Building Empowering Value Chains: Integrating Smallholders into the New Opportunities in Agriculture

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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

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Key Messages

• 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

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I. Rapidly Changing Food Markets Create New
Opportunities
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High food prices provide an opportunity for
producers
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Food demand is changing
Developing Country Consumption
Meat
Horticulture
Cereals
Developing country exports
Horticulture
Meat
Cereals
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Supply chains are increasingly integrated

• Supermarkets are rapidly dominating food sales
  worldwide
• Supermarket supply chains require high levels
  of coordination between producers, processors and
  marketing
• Supermarkets are also targeting the poor, selling
  cheap food and expanding to relatively small
  cities
• Foreign investors are often critical to knowledge
  transfer

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but smallholder sourcing adds retail value
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Increasing demand for environmental services from
agriculture
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Agriculture is also critical to climate change in
developing countries
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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

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II. Smallholder Sector and Empowering Value Chains
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The Smallholder Sector Why Care?

• 3/4 of the worlds poor live in rural areas
• Over 450 million farms are less than 2 has
• Almost 1/3 of worlds 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

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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
  producer-processor/marketing interface
• Increase the share of value added captured by
  primary producers

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Empowering Value Chains Examples

• 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
  farmer- preferred suppliers to use contracts as
  collateral with local banks to investment in
  greenhouses and irrigation

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III. Why arent more empowering value chains
emerging?
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Investment climate limits quantity and quality of
agricultural investment

• Poor business climate attracts extractive
  investors and limits development of modern
  marketing systems
• Particular problem for countries with small
  internal markets

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Marketing Systems are Inefficient

• Large number of intermediaries increases costs,
  risks and losses

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Property Rights Need to Work for the Poor

• smallholder advantages depend, in large part, on
  tenure security as incentive for farmer to invest

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Limited Access to finance

• Credit constrained use less inputs and earn
  lower incomes
• Credit constraint is often associated with risk
  rationing as well

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Under-investment in agriculture and rural
infrastructure

• Agriculture and rural infrastructures share of
  public expenditures have declined significantly

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Need to improve efficiency of investment in rural
development
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Concentration in Agribusiness Sector

• 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

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IV. The way forward
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Actions to Build Empowering Value Chains

• 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

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Bridging the Gap New Role of the State
Drivers
Dynamic
Roles
From financing investments to
Global flow of capital, technology and market
access
Transparent, predictable investment climate
From supplying inputs and buying outputs to
Private sector dominates Input and output markets
Regulate input and output quality Including SPS
From centralized investment planning and
service delivery to
Political and fiscal decentralization and
supportive engagement with farmer organizations
and other CSOs
Empower rural communities so investments and
services respond to needs and farmers can engage
private sector
From agencies working in silos to
Improve coordination for service delivery
and avoid duplicating regulations and red tape
Mechanisms for inter-institutional coordination
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Bridging the Gap New Role of the Private Sector
Drivers
Dynamic
Roles
From vertical integration to
Global sourcing brings political risks
Diversified sources of product
From focus on cutting supply costs to
Demand for socially responsible production
Marketing smallholders
From uniform product characteristics to
Encouraging traditional varieties and product
diversity
Increasing importance of new cultural markets
From dependence on intermediaries to
Phytosanitary and quality are the new trade
barriers
Providing farmers with quality inputs and
production technology
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Farmer associations are critical

• Morogoro is Tanzanias 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

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Important Caveat Many smallholders will not be
able to integrate or will do so slowly

• 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

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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

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On behalf of IFAD and World Bank

• Thank you
• www.worldbank.org/wdr2008
• http//www.fao.org/docrep/010/a1200e/a1200e00.htm