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Food Crisis – Opportunity or Tragedy?. Presentation at Heinrich Boll Foundation North Amerca and Carnegie Trade, Equity and Developmoent Program October 9, 2008. I. Rapidly Changing Food Markets Create New Opportunities. High food prices provide an opportunity for producers.

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Food Crisis – Opportunity or Tragedy?

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Food crisis opportunity or tragedy

Food Crisis – Opportunity or Tragedy?

Presentation at Heinrich Boll Foundation North Amerca and Carnegie Trade, Equity and Developmoent Program

October 9, 2008


I rapidly changing food markets create new opportunities

I. Rapidly Changing Food Markets Create New Opportunities


High food prices provide an opportunity for producers

High food prices provide an opportunity for producers


Food demand is changing

Food demand is changing

Developing Country Consumption

Meat

Horticulture

Cereals

Developing country exports

Horticulture

Meat

Cereals


Supply chains are increasingly integrated

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


But smallholder sourcing adds retail value

…but smallholder sourcing adds retail value


Increasing demand for environmental services from agriculture

Increasing demand for environmental services from agriculture


Agriculture is also critical to climate change in developing countries

Agriculture is also critical to climate change in developing countries


New technology is democratizing information access

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

II. Smallholder Sector and Empowering Value Chains


The smallholder sector why care

The Smallholder Sector – Why Care?

  • 3/4 of the world’s poor livein 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 increasinglymanaged by women


Empowering value chains

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


Empowering value chains examples

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 investmentin greenhouses and irrigation


Iii why aren t more empowering value chains emerging

III. Why aren’t more empowering value chains emerging?


Investment climate limits quantity and quality of agricultural investment

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

  • Also applies to certification!


Marketing systems are inefficient

Marketing Systems are Inefficient

  • Large number of intermediaries increases costs, risks and losses


Property rights need to work for the poor

Property Rights Need to Work for the Poor

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


Limited access to finance

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

Under-investment in agriculture and rural infrastructure

  • Agriculture and rural infrastructure’s share of public expenditures have declined significantly


Need to improve efficiency of investment in rural development

Need to improve efficiency of investment in rural development


Concentration in agribusiness sector

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


Iv the way forward

IV. The way forward


Actions to build empowering value chains

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, andSanitary 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

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…

Empower rural communities so

investments and services

respond to needs and

farmers can engage private

sector

Political and fiscal decentralization

and supportive engagement with farmer

organizations and other CSOs

From agencies

working in silos to…

Improve coordination

for service delivery and

avoid duplicating

regulations and red tape

Mechanisms for inter-institutional

coordination


Bridging the gap new role of the private sector

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…

Increasing importance of

“new cultural markets”

Encouraging traditional

varieties and product diversity

From dependence

on intermediaries to…

Phytosanitary and quality

are the new trade barriers

Providing farmers with quality

inputs and production technology


Farmer associations are critical

Farmer associations are critical

  • 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

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


Common interests and challenges

Common interests and challenges

  • Poverty Reduction – helping all of the poor to escape poverty

  • Food quality – how to ensure that appropriate incentives exist for higher quality and more sustainable production?

  • Environmental sustainability – how to ensure that environmental costs of unsustainable production are “internalized” in incentives?

  • Public support – how to do it “right” in terms of reaching right people and being responsible in terms of government expenditures?

  • Trading system which supports sustainable and equitable opportunity in agriculture as well as ensuring a safe, reliable and affordable food supply?


Parting message

Parting Message…

How we respond to this crisis in terms of fixing what is broken in agriculture and social protection will determine whether future generations will record this as the triumph of an opportunity grabbed or the tragedy of an opportunity squandered


Some publications of interest

Some publications of interest:

  • Rising Food and Fuel Prices – Addressing the Risks to Future Generations

  • The Impact of Food Inflation on Urban Poverty and its Monetary Cost

  • Double Jeopardy: Responding to High Food and Fuel Prices

  • World Development Report ’08: Agriculture

  • Implications of Higher Global Food Prices for Poverty in Low Income Countries

    www. Worldbank.org

    (food crisis)


On behalf of the world bank

On behalf of the World Bank

Thank you

  • www.worldbank.org


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