The ‘Magic’ of Value Adding Activities

In my previous post I highlighted the increased attention for agriculture as a pathway for youth employment. Since many rural youth do not show much interest in starting or taking over a farm, agriculture and agri-business should be made more attractive.

I conduct quite a lot of interviews for my current job, asking experts in the field of agricultural development where they see opportunities for youth. Almost all of them suggest to focus on creating employment opportunities through value adding activities (VAAs) – which means basically everything aside from primary production. Instead of merely producing potatoes, VAAs would include the production of potato seed, marketing of potatoes, selling seeds and agro-chemicals, processing of potatoes into chips and so on and so forth.

For example Yvonne Lokko, working for the Agribusiness Department of UNIDO, argues that “there are opportunities in value addition like making packaging materials, processing, marketing and even informing people on agriculture in simplified language”.

There are a couple of arguments one can think of in favor of VAAs:
1. At times more value is added than in the primary production phase
2. It is not seen as traditional farming, which often has a bad reputation among youth (and their parents) as being backward and a poor man’s job – VAAs are more ‘cool’
3. VAAs often require less use of land compared to primary production (with the exception of feed production). This is an advantage as land is often inaccessible for youth until their parents die. And when they do get some land from their parents they often watch closely over their children’s shoulder.

Problem solved? Hmm, not quite. Fair enough, a job is a job and if there are opportunities I would be the last one to argue against any form of decent employment. There are however also a few sobering reasons why perhaps VAAs are not as promising as some might believe them to be:

1) There are still ample business opportunities in primary production. It would be unwise to neglect them. We also know that labor absorption capacity of smallholder farming can be significant, which is mainly characterized by primary production. The Green Revolution showed this (albeit that labor absorption declined over time, see this case study from Bangladesh and this one on East Asian economies)

2) Perhaps it is very difficult to make some money with primary production, but is that because of the product itself or the lack of an enabling environment (market access, infrastructure, market information, etc.)? If it is the enabling environment that is posing a challenge, surely this will pose challenges to any form of VAA as well.

3) If there is no demand for the product, then you might wonder about the strength of the business case for adding any value. Let’s say the production of tomatoes in country X is not attractive for a young person because it is tedious work and prices are low. Will this not affect the demand of value adding activities? How many tomato farmers are going to be interested in improved seeds for instance? Or irrigation techniques?

4) One could argue, however, that demand for VAA is not always related to demand for primary production. Let us stick with the tomato example. Even if too many tomatoes are brought to the market (making it less attractive due to the low price fetched at the local market) there might still be a demand for improved seeds for other crops, or a tomato processing facility to make tomato juice.

Yet if all elderly people are moving out of primary production simply because they become too old and eventually die, overall production will drop and there will not be enough production to add value to (unless remaining farmers and agri-business steps in and starts producing using economies of scale). The scenario would be the following:

5) Finally, the potential employment capacity (or labor absorption capacity) might be quite limited. Indeed, setting up a tomato processing factory might create a significant number of jobs, but that is not the case for the majority of such activities. How many youth can actually become agrodealers, veterinarians or middlemen?

Taking all of these arguments into account, it seems to me that it would be advisable to support youth engaging in primary production as well. This can be done by keeping our eyes open for opportunities in primary production, especially those that are less capital and land-intensive such as horticulture. And in addition by helping entrepreneurial youth engaged in VAAs to venture into primary production. For example, a young person involved in milk trading can be assisted in acquiring a healthy dairy cow to secure his/her supply of milk.

This is coming from an individual who was never properly trained in economics, so please shoot. However it seems to me that the math just does not add up and a more balanced approach, with both attention for primary production and VAAs, is more sensible.

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