Steven Schonberger

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Building Empowering Value
Chains: Integrating Smallholders
into the New Opportunities in
Agriculture
IFAD and WB Presentation to ECOSOC High
Level Segment Thematic Debate on Rural
Development 3 July 2008
Key Messages





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The context for agriculture is changing
rapidly
New opportunities have emerged for
smallholders
Several key constraints limit realizing these
opportunities
Innovations in both public and private actions
are needed to overcome these constraints
There are a number of good examples which
can be expanded and scaled up
We must ensure that those smallholder
families who will not integrate or will do so
slowly are not forgetten
I. Rapidly Changing Food Markets
Create New Opportunities
High food prices provide an
opportunity for producers
700
Rice (a) Thai 5%
brokens FOB BKK
Fob BKK
600
500
400
Wheat (b) Canadian
No1 Western Red Fob
Thunder Bay
300
200
100
Corn (c) US No. 2
Yellow Fob Gulf Ports
20
08
20
06
20
04
20
02
20
00
0
19
98
Nominal Price $US/ton
Nominal Grain prices 1998-2008
Developing Country Consumption
250
Meat
200
Horticulture
150
100
Cereals
50
0
1981
1984
1987
1990
1993
1996
1999
2002
Developing country exports
350
Value of exports (1980=100)
Kcal consumption/capita/day (1981=100)
Food demand is changing
Horticulture
300
Meat
250
200
150
100
Cereals
50
0
1980
1990
2000
2004
Supply chains are increasingly
integrated…
• Supermarkets are rapidly
dominating food sales
worldwide
70
60
50
40
30
20
10
0
• Supermarket supply chains
require high levels of
coordination between
producers, processors and
marketing
China
Indonesia
Philippines
Thailand
Share of supermarkets in total food sales
Annual growth rate in supermarket outlets
•Supermarkets are also
targeting the poor, selling
cheap food and expanding to
relatively small cities
•Foreign investors are often
critical to knowledge transfer
…but smallholder sourcing adds
retail value
Increasing demand for environmental
services from agriculture
Agriculture is also critical to climate
change in developing countries
New technology is “democratizing”
information access



Mobile technology
lowers the hurdle for
joining the networks
Many developing
countries are closing
the technology gap
Smaller businesses
are able to gain
benefits of scale in
information access
II. Smallholder Sector and
Empowering Value Chains
The Smallholder Sector – Why
Care?

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
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3/4 of the world’s poor live in rural areas
Over 450 million farms are less than 2 has
Almost 1/3 of world’s population depend on
smallholder farming
Agricultural growth is at least twice as effective
in reducing poverty as non-agricultural growth
For the majority of crops, smallholders are
more efficient producers
Smallholder agriculture systems, particularly
the commercial aspects, are increasingly
managed by women
Empowering Value Chains

Allow smallholders to seize new opportunities
in agriculture by:





Increase producer knowledge of market demand
and pricing
Increase investments from farmers and the other
private sector
Increase access of smallholders to knowledge,
finance, inputs and technology
Reduce transactions costs of the producerprocessor/marketing interface
Increase the share of value added captured by
primary producers
Empowering Value Chains: Examples

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
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Ghana “grains partnership” between smallholders and
private actors (input suppliers, produce buyers) to boost
farm-level productivity and secure transactions (maize)
Sao Tome and Principe organic cocoa schemes
contributed to more than doubling the income to
smallholder farmers
Yulin watermelons (China): Direct marketing to
wholesalers, supermarkets and retailers increased selling
price from 1.2 to 3.0 yuan per kilogram and its farmed
area from less than a ha to several thousand
NorminVeggies (Philippines): Supplies vegetables to fast
food, supermarkets and processors. Monthly sales were
80 tons in 2006.
Konzum Supermarket (Croatia): Helped small farmerpreferred suppliers to use contracts as collateral with
local banks to investment in greenhouses and irrigation
III. Why aren’t more empowering value
chains emerging?
Investment climate limits quantity and
quality of agricultural investment
Days for Export Process
Days to Start a Business
40
35
30
25
20
15
10
5
0
80
70
60
50
40
30
20
10
0
EAP
ECA
LAC MENA OECD
SA
SSA
EAP
ECA
LAC
MENA OECD
•Poor business climate attracts “extractive” investors and limits
development of modern marketing systems
•Particular problem for countries with small internal markets
SA
SSA
Marketing Systems are Inefficient
• Large number of intermediaries increases costs, risks and losses
Property Rights Need to Work for
the Poor
0.05
Vietnam
Avg annual agric. growth 1990-2002
0.04
0.03
India
Phillipines
0.02
Indonesia
Rep of
Korea
Thailand
Venezuela
0.01
0
-0.01
Columbia
-0.02
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Share of holdings < 3 ha
• smallholder advantages depend, in large part, on tenure security
as incentive for farmer to invest
1
Limited Access to finance
• Credit constrained use less inputs and earn lower incomes
• Credit constraint is often associated with risk rationing as well
Under-investment in agriculture
and rural infrastructure
60
50
40
30
20
10
0
1980
1990
Africa
2000
Asia
2002
Latin America
• Agriculture and rural infrastructure’s share of public expenditures
have declined significantly
Need to improve efficiency of
investment in rural development
China
India
Thailand
Ranking of Returns to Agricultural Production
Agriculture R&D
1
1
1
Irrigation
5
4
5
Education
2
3
3
Roads
3
2
4
Telecommunications
4
Electricity
6
8
2
Health
7
Soil and Water Conservation
6
Anti-Poverty Programs
5
Agriculture R&D
Irrigation
Education
Roads
Telecommunications
Electricity
Health
Soil and Water Conservation
Anti-Poverty Programs
Ranking of Returns in Poverty Reduction
2
2
2
6
7
5
1
3
4
3
1
3
5
4
8
1
6
5
7
4
Vietnam
Uganda
1
4
3
2
1
3
2
4
3
4
1
2
1
3
2
4
Concentration in Agribusiness Sector
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Concentration widens
the spread between
world and domestic
prices – from 1974 to
1994 this more than
doubled for wheat,
rice and sugar
Developing countries’
claim on value added
declined from around
60% in 1970-72 to
28% in 1998-2000
Market share of four largest input suppliers
70
60
50
40
30
20
10
0
Agrochemicals
Seeds
1997 2004
Biotech
IV. The way forward
Actions to Build Empowering Value
Chains
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Strong facilitation & strengthened legal framework to
secure, build trust & reduce costs of transactions
General business climate – business licensing, trade
facilitation
Strengthen land access and tenure security
Develop rural financial and risk services
Efficient input markets
Rural infrastructure
Quality, and Sanitary and Phytosanitary Standards
Market information
Producer organizations in order to help farmers engage
on less skewed terms
Bridging the Gap: New Role of the State
Drivers
Dynamic
Roles
Global flow of
capital, technology
and market access
From financing
investments to…
Transparent, predictable investment
climate
Private sector dominates
Input and output markets
From supplying inputs
and buying outputs to…
Regulate input and output quality
Including SPS
Empower rural communities so
investments and services
respond to needs and
farmers can engage private
sector
Improve coordination
for service delivery and
avoid duplicating
regulations and red tape
From centralized
investment
planning and service
delivery to…
Political and fiscal decentralization
and supportive engagement with farmer
organizations and other CSOs
From agencies
working in silos to…
Mechanisms for inter-institutional
coordination
Bridging the Gap: New Role of the Private
Sector
Drivers
Dynamic
Roles
Global sourcing
brings political risks
From vertical
integration to…
Diversified sources of product
Demand for socially
responsible production
From focus on
cutting supply costs to…
Marketing smallholders
Increasing importance of
“new cultural markets”
From uniform product
characteristics to…
Encouraging traditional
varieties and product diversity
Phytosanitary and quality
are the new trade barriers
From dependence
on intermediaries to…
Providing farmers with quality
inputs and production technology
Farmer associations are critical
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Morogoro is Tanzania’s main sugar-producing region where the mills owned
some large farms but could not adequately supply all their needs.
The mills provided farmers with seed cane on credit and the services of
tractors for land preparation. Workers from the mill would harvest the cane
and take it for processing. These services were deducted from the amount
paid to the farmers.
The Millers Association, as a monopsony, had considerable power. Not
surprisingly, for many years, the relationship between the growers and the
sugar millers had been characterized by mistrust. The millers frequently
violated their contracts and often delayed payment to the farmers for as
long as six months.
The Tanzanian Sugar Cane Growers Association (TASGA) emerged to
represent smallholders averaging 1.4 ha each - initially had public sector
help to organize farmers
The ability of TASGA to negotiate effectively eliminated strikes and social
unrest. However its importance was not just its role representing farmers.
It also conducts various functions: (1) sourcing funds to provide loans to
farmers; (2) offering training on improved cropping practices; and (3)
promoting better environmental practices.
TASGA has grown to include many thousands of farmers and now accounts
for about 17,000 ha. of cropland.
When the government discussed providing the sugar millers some 30,000
ha of land to grow sugarcane, it was recognized instead that it ought to go
to the Association
Important Caveat: Many smallholders will
not be able to integrate or will do so slowly
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Areas constrained agronomically (low
rainfall)
Areas constrained by market access (time to
market)
Need investments in rural roads, irrigation
and other food security measures
Need investments in education and health
and active labor market policies
Safety net programs such as public works
Parting Message:

Supporting Empowering Value
Chains requires not just a new
approach by smallholders and the
market, but a significant change in
the role and actions of the public
sector and external public support
On behalf of IFAD and World Bank
Thank you
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www.worldbank.org/wdr2008
http://www.fao.org/docrep/010/a1200e/
a1200e00.htm
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