Blog for Rural America

The Center for Rural Affairs, a private, non-profit organization, is working to strengthen small businesses, family farms and ranches, and rural communities. Permission to reprint items from this web log is hereby granted, on the condition that clear credit is given to the original source of the material. If the blog provides information for a story, please let us know by sending an email to johnc@cfra.org.

Tuesday, September 06, 2005

Community Revitalization Dialogue IV

- from the desk of Michael Holton, michaellh@cfra.org, a contribution from a Center for Rural Affairs newsletter reader in Still Bay, South Africa

Universal Challenges in Rural Revitalization?

I have been an avid reader of the CFRA Newsletter for a number of years despite the fact that I live far away from rural America – in a rural agricultural area close to the southern most tip of Africa. What has been so thought-provoking is the fact that many of the problems and issues we are struggling with are similar to the ones of rural America, particularly in the Great Plains area. The question arises whether these similarities are spurious or the result of similar dynamics occurring in rural areas no matter where they are located on the globe. I have come to favor the latter possibility. Let me explain why I think the dynamics in South Africa are similar to those of America.

The Dutch came to South Africa in 1652 to run a trading post and supply fresh produce to ships on their way to and back from the East Indies. Although it was never the intention of the Dutch East India Company to create a permanent settlement, it was not long before individuals decided to settle and begin farming, first around what is today Cape Town and over time moving further and further afield. In this process native South Africans, the nomadic herders of the Khoi-Khoi and the hunter-gatherer San people, were pushed out of the areas they had occupied for centuries.

The European settlers that moved inland were at first subsistence farmers. They produced for their own needs and their excess products were bartered or traded for things they could not produce themselves. They operated in “markets of proximity” because they were far away from the main market centre in Cape Town and access was difficult and time-consuming.

As transport systems improved (ox wagons over time replaced by trains replaced over time by automobiles) rural farmers could access markets that were further away. They became commercial farmers and flourished. Inland towns developed primarily to serve the needs of the farmers (churches, schools, government services, etc.). Trading stores were mostlysmall and family-owned. As the farmers prospered, the towns prospered.

However, there was a sting in the tail. The farmers were subject to the discipline and, hence, competition of the new markets. If they could not compete effectively, they perished. Thus improved mobility graduated them from “markets of proximity” to “markets of globality”. Effective competition was central to his survival and prosperity, and competition became tougher over time.

Increased mobility also affected the towns. Mobile farmers could source their supplies and goods elsewhere. Part of the traditional markets of rural traders disappeared. National trading outfits also realized that improved mobility meant that they could serve rural markets. Wal-Mart look-alikes were also present in South Africa and they started operating in the rural areas. Thus family traders also became part of a “market of globality” and effective competition was also central to their survival and prosperity.

The rural commercial farmers produced (and still do) mostly agricultural commodities which were mostly “exported” to larger centers where value addition happened. The farmers were subject to the “laws” governing trade in commodities. From Michael Porter we learn that sustainable competitiveness in the production of commodities (including agricultural commodities) derives from cost leadership. Over time commodity farmers were subject to an unrelenting “price-cost pincher”. Only the effective low-cost producers could survive.

Farmers applied different strategies to maintain their competitiveness. Some sought improved productivity though the use of better technology (e.g. mechanization and automation) whilst others sought economies of scale by buying out smaller and weaker farmers. The progression of subsistence farms to small commercial farms to large commercial farms to mega farms seems to be logically predictable if one combines Porter’s logic with man’s never-ending capability to improve technology. The consequences of these dynamics on rural towns, e.g. stagnating or declining economies, pressures on family-owned businesses, the loss of young people, etc. were not so obvious.

I postulate, therefore, that the dynamics of rural development in areas producing basic agricultural commodities and which are linked to “markets of globality” are likely to have many similarities irrespective of nationality or location. The problems encountered and potential solutions are, therefore, likely to be similar. We can learn from one another.

What are the broad issues we have to think about in rural development? There is a significant paradox that is rarely discussed. Arie de Geus highlighted in his book (The Living Company) the fact that some enterprises are hundreds of years old and still prospering. Yet, economists teach us that all new products or services accepted in the marketplace will be subject to the “learning curve” – over time the initial introductory high price per unit will be driven down (the main reason for the price-cost pincher experienced by many farmers) to low levels. But how do we resolve the fact that some rural businesses can be doing the same business for hundreds of years (e.g. some European wineries are at least 700 years old) and still remain competitive?

This paradox has intrigued me for years.

Some insights I can offer about the resolution of the paradox come from a book (Taming Janus: Technology, Business Strategy and Local Economic Development) that I recently self-published (South African publishers did not believe there would be a sufficient market for the book). It deals with the links between technology and local economic development.

I suggested that we can think of technology at two levels: low-tech and high-tech. This is then combined with Michael Porter’s insight that some products are differentiated whilst others are commodities. The combination allows us to examine four strategic positions:

(i) low-tech production or delivery of commodity products or services,
(ii) low-tech production or delivery of differentiated products or services,
(iii) high-tech production or delivery of differentiated products or services, and
(iv) high-tech production or delivery of commodity products or services.

We can now deliberate about the dynamics between the different strategic positions. For instance, it is understandable that a producer of agricultural commodities using low-tech means (in other words technology that is at the disposal of everybody) and being under the whip of the “price-cost pincher” will first think about intensifying his technology in order to reduce costs. It is more difficult to think about differentiating his product range.

How to explain the existence of enterprises (also in agriculture) that are hundreds of years old and still prospering? These enterprises are usually focused on the low-tech production of differentiated products (e.g. the production of wines – the wine of winery A can never be offered as a wine of winery B). My research suggests that these enterprises are first (and perhaps without exception) based on one or a combination of:
(i) human excellence (a critical ability to do something which machines cannot yet do),
(ii) know-how and/or
(iii) attractions (natural or man-made).

This insight explains the enduring nature of the wine, whisky, cognac, perfume, publishing, music and art industries. It also explains the success of companies such as Coca-Cola or KFC and the tourism success of cities such as New York, London and Paris. It seems to me that it also offers a new way to think about the challenges and opportunities of rural areas. It might, therefore, be useful to debate this issue further.

Daan Toerien
Still Bay
South Africa

Any thoughts? Post a comment here.
Or, contact John Crabtree, Center for Rural Affairs, johnc@cfra.org

Center for Rural Affairs
Values. Worth. Action.

1 Comments:

  • At 8:40 PM, Anonymous Anonymous said…

    Well, I guess that proves that wherever you go, there you are. It is both alarming and comforting that rural economies face the same challenges all over the world. Alarming because it makes the problem seem all the more daunting. Comforting because the commonality of rural decline in many places throughout the world would support the idea that the fundamental causes of the economic decline of rural communities and rural places are the result of decisions made by people that can be changed by people. If we all work together, perhaps we can find some answers and create a vibrant future for rural communities around the world and some justice for all who live there.

     

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