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ICT to help jute farmers offset losses

Harsha de Silva
THE smallholder agriculture sector constitutes the largest segment of producers in Bangladesh. Improved performance by agricultural smallholders is a precondition for inclusive development. Smallholders have to be better integrated within agricultural value chains, export oriented or otherwise. However, the sector is plagued with structural issues that inhibit the effective integration of smallholders. One in particular is described as the smallholder quality penalty (SQP) in a recent LIRNEasia study. Smallholder quality penalty The SQP is the financial penalty on the market price imposed on the smallholder by the first-handler (generally a collector) due to uncertainty over produce quality. This allows the first-handler to offset potential losses due to the perception of lower quality when selling to the next handler downstream. The SQP exists in most transactions in the supply chain.
The SQP is based on perception and may be partly justified. Smallholders are often resource-constrained and are unable to make the investments necessary to ensure quality. However, even if the smallholders are able to take the necessary steps to improve quality, perceptions of inferior quality produce persist, reducing incentives to invest in the first place. This creates a vicious cycle depressing investment by smallholders. SQP in effect in Bangladesh Jute has long been called the 'golden fibre' of Bangladesh and is also its third largest foreign exchange earner. However, the smallholders engaged in producing jute fibre complain that they are unable to get a fair price for their goods even when they produce the best possible quality. The problem seems to
be caused by information asymmetry between smallholder jute farmers and buyers, particularly with regard to retting processes and grading. Retting of jute fibre in water is an essential process to extract fibre from the jute stick. It determines for the most part the final quality of the jute fibre. The researchers found that some small traders take away between 2kg and 4kg from in every 40kg from smallholder farmers to compensate possible future loss due to lower perception of quality downstream. Here is the SQP in effect. Those smallholders who follow proper retting procedures are unable to communicate with the small trader that they have acted to improve quality. The small trader lumps together those who follow proper procedures and those who do not. All are subject to the SQP.
Assessing quality
What is meant by quality and how are perceptions of quality
arrived at? The International Organisation for Standardisation (ISO) defines quality as "the totality of attributes and characteristics of a product or service that contributes to its ability to satisfy specific or implicit requirements.” Standardisation of the produce would certainly help in communicating the quality of the produce downstream, which would reduce the SQP. However, standardisation is neither easy nor cheap. Who will certify the same and how? Will it be economically meaningful for smallholders to spend on obtaining standardisation certificates? These are questions that need answers. Another possibility is to build and maintain trust by frequent interaction between smallholders and first handlers on quality attributes. This too could reduce the SQP. But again, the question is how such communication can take place in a cost effective manner.
Using ICT to reduce SQP It is in this context LIRNEasia
looked at ways in which information and communication technology (ICT) could be used by smallholders to effectively communicate the quality attributes of their produce downstream. The research found that smallholder markets in these countries could take at least three distinct forms; (1) an oligopsonic structure with a large number of smallholders and limited number of first handlers interacting without any formal agreement on sale and purchase; (2) an out-grower structure where the smallholder is inclusive in the supply chain in that the first handler, who in most cases is an authorised representative of the large wholesaler or processing company, enters into an agreement to purchase the produce at a price either determined previously or in the market; (3) a cooperative type structure where the smallholders form societies bound by internal rules on quality benchmarks and act as quasi-large-holders.
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Now that mobile phone has become ubiquitous and even smallholders in this part of the world have access to them, it becomes possible to think of ICT-supported solutions to the SQP problem. However, any use of ICT must take in to account the various administrative structures or lack thereof in the identified market structures in communicating quality downstream using either standards or more informal methods.
Success stories
A case where gherkin smallholders in Sri Lanka used text messages to track the rejection rate of their produce at the processing plant to improve the next batch is an effective yet simple way to reduce the SQP Even in the case of jute smallholders in Bangladesh, ICT-supported solutions could be found to address the SQP they face. As long as the marginal cost of adopting such a service is less than the marginal revenue, there is likelihood of success. With dramatically falling cost of telecommunication use, there is no reason smallholders should shy away from such simple technology based answers to long thought as unresolvable problems in agriculture.
Harsha de Silva, PhD, is a consultant economist and a member of padiament in Sri Lanka. He has worked on ICT in agriculture for the last ten years. He provided intellectual guidance to this work supported by International Development Research Centre (IDRC), Canada.