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The Case of Rice Processors in Senegal FAO AGRICULTURAL DEVELOPMENT ECONOMICS TECHNICAL STUDY DEVELOPMENT ECONOMICS AGRICULTURAL FAO

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The Case of Rice Processors in Senegal FAO AGRICULTURAL DEVELOPMENT ECONOMICS TECHNICAL STUDY DEVELOPMENT ECONOMICS AGRICULTURAL FAO ISSN 2521-7240 10 10 The role of small and medium agrifood enterprises in food systems transformation The case of rice processors in Senegal FAO AGRICULTURAL DEVELOPMENT ECONOMICS TECHNICAL STUDY DEVELOPMENT ECONOMICS AGRICULTURAL FAO 10 The role of small and medium agrifood enterprises in food systems transformation The case of rice processors in Senegal By Elena Teodora Ilie Enterprise Development Specialist, Agrifood Economics Division (ESA), FAO Siobhan Kelly Economist, Food Systems and Food Safety Division (ESF), FAO Food and Agriculture Organization of the United Nations Rome, 2021 Required citation: Ilie, E.T. & Kelly, S. 2021. The role of small and medium agrifood enterprises in food systems transformation: the case of rice processors in Senegal. FAO Agricultural Development Economics Technical Study No. 10. Rome, FAO. https://doi.org/10.4060/cb3873en The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Dashed lines on maps represent approximate border lines for which there may not yet be full agreement. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned. The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO. ISSN 2521-7240 [Print] ISSN 2521-7259 [Online] ISBN 978-92-5-134152-0 © FAO, 2021 Some rights reserved. This work is made available under the Creative Commons Attribution- NonCommercial-ShareAlike 3.0 IGO licence (CC BY-NC-SA 3.0 IGO; https://creativecommons.org/ licenses/by-nc-sa/3.0/igo). Under the terms of this licence, this work may be copied, redistributed and adapted for non-commercial purposes, provided that the work is appropriately cited. In any use of this work, there should be no suggestion that FAO endorses any specific organization, products or services. The use of the FAO logo is not permitted. If the work is adapted, then it must be licensed under the same or equivalent Creative Commons license. If a translation of this work is created, it must include the following disclaimer along with the required citation: “This translation was not created by the Food and Agriculture Organization of the United Nations (FAO). FAO is not responsible for the content or accuracy of this translation. The original [Language] edition shall be the authoritative edition. Any mediation relating to disputes arising under the licence shall be conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) as at present in force. Third-party materials. Users wishing to reuse material from this work that is attributed to a third party, such as tables, figures or images, are responsible for determining whether permission is needed for that reuse and for obtaining permission from the copyright holder. The risk of claims resulting from infringement of any third-party-owned component in the work rests solely with the user. Sales, rights and licensing. FAO information products are available on the FAO website (www.fao.org/ publications) and can be purchased through [email protected]. Requests for commercial use should be submitted via: www.fao.org/contact-us/licence-request. Queries regarding rights and licensing should be submitted to: [email protected]. Cover photo: ©FAO/Riccardo Gangale Contents Preface vii Acknowledgements viii Acronyms ix Executive summary xi 1 Introduction 1 1.1 Background 1 1.2 Research objective and methodology 2 1.3 Limitations 10 1.4 The business enabling environment in Senegal – policy and institutional assessment 11 1.5 The rice sector 12 1.6 Overview of the three millers 14 1.7 Firm profile and growth trajectory 16 2 Procurement 21 2.1 Background 22 2.2 Contract farming in the Senegal River Valley 23 2.3 Developing a good practice framework for contract farming 24 2.4 Diversification of procurement sources 28 2.5 Conclusions 30 3 Logistics 33 3.1 Background 33 3.2 Inbound activities 36 3.3 Food safety and quality aspects 37 3.4 Outbound activities 38 3.5 Conclusions 39 4 Operations 41 4.1 Background 42 4.2 The milling process and its role in providing a good quality, safe and nutritious product 43 4.3 Distribution of direct costs for milling 45 4.4 Conclusions 47 5 Finance 49 5.1 Background 50 5.2 Start-up phase 51 5.3 Working capital 52 5.4 Financing growth 54 5.5 Legal structure 54 5.6 Taxes and bookkeeping 56 5.7 Conclusions 57 6 Marketing and sales 59 6.1 Background 60 6.2 Market competition 61 iii 6.3 Strategy and competitive advantage 62 6.4 Marketing activities 64 6.5 Conclusions 65 7 Human resources 67 7.1 Background 68 7.2 Use of human capital 70 7.3 Entrepreneur characteristics 72 7.4 Decent employment aspects 73 7.5 Relationships with the community 73 7.6 Conclusions 74 8 Partnerships 75 8.1 Conclusions 76 9 Overall conclusions 77 9.1 Directions for further research 77 References 79 Figures Figure 1 Original Porter’s value chain framework 4 Figure 2 Adjusted Porter’s value chain framework to reflect the business model of a small and medium agrifood enterprise and links to FAO priority areas 5 Figure 3 Main actors involved in enabling the business environment of small and medium agrifood processors in Senegal 13 Figure 4 Number of mills in the Senegal River Valley 16 Figure 5 Growth trajectory of Khady Riz 17 Figure 6 Growth trajectory of Savoureux 17 Figure 7 Growth trajectory of RizElle 18 Figure 8 External factors affecting the procurement strategy of a small and medium agrifood enterprise 21 Figure 9 The millers' procurement sources 22 Figure 10 Levels of vertical coordination 24 Figure 11 Enabling factors for contract farming with smallholders in the Senegal River Valley 25 Figure 12 External factors affecting the logistics of a small and medium agrifood enterprise 34 Figure 13 Costs of activities performed by the millers when procuring from contracted farmers for a 80 kg bag of paddy at an average distance of 25 km 34 Figure 14 External factors affecting the operations (processing activities) of a small and medium agrifood enterprise 41 Figure 15 The modern milling process carried out by a commercial mill 42 Figure 16 Distribution of costs for a small and medium agrifood processor 45 Figure 17 Costs of processing for the three millers 46 Figure 18 External factors affecting the finance activities of an SMAE 49 Figure 19 Interaction with financial institutions in rural areas of Senegal 50 iv Figure 20 Financing sources for starting agribusinesses in rural areas of Senegal 51 Figure 21 Costs related to the operational cycle, based on owners' estimations 53 Figure 22 Types of business structures in Senegal 55 Figure 23 External factors impacting the marketing and sales of a small and medium agrifood enterprise 59 Figure 24 Porter's Generic Strategies model 62 Figure 25 Factors interacting to create competitive advantage 63 Figure 26 External factors affecting the human resources strategy of a small and medium agrifood enterprise 67 Figure 27 Organigramme of RizElle 68 Figure 28 Organigramme of Savoureux 68 Figure 29 Organigramme of Khady Riz 69 Figure 30 Number of employees hired during the high season by type of labour 70 Tables Table 1 Description of the business model components of agrifood small and medium enterprises 7 Table 2 Brief overview of the three interviewed millers 15 Table 3 Brief overview of the three interviewed millers 44 Table 4 Brief overview of the millers' main market 60 Boxes Box 1 Business model analysis based on Porter’s value chain framework 4 Box 2 World Bank Enterprise Surveys database 10 Box 3 Rice sector national strategies 12 Box 4 Overview of rice production in Senegal 14 Box 5 Leasing scheme 26 Box 6 Preconditions and guiding principles for successful and responsible contract farming 27 Box 7 Use of pesticides in the rice sector 35 Box 8 Parboiled rice 45 Box 9 Improving access to finance through Warehouse Receipt Systems (WRS) 53 Box 10 Competition with rice imports 61 Box 11 Market research on rice 65 v Preface International development debate increasingly emphasizes the importance of small and medium agro-enterprises (SMAEs) for pro-poor and sustainable growth in developing countries. Unlike companies in the non-food manufacturing industry, SMAEs are often embedded in rural communities. As such, they are familiar with local income levels, livelihoods needs and dietary habits, and are able to offer a variety of affordable local food products. In this way, they can add value to agricultural produce and create important ‘close-to-farm’ market outlets for small farmers. As they grow, SMAEs can also provide non-farm employment opportunities to young people who might otherwise move abroad or migrate to already overcrowded cities. Despite their pivotal role, evidence shows that these important actors tend to fall through the public sector policy crevices of agricultural, trade, health and industry support, not only in the sub-Saharan Africa region but in all regions. They are also constrained by many of the same challenges that smallholders face: lack of access to credit and investment, weak infrastructure and capacity, unclear regulatory governance, and an absence of adequate support services, particularly in food safety, business development, marketing, and processing technologies.
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