Second External Rice Advisory Group (ERAG) Consultation on the Formulation of a Rice Strategy for Asia

1. Second External Rice Advisory Group (ERAG) Consultation on the Formulation of a Rice Strategy for Asia Inputs/Services Delivery Marketing, Price Efficiency Farmers Organizations/Cooperatives 28-29 November 2013 Bangkok, Thailand By Ralph Houtman, FAO Regional Office for Asia and the Pacific,

2. Overview • Inputs • Services Delivery • Marketing • Price Efficiency • Farmers Organizations and Cooperatives

3. Inputs • Fertilizer and agro chemicals are generally marketed by the private sector, sometimes by cooperatives • There may be issues with: • quality, e.g (previous years’) old stock fertilizer and • the (in)correct use of agro-chemicals • The causes may lie in a combination of: • Poor knowledge and information available to the farmers (poor extension) and • Private shops selling the wrong herbicide or pesticide (extension and availability) • In most countries, the probably most important input, seed, is often government-produced, leading to insufficient supply of fresh seed, farmers use last year’s seed for too many years, affecting yields • There are questions about whether the right varieties are being made available • The so-called “productivity gap” can be partly traced back to the above imperfections

4. Services Delivery • Growing agricultural labor shortages in several countries • Increased cost of labor causes a shift to production systems with greater level of mechanization • Increased need for investment in machinery (larger farmers) • Increased demand for all sorts of contracting mechanization services: ploughing, combine harvesters, spraying, water pumping, transportation • Increased mechanization will require increased investment which financial service providers will need to cater for, including innovative financing schemes (e.g. leasing, hire-purchase, financing of dealers) • Potential for the landless to employ themselves as contractors (with their machinery like power tiller, tractor) • Potential for delivery of recordkeeping, accounting and reporting services to farmers groups who run their own savings and loan schemes

5. Marketing • Traditional farm-to-retail chain has many steps; each link may in itself be “competitive” but the chain as a whole may be not as efficient as it could be • Farmers are well informed about the factors that affect the rice prices • But they usually cannot influence these factors, or the farm gate price • Prices are seasonal, determined by harvest time • Flexible financing arrangements which allow farmers to delay sale after harvest may help reduce price seasonality • Government procurement has no good track record • The desire for low retail prices and high farm gate prices means that there are many interventionist policies, especially in import/export but also in production subsidies, financing, maintenance of stocks, etc. • There is domestic and global demand for niche varieties (aromatic, colored, etc.) of rice and organically produced rice • Niche varieties (and organics) often require the establishment of a new supply and logistics chain, bypassing the traditional channels; these new chains may be more efficient

6. Price Efficiency Domestically • “The degree to which the price reflects all available information” • That information includes for example: supply, stocks, quality factors (e.g. moisture, variety), transport and other logistics cost, weather, (expected) government policies, available capital to flow into the chain, etc. • Each country has multiple policies and measures in place to stabilize consumer prices and pay remunerative prices to farmers • At national level most of these parameters are reasonably well known • This should result in reasonably good price efficiency resulting in relatively stable domestic prices • In several border areas of Asia, prices are determined by a neighboring country because of well-integrated cross-border markets (Terai in Nepal, India and Bangladesh, Cambodia and Myanmar border areas with Thailand)

7. Price Efficiency Internationally • A tiny portion, about 5%, of global rice production is traded internationally and this relatively small portion of demand and supply decides the international price • Few (5) exporting countries account for 85 percent of all exports. Many more countries are small importers • Several importing countries are some years self-sufficient • Great uncertainty about the level of stocks in the countries that participate in international trade, in particular China. • The AMIS initiative is trying to make better data available but so far the results have not produced much better stock statistics • Relative uncertainty exists in international markets as regards • stocks in private sector and government • as regards what governments will do in case of shortages or surpluses • Uncertainty and poor quality of information means less price efficiency and greater price volatility

8. Coops & Farmers Organizations • The cooperative theory, of self-organization, economies of scale and preventing exploitation is clear…. • but the performance of cooperatives has been rather mixed, both between countries and within countries; • Difficult to identify common factors for success and failure but “quality of leadership” may be the main common factor that decides success or failure • Government policies leading to excessive subsidies and government support, intervention and political interference play a negative role; distraction from the economic objective; such coops may be started for the wrong reasons • Why is the success rate so poor compared to e.g. European cooperatives? In certain European countries, certain sectors have earned a near monopoly? • Denmark doesn’t even have a cooperative law • Netherlands, just 11 paragraphs in the civil law • No cooperative departments etc. • Never much government support, but great results: Something to think about

9. Coops & Farmers Organizations (2) • Government interference and abuses in the past have caused that the word “cooperative” has different connotations in different countries • Coops often loose sight of the primary purpose which is economic • To escape from this, India now has “Primary Producer Companies” (PPC), a hybrid between a coop and a company • But PPCs suffer from lack of capital because they don’t qualify for all the financing facilities of state banks and NABARD • Some promising initial results have been achieved with outsourcing of recordkeeping, accounting and reporting functions for savings and loans of Producer Groups and Group Revolving Funds, Savings & Loan Groups, (Cambodia)

10. Recommendations for consideration • Improve extension services to farmers and make them also available to farm-supply storekeepers • Governments to ensure availability of sufficient quantities of fresh rice seed (varieties?) or get out of the business • Governments should agree to provide better statistics on private and public stocks and exporting countries should adopt more predictable policies to promote transparency in the international market, improve price efficiency and reduce volatility; collaborate through AMIS • Financial regulators should encourage rural financial institutions to establish innovative financial products for farmers, suppliers, machinery dealers to finance not only inputs (for short term) but also machinery, equipment for long term • Farmer production groups, savings/loan groups can be strengthened by outsourcing recordkeeping, accounting, reporting to professional external service providers • Enable landless people to lease, or hire purchase, machinery to operate as contractors for farmers.

11. Thank You ralph.houtman@fao.org