Abstract
The objective of this study is to identify the key risks facing each of the stakeholders in the export-focused paprika value chain in Zambia. Although a deterministic cost-benefit analysis indicated that this outgrower scheme would have a very satisfactory net present value (NPV), a Monte Carlo analysis using an integrated financial–economic–stakeholder model identifies a number of risk variables that could make this system unsustainable. The major risks include the variability of the real exchange rate in Zambia; the international price of paprika; and the farm yield rates. This analysis points out that irrigation systems are very important for both stabilising and increasing yields. The analysis also shows the limitations of loan financing for such outgrower arrangements when at the sector level it is difficult or even impossible to mitigate the risks from real exchange rate movements and changes in international commodity prices. This micro-level analysis shows how critical real exchange rate management policies are in achieving sustainability of such export-oriented value chains.
Highlights
During recent decades, agricultural commodity chains in developing countries have experienced substantial restructuring due to changes in both demand- and supply-side factors
In order to find out whether the scheme is able to use these funds efficiently, we estimate the cash flows from the perspective of the entire outgrower scheme arrangement by incorporating the financing provided by multilateral donors and the host government
7) International transportation costs: the domestic transportation costs are quoted in Zambian kwacha, international transportation costs are paid in US dollars
Summary
Agricultural commodity chains in developing countries have experienced substantial restructuring due to changes in both demand- and supply-side factors. The types of new crops that have been initiated most successfully through smallholder production are those that are labour-intensive and have relatively low transportation and logistics costs They often require relatively low investment in storage facilities, and at the farm level are inexpensive to process. According to a study by Langmead (2005), paprika cultivation has the potential to increase the incomes of smallholder farmers as well as to provide them with an opportunity to diversify away from traditional export crops such as cotton and coffee. The aim of this study, is to evaluate quantitatively the relative impact of the risks associated with growing paprika under an outgrower arrangement in Zambia In this case, the ultimate destination of the crop is the European Union.
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