Do We Need a Different Investment Plan for Agricultural SMEs?

February 11, 2015

The task was to map out the agricultural small and medium enterprise (ASME) landscape in Malawi and provide recommendations for improvement. Sounds straightforward enough. But in a very under-developed economy such as Malawi’s, how does one make sense of a messy and chaotic sector, with very few commercial enterprises as we traditionally understand them (firms with a set number of employees, dedicated to one sector and one business model)?

Faced with this dilemma, rather than simply conclude that “there are very few ASMEs in Malawi” and proceed with recommendations about how to support the few that do exist, Jason Agar of Kadale Consultants, Malawi, decided that he would instead lay out a different way of thinking about how those actors involved in the post-production phases of the value chain should be understood: more as “portfolio owner-managers” rather than “SMEs” per se. The paper—undertaken for the U.S. Agency for International Development (USAID) Malawi Mission through the Leveraging Economic Opportunities project—emphasizes the ways to enable these “portfolio owner-managers” to grow and upgrade organically.

Let’s drill down a bit on that. Agar writes that Malawi’s ASMEs “commonly operate multiple businesses spanning both agribusiness and non-agribusinesses.” He points to three advantages of this approach in such an environment: 

  • Allows the owner-manager to move resources around in order to deal with cashflow shortages and the volatility of seasonal businesses
  • Enables owner-managers to cope with unpredictable shocks by nimbly moving resources away from the affected business(es)
  • Empowers owner-managers to grow by investing in the businesses with the most potential at a given point in time

In many ways, these advantages mirror what we already know about how rural households approach their finances, managing a complex mix of farm and off-farm income sources as well as a wide array of business investments and family expenses. This is a core theme of the 2009 book by Stuart Rutherford et al., “Portfolios of the Poor,” and is the centerpiece of the 2010 paper by Agar and ACDI/VOCA, “Rural and Agricultural Finance: Taking Stock of Five Years of Innovations.”

With this framework in mind, the study provides specific recommendations about how to improve the following: ASME access to finance, use of business development services, collaborating and clustering, use of information and communication technology, and the enabling environment. But for me, the most important takeaway for donors and policymakers is this: investing in specific value chains may not result in ASME growth in the way we imagine, since owners are constantly shifting resources around within a portfolio of businesses that span more than one value chain and that may include non-agribusinesses. 

The author challenges us first to understand this phenomenon and then to think about new and innovative ways to harness the activities of such actors for the benefit of entire communities—in particular, for those countries at the lower end of the developing countries spectrum where few formal ASMEs exist. As Ruth Campbell observed in this blog: “stakeholders are not confined to the ones we have on our value chain maps . . . value chains just won’t stay in neat and orderly isolation the way we want them to.”

A synthesis of the study explores these findings in more depth. Also, check out the Financing Growth blog post from USAID/Malawi on the full assessment.