Inclusive businesses in South African agriculture : Conceptualisation of complex structures and assessment of inclusiveness

Abstract

Inclusive Businesses (IBs) are considered to be an essential tool for reducing rural poverty and stimulating overall development. These businesses are described as sustainable and equitable commercial operations that link low-income communities and smallholder farmers with agribusinesses in order to facilitate the former’s market integration. Being innovative partnerships between these actors, they provide a structure to share in the value creation and allocation within the IB. Participation in an IB allows the beneficiaries to gain from aspects such as market access, skills development, jobs, and monetary income. Although often promoted based on anecdotal evidence, IBs are little analysed and understood from a conceptual perspective, nor are they scrutinised when implemented in the field. This study aims to address these facets. As such, the focus is two-fold: to provide a conceptualisation of the institutional set-ups of IBs, and to posit a methodology to assess the inclusiveness of these IBs when implemented. Combining the organisational structure with the inclusiveness obtained allows for an understanding if and how these business partnerships can contribute to the intended rural transformation in developing countries. Findings are based on extensive fieldwork and assessments of 14 IBs in primary agriculture in South Africa. This study proposes a new, flexible typology for the institutional set-ups of IBs to accommodate the complex structures observed in the field. These hybrid arrangements are presented as unique combinations of five standard instruments that act as building blocks: collective organisation, equity, lease/management contracts, mentorships, and supply contracts. These combinations allow to overcome the shortcomings of each instrument. A holistic framework, based on elements of Resource Dependence Theory, Transaction Costs Economics and Agency Theory, explains why and how actors interlink these instruments into complex organisational structures. Results show that multiple-instrument IBs do achieve improved access of low-income communities and smallholder farmers to commercial value chains. But, IBs struggle to overcome the power asymmetry between the actors, allowing the commercial partner to control the structure and management of the IB in order to reduce its uncertainty pertaining to this enterprise. IBs thus bring the risk of increased corporate control over resources owned by smallholders and poor communities. The inclusion of the beneficiaries in the value creation and allocation processes of the IB is assessed based on four dimensions: ownership, voice, risk and rewards. The study firstly shows that a distinction is required between the level of inclusiveness that is envisaged in theory, and which depends on the instruments implemented, and the level achieved in the actual implementation of the IB which – as the results show - often lags behind the intended inclusion. Secondly, it finds that whereas IBs as business projects can achieve positive results, this does not necessarily reach the individual beneficiaries. The assessed IBs are dynamic in their set-up, however, and allow for adaptations to overcome these issues. The State, which plays an important role through establishing a stimulating policy framework and financial contributions, together with third party engagement, can counter the potential corporatisation under IBs – emphasising that IBs alone cannot constitute the expected panacea for agricultural transformation and rural development.