AGRIBUSINESS & COMPETITIVE AGRO-INDUSTRIES David K. Hitchcock Senior Agribusiness & Infrastructure Officer FAO - Bangkok

AGRIBUSINESS & COMPETITIVE AGRO-INDUSTRIES

David K. Hitchcock

Senior Agribusiness & Infrastructure Officer

FAO - Bangkok

MY PRESENTATION

• “Real” differences• Sector trends & impacts• Priority policy reforms & institution strengthening• Strategies & interventions for promoting agro-

industries & value chains• Effects of industry standards and quality

requirements• Challenges ahead

• Risk-averse.• Limited internal

resources.• Poor access to external

resources.• “Shock”-sensitive –

low threshold. • Poor or non-existent

business skills.

• Risk-takers.• Adequate internal

resources.• Able to access external

resources.• Shock-proof - buffer

systems in place.• Proven survival

business skills.

Real DifferencesSMALL HOLDERS AGRI-BUSINESSMEN

Real DifferencesSMALL HOLDERS AGRI-BUSINESSMEN

• Inaccessible markets.• Independent decision-

makers – household.• Planning flexibility

limited to < 1 week.• Reluctant to

cooperate.• Input supply, land

tenure, food security.

• On their doorstep.• Corporate decision-

making.• Extended planning

time 6 – 12 months.• Require cooperation

and organization.

SECTOR TRENDS & IMPACTS


General:

• Emphasis on market-driven systems;• Role of private sector important;• Smallholders becoming commercialized; &

• Agribusiness & agro-industry policy reforms & investment accelerating pace of AA development.


Agrifood Systems:

• Soaring food prices - primary production more viable

• Higher incomes – demand for high value commodities

• Technological changes - value addition

• Trade liberalization - cross border demand

• Urbanization - product quality & delivery standards

• Changing diets - more meat, fish & fruits

• More women earning - processed or pre-prepared

• Global manufacturing - value addition


Organizational & Institutional Changes:

• Growing concentrations - retail & processing

• Larger agribusiness enterprises - economies of scale

• Increasing private sector standards – food quality & safety

• Food transactions - increasing use of contracts

• Retailers/manufacturers - rely on specialized procurement/dedicated wholesalers

• Sale of food - supermarkets replacing local markets


Positive effects:

• Increases value addition opportunities.• Agro-processing stimulates demand & market

size.• Exporters/agro-processors provide crucial inputs

& services.• Agro-industries stimulate innovation.• Encourages productivity & improves quality.


Negative effects:

• Standards and contracts difficult for small-holders.

• Small-scale agro-processors unable to compete with large scale manufacturers.

• Traders in local markets squeezed out by specialized procurement practices & certified products.


Agribusiness Development is context-specific & dependent on:

• The product sector & market requirements; • Development stage of the country;• Ag’ sector policies, institutions & services;• Government action to promote A&A

(If agribusiness is to play a key role in reducing poverty, Government needs to create enabling conditions, while monitoring & taking steps to protect & enhance farmers & others most likely to be affected by agri-business)

POLICY REFORM & INSTITUTIONAL STRENGTHENING

POLICY REFORM &INSTITUTIONAL STRENGTHENING

The business environment is an important driver for domestic & export agro-enterprises, but it is not very conducive to A&A. Many countries have:

• Complex laws & regulations governing business,• Ineffective intellectual property rights;• Inadequate commercial services;• Lack of infrastructure;• Ineffective local governments; & • Weak information & communication systems


Policy environment requires:

• Legal & regulatory frameworks that define rules & determine rights with respect to resources and business operations;

• Strengthen public sector cooperation with the private sector;

• Commodity, regional industrial & professional based associations inc’ producer ass’ & cooperatives;

• Trade-offs between pace & nature of agro-industrial development & poverty; and

• Institutional mandates for influencing, regulating & supporting PS investment in AA.


Legal & Regulatory Frameworks:

• Covers rules, rights & obligations for resources, assets & business operations.

• Level of protection of intellectual property rights.• Legal or procedural preferences favoring

government owned/assisted enterprises.• Employment/contractual conditions & distribution

of benefits from agri-business development.


“P-P-P” Cooperation:

• Requires communication/cooperation between public and private sector;

• Public investment support of private sector innovation/product development mobilizes assets, knowledge & capacities of A&A;

• Policy attracts foreign investments & access to technologies; &

• Enhances effectiveness of regulatory framework & PS compliance.


Institutional Support:

Commodity, regional, industrial & professionally-based associations, including producer organizations & cooperatives play a key role in:

• Connecting producers and clients;• Vocalizing view points;• Taking collective actions;• Networking & facilitating linkages;• Providing training, technology & legal support.


Trade-Offs include:

• Rapid agro-industrial development can displace small farmers, processors, stores and traders.

• AA policies unlikely to address food insecurity and poverty by themselves.


Institutional Mandates:

• Very few government department mandates cover all issues that enable/inhibit AA.

• Mechanisms are required to strengthen linkages among public agencies responsible for policies, institutions and services impacting on AA

AGRO-INDUSTRY & VALUE CHAINS PROGRAMS

AGRO-INDUSTRY & VALUE CHAINS PROGRAMS

An increasing need for value chain programs that:

• Improve delivery of services;• Create value addition for small farmers; &• Help farmers respond to changing markets and

consumer requirements.

These programs should complement AA policy reforms and institutional strengthening.

AGRO-INDUSTRY & VALUE CHAIN PROGRAMS

The programs should be designed to complement AA policy reforms and institutional strengthening through:

• Business linkages;• Reducing transaction costs;• Aligning capacities of farms & firms;• Ensuring fair governance within chains;• Improving market practices, strengthening

producer organizations; & • Upgrading technologies.


Key lessons – Strategies & Interventions:

• PPP must ensure that specialized PS management skills & technical expertise is directed at benefiting small farmers & processors.

• Entrepreneurial capacities of small farmers must be strengthened to understand/meet timing, quality & safety requirements of the supply chain. Capacity building must address start-up, financing & development of small/medium agro-processing enterprises.

• Value chain programs should facilitate and support FBO & producer organizations – they provide economies of scale & platform for small farmers to do business. But they must be profitable & business management & governance very important.


Key lessons – Strategies & Interventions:

• Financial & business services to small farmers & processors important – reduces costs and expands operations, especially where transaction costs-to-output high. Contractual arrangements critical.

• Reduce vulnerabilities by building capacities of chain participants to innovate, diversify or exit as markets change.

• Comparative advantage & investment appraisals before implementation & monitoring of impacts & benefits essential to reduce vulnerabilities.

• Public-Private sector engagement ensure AA are rules-based & non-discriminatory & committed to good governance, development & poverty reduction.

INDUSTRY STANDARDS & QUALITY REQUIREMENTS


Industry standards:• Manage risks relating to product safety & quality;• Enable comparisons of prices between suppliers,• Reduce transaction costs; &• Strengthen consumer confidence & loyalty.Branding & labels can differentiate products.Certification informs consumers about supply chain

practices.Standards ensures consumer protection & provides both

incentives and sanctions for improvement of product quality & safety.


Unlikely poorer countries can keep up & benefit from advances in product specification & certification requirements, without access to sophisticated technologies, efficient & low-cost communication & information systems, adequate infrastructure & supportive institutions & services. Need to initiate dialog on standards between P&P on:

• Strengthen compliance & certification & reduce costs;• Reform of institutions & legal frameworks;• Investments in physical facilities, labs, equipment, infra’;• Support institutions responsible for food safety, control of

fraud, animal & plant health;• Technical assistance to establish PPP

RESPONDNG TO CHALLENGES

RESPONDING TO CHALLENGES

Information & Analysis:• Analysis of trends, changes & factors affecting

transformation of agri-food systems;• Characterization & appraisal of structure of agro-

industries and value chains;• Analysis & benchmarking to identify strategies for

agro-industry &value chain development; and• Development of information & knowledge management

systems for A&A as well as small-scale producers and processors.


Enabling Policies, Institutions & Services:• Strategies for improving AA policies, legal and regulatory

frameworks, institutions & services;• Incorporation of AA strategies and actions into country-level

program frameworks & strategic plans for agricultural development;

• Reinforce communication & cooperation with PS firms, foundations and NGOs active in AA development;

• Reinforce compliance & certification systems for food safety standards and industry quality requirements;

• Reinforce market information services & financial institutions & services for market-oriented farmers and agro-enterprises; and

• Provide basic infrastructure to improve market access and reduce business costs.


Support to Agro-Industries & Value Chains:• Appraise market & agribusiness opportunities & develop sound

methods for prioritizing agro-industries & value chains;• Facilitate innovative arrangements linking smallholder farmers

with commercial farmers, exporters or agro-processing firms in long-term relationships

• Identify innovative micro-financing products that facilitate the participation of small farmers in agribusiness ventures;

• Design & implement initiatives that improve entrepreneurial capacities of smallholder farmers and small agro-enterprises to participate in value chains for high-value products, including branded and certified products; and

• Identify & use innovative mechanisms to link public funding with private sector resources.

Thank you and enjoy the workshop!

Documents

AGRIBUSINESS & COMPETITIVE AGRO-INDUSTRIES David K. Hitchcock Senior Agribusiness & Infrastructure Officer FAO - Bangkok