor retail shops

Brokers (selling to in country live pig traders and cross border traders) Live pig traders (in country also carrying out transport functions)

Only 2 main processors (Fresh Cuts and Sausage King - private companies located in Kampala)

Imported processed products from Kenya (Farmers Choice)

Pork joints Restaurants Individual households

Piglet producers – sale of weaners Pig fatteners – sales of pigs for slaughter

Results

Value chain node Dominant governance structure

Characteristics

Pig production – individual farmers

Uncoordinated spot-market transactions

- Sales to local traders- Limited market information on

prices, and preferred attributes- Low asset specificity

Collection and bulking - brokers

Verbal contracts (based on trust and repeat transactions)

- Sales to pig traders - Low asset specificity (motorbikes

main fixed investment and mobile phones for networking)

Live pig trade (pig traders) Vertically integrated - 60% perform multiple functions under single ownership

- Involved in transport, pig slaughter, pork retail (butcheries and pork joints)

- Slaughter slab, butcheries and pork joints in close proximity to reduce TC

- Members of live pig trader groups – collude to set producer price of pigs

Results

Value chain node Dominant governance structure

Characteristics

Pig slaughter – backyard slaughters and Kampala slaughterhouse

Kampala slaughterhouse – Verbal contracts with traders based on trust

Backyard slaughters – vertically integrated

- Absence of designated slaughter facilities for pigs in rural and urban areas

- Emergence of informal backyard slaughters with resulting pork is not inspected

- Poor hygiene of slaughter slabs and poor pork handling and lack of a cold chain

- Pork sold through retail outlets – butcheries and pork joints (no grading or standards)

Processing Formal written contracts with Kampala slaughterhouse and supermarket chains

- Main pork supplier is the Kampala slaughterhouse

- High levels of investments (processing and chilling equipment)

Input supply Spot market transactions with farmers

- Weak implementation of national feeds policy resulting in poor quality feeds in the markets due to adulteration

Vertical integration determinants of pig traders in the value chain - MEVariables Low

integratedMedium integrated

High integrated

Age -0.001 0.010 -0.009Education (years of formal education)

-0.039** 0.000 0.039**

Gender -0.210 0.250** -0.039Experience 0.001 -0.017* 0.016*

Access to market information -0.281*** -0.127 0.408***

Trade association member -0.033 0.225 0.192Value of investments in the value chain

0.000 -0.105*** 0.129***

Market perception (pig supply in next 3 years)

0.090 -0.044 -0.046**

Base group – low integrated traders n=101 Log likelihood function – 82.38 LR (χ2) = 44.87 Prob>χ2= 0.000 Pseudo–R2= 0.284

Summary and implications

Most relationships in the production and input supply nodes are based on spot market governance structures

Power by pig traders – collude to set pig producer prices Interventions to improve value chain position of farmers

and reduce TC associated with individual spot market transactions:

₋ Business models involving horizontal integration of farmers to improve bargaining power and TC

₋ Linkages with other business development services through marketing contracts

Summary and implications

Severe gaps in implementation of policies to ensure supply of quality inputs, and safe pork and pork products

₋ Advocacy efforts Lack of investments by public sector for pig slaughter

facilities and private sector for value addition₋ Opportunities for PPPs ₋ Value chain financing for cold chain investments

This presentation is licensed for use under the Creative Commons Attribution 4.0 International Licence.

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