Dakeni is a small, very rural village near Eshowe, KwaZulu-Natal - around 300 people live in the village. Arriving in the area, we see local women taking care of a large plant nursery. A lot of the men are working in the distant cities. Extending over 17 hectares, the nursery hosts beautifully flowering plants and a wide range of aloes. All of the plants are indigenous to South Africa and are used by traditional health practitioners. The nursery and facilities are community-owned.

The local women are part of a small rural community enterprise named Muthi Futhi, which specializes in processing herbal products made from over 30 species of indigenous medicinal plants. From their harvest, a whole range of products has been developed.

Small and medium agro-processing enterprises in South Africa

The agro-processing sector is a strategic sector in South Africa’s transition to a green, inclusive economy. It is also rich in potential for small and medium-sized enterprises (SMEs). Agro-processing means that raw agricultural goods are processed into higher value products. Adding value to these goods has not only the prospect to generate more income; by revitalizing the local production and safeguarding reliable commodity inputs, the whole economy benefits. Eco-inclusive enterprises like our 2013 SEED Award Winner Muthi Futhi are enterprises which have adopted business models which follow a strong social and environmental mission besides generating profits. The enterprise’s core objective is to support the conservation of plants, most of which are endangered. At the same time it targets marginalised women in the area by creating employment opportunities. By focusing on organic cultivation methods while also exclusively employing local community members, the enterprise has multiple positive impacts and contributes to the achievement of the Sustainable Development Goals (SDGs).

The potential and challenges within the agro-processing sector

As the example of Muthi Futhi shows, enterprises within the sector bear an immense potential to contribute to the SDGs. For instance, they contribute to environmental sustainability by improving their production methods. Through adopting less resource intensive production, using a sustainable growing system or a focus on resilient, organic farming benefits the environment and biodiversity. Equally, the firms produce social impacts along the value chain of their products, by providing an income to rural communities or by empowering small-scale, socially excluded farmers. Equitable and sustainable agriculture systems can be made possible with their help.

However, the sector holds challenges for eco-inclusive enterprises in their efforts to grow and scale. Despite a diverse domestic agricultural sector, the South African food consumption relies heavily on imports. Big shares of agro-processed goods are foreign produced and the local market is dominated by large corporations. Around 90% of South African agro-processing enterprises are of small or medium size. At the same time, the actual share of SMEs which address social livelihood improvements or environmental issues within their activities is rather low.

Policies can offer more enabling business conditions

Enterprises operate within an ecosystem, in which many factors influence their success. This includes a variety of dimensions, including finance, technology and infrastructure, markets, and business support systems. Policies can simplify and support the creation and scale-up of eco-inclusive enterprises. Although the South African government has recognised the importance of SMEs, put the effort in formulating frameworks and support programmes, and has provided funding, challenges remain. This includes, for instance, regulatory and administrative burdens as well as a lack of finance.  In particular, support for eco-inclusive SMEs must be strengthened as they continue to struggle in competition with other, larger corporations. This is just one challenge which eco-enterprises face to sustain their growth.

In order to overcome central challenges, to improve support services for SMEs in the agro-processing sector and to increase the share of eco-inclusive enterprises, collaborative action is required. During two SEED Policy Prototyping Labs multiple stakeholders from the private, public and social sectors came together to identify possible action areas. Key political, market-based, infrastructural and social conditions and regulations common to SMEs were examined. The biggest challenges to eco-inclusive agro-processing enterprises were identified with the aim to prototype specific support instruments which shall improve their business conditions. This includes the aim to increase their profitability and sustainability impacts and to unlock and scale-up their potential.

Call to action: multiplying opportunities

Instruments and underlying assumptions developed during the two Labs were tested through a comprehensive literature review and expert interviews. The newly published SEED Sectoral Business Condition Brief builds on findings from this process. With a focus on agro-processing in South Africa, it highlights the importance of eco-inclusive enterprises and analyses their business conditions within the sector. As a call to action, it portrays key challenges and barriers to these enterprises as well as the identified action fields.

A comprehensive and cohesive understanding of business conditions is the first step. To promote these enterprises and provide them with an enabling framework is of great importance. In order to make eco-inclusive enterprises a scalable solution and to multiple opportunities for SMEs, various actions can be taken. Increasing support services and the access to financing and technology is central to their success. The six customised instruments which were developed during the SEED Policy Prototyping Labs are published in this Brief. It serves as a guide for all actors supporting eco-inclusive enterprises on the economy’s green and inclusive transition pathway.

SEED Policy Prototyping Labs facilitate collaboration between poli­cy-makers, financial institutions, sector experts, researchers and eco-inclusive enterprises to prototype instruments that promote eco-in­clusive enterprises. The Policy Labs result in innovative, tailor-made in­struments and interventions that enable small and growing eco-inclu­sive enterprises to successfully start-up, scale-up, and maximise their environmental, social and economic impacts. During the Policy Labs, SEED provides participants with up-to-date, sector-specific insights into challenges and enablers of these enterpris­es, and facilitates a participatory and iterative process to design cus­tomised support tools and frameworks. SEED is committed to sharing lessons and replicating instruments and experiences that support SMEs to grow and scale.

Interested in a more in-depth understanding of how eco-inclusive enterprises work? Understanding the barriers and needs of eco-inclusive enterprises is only one of the main topics SEED’s Policy Advocacy Programme has focused on so far. To provide a more in-depth understanding of how eco-enterprises work, how they can help achieve sustainable development on the ground and how enabling frameworks can be created to help them scale up, SEED offers a range of detailed case studies. Check out our SEED Case Study Series to gain insights about how eco-inclusive enterprises contribute to sustainable development through their triple bottom line approaches.