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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
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.
SECTOR TRENDS & IMPACTS
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
SECTOR TRENDS & IMPACTS
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
SECTOR TRENDS & IMPACTS
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.
SECTOR TRENDS & IMPACTS
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.
SECTOR TRENDS & IMPACTS
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 REFORM &INSTITUTIONAL STRENGTHENING
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.
POLICY REFORM &INSTITUTIONAL STRENGTHENING
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.
POLICY REFORM &INSTITUTIONAL STRENGTHENING
“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.
POLICY REFORM &INSTITUTIONAL STRENGTHENING
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.
POLICY REFORM &INSTITUTIONAL STRENGTHENING
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.
POLICY REFORM &INSTITUTIONAL STRENGTHENING
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.
AGRO-INDUSTRY & VALUE CHAIN PROGRAMS
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.
AGRO-INDUSTRY & VALUE CHAIN PROGRAMS
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 & 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.
INDUSTRY STANDARDS & QUALITY REQUIREMENTS
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.
RESPONDING TO CHALLENGES
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.
RESPONDING TO CHALLENGES
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!