Opportunities and Challenges for the Rural Poor

1
Opportunities and Challenges for the Rural Poor

• Farm-Agribusiness Linkages
• Livelihoods Diversification and Enterprise
  Development
• Export Oriented Agro-Industries

2
StrengtheningFarm-Agribusiness Linkages

• Cross-Regional Appraisal Asia, Latin America,
  Africa

3
Scope

• Focus on arrangements linking farmers with
  processors
• Encompass a wide range of relationships,
  including informal networks typical in early
  phases of industry development
• Linkages also includes roles of governments,
  developmental partners and civil society

4
Purpose

• Appraise efficiency constraints faced by
  producers and agro-processing firms
• Draw lessons on trends and capacity building
  requirements
• Develop recommendations on good management
  practices

5
Asian Cases Narciso Deomampo

• Cambodia, Korea, India, Malaysia, Nepal,
  Philippines, Thailand
• Focus
• Linkage arrangements - contract farming, capacity
  building requirements
• Agribusiness development - trends, policy and
  legal issues, promotional programmes

6
Latin America Cases Pilar Santacoloma
Argentina, Chile, Ecuador, Colombia, Costa Rica,
Guatemala, El Salvador Seven cooperatives - seed
production, agro-industry supply, processing,
export horticulture Three producer associations
- milk processing, indigo production and
processing Two private businesses - fruit
processing, export
7
African Cases Alexandra Rottger

• Kenya, Ghana, South Africa, Uganda, Nigeria
• Processing - tea, rice, milk, cashew, sugar,
  fruit juice, beer
• Export - vegetables, pineapple, other fresh fruit
• Commodity production - organic coffee, tea, dairy

8
Findings
Market OrganizationSuccess FactorsConstraintsCh
allenges
9
Market Organization Stakeholder Advantages and
Disadvantages
10
Advantages for Farmers

• Provision of inputs - less uncertainty regarding
  availability, timing, credit, etc.
• Provision of services e.g. mechanization,
  transportation
• Technological assistance and skills building
• Market outlet and prices secured
• Access to credit

11
Disadvantages for Farmers

• Contract renegotiation and manipulation
• Technology prescription
• Price determination
• Loss of flexibility
• Social and cultural disruptions
• Dependency

12
Advantages for Agribusiness Firms

• Assured supply conformity, timeliness, quality
• Access to land
• Improved financial conditions and services
• Expansion and contraction of production

13
Disadvantages for Agribusiness Firms

• Risk of contractual hold-ups
• Transaction costs
• Inputs diversion
• Support service costs
• Loss of flexibility

14
Success Factors
15
Success Factors Controllable (1)

• Initiation by the private sector
• NGO assistance in setting up links
• Upgrading of technologies
• Guaranteed markets for farmers and in many cases
  better prices
• Awareness of farming as a business
• Wide participation in decision making
• Transparency in management of resources

16
Success Factors Controllable (2)

• Provision of services inputs, mechanization,
  irrigation water, transport, etc.
• Timely delivery of inputs
• Prompt payments
• Adequate technical and managerial support
• Education on GAP standards
• Certification of farmers

17
Success Factors - Beyond Control

• Solid and expanding domestic markets
• Explicit public and private cooperation policies
• High levels of education and training
• Extension services provided by non-governmental
  organizations
• Improvements in road infrastructure

18
Constraints
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Constraints Business Policy Issues

• Inconsistent and not transparent business rules
  and regulations
• Poor tax administration
• High levels of corruption
• High interest rates
• Artificial exchange rates
• Research and development policies not consistent
  with agro-industry policies

20
Constraints Developmental Circumstances

• Limited effective demand for products
• Low levels of education and training
• Limited capacity to save and invest
• Lack of adequate infrastructure - road, water,
  electricity, communications, storage
• Extension agents witout skills required to
  increase farmers business skills

21
Constraints Chain Coordination could Mitigate

• Delays in payment to firms
• Insufficient suppliers of processing equipment,
  packaging and ingredients
• Business and industrial development strategies
  lacking
• Little information on markets or key market
  players
• High cost of raw materials for both farming and
  processing

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Challenges
23
Management Capacity Building

• Producers need better entrepreneurial, managerial
  and negotiation skills
• Priority needs
• production planning
• collective bargaining
• appraisal of costs benefits
• market appraisal
• production skills
• Key issue who bears the cost?

24
Information and Extension Services

• More, better and more timely market information
  and extension
• IT initiatives and other means of disseminating
  market information
• Greater emphasis on increasing food quality and
  safety
• Methods for smallholders to comply with
  traceability

25
Farmer Organizations

• Associations and cooperatives to organize and
  empower farmer
• FO services collective input procurement,
  saving schemes, information dissemination,
  collection centers, sorting and grading
• Key intermediaries with firms

26
Facilitation of Linkages

• Programmes to develop linkages and bear
  transactions costs
• Governmental capacity to play facilitator and
  linkage role
• NGOs have been major contributors but concerns
  about over-stepping roles

27
Livelihoods Diversification and Enterprise
Development

• Action Research and Regional Workshops

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LDED Purpose
Enhance the effectiveness of local organizations
and projects to reduce poverty through actions
and services that promote and support successful,
sustainable and inclusive livelihoods
diversification and enterprise development
29
Action Research

• Cost effective mini-grants that respond to
  demand for support with ongoing field activities
  to address challenges or opportunities related to
  market-oriented livelihoods strategies for
  vulnerable groups

30
Latin America
31
Latin America
32
Asia and Pacific
33
Asia and Pacific
34
Asia and Pacific
35
Africa
36
Africa
37
Africa
38
Learning Workshops

• 2005 Inter-Departmental Workshop
• 2006 Africa workshop - Zambia
• 2006 Asia workshop - Thailand
• 2007 Central America workshop

Lessons Learned on Livelihoods Diversification
Enterprise Development
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Success Factors
40
Planning

• No absolute approaches and solutions depends on
  the context
• Pick on burning/felt needs of the beneficiaries
  rather than forced needs
• Planning needs to be synergized with ongoing
  activities
• Ensure flexibility in fiscal distributions and
  the log frame

41
Ownership

• Proactive engagement of key local actors to
  enhance ownership
• Need for complete transparency and equal access
  to information
• Outsiders should not make decisions on products
  without farmers
• Use local consultants to drive the process rather
  than expatriates

42
Cultural Sensitivity

• Leadership and development has to be at own pace
  and in own environment
• Village dynamics must be taken into consideration
• But - care is required to ensure that enterprises
  are not captured by men

43
Capacity Building

• Building marketing capacity and business skills
  for farmers is critical
• Training should use problem solving approach and
  build on the existing skills/knowledge base
• Should be nurturing and mentoring throughout the
  process
• Identify and promote model farmers

44
Business and Market Linkages

• Service providers are critically important
• Necessary to identify champions
• Private/public partnership is key to success
• Identify generic models and use to discuss how to
  adjust existing activities
• Facilitate organized farmer groups for easy entry
  into big markets

45
Market Distortions

• Function should be assigned to organisations most
  efficient in implementing them
• Incentives to ensure participation of the poor
  should not distort markets

46
Policy Change

• Changes in policy can emerge from strengthening
  networking between public and private actors
• Governance should be addressed primarily at the
  local level

47
Mitigating Risk

• Ensure that there are other activities that
  complement main source of income
• Alternatives must ensure that the larger farmers
  dont prevent the smaller ones from entering the
  market
• Encouraging the smaller more vulnerable farmers
  to follow in the steps of successful larger
  farmers will probably result in over-saturation
  of the market

48
Challenges
49
Inclusiveness and Partnering

• No common vision amongst different stakeholders
• Inclusiveness may make ensuring sustainability
  more problematical
• Complexity and level of funds required are likely
  to separate the participants from the
  non-participants

50
Market Circumstances

• Quality of production impeding market access
• Farmers far from cities and other markets
• Fresh food markets get saturated quickly
• Scale of production too small for market
  requirements
• Limited and uneven production to sustain
  consistent market supply

51
Organizational Capacities

• Limited capacity of local organizations
• High cost of organization of enterprises
• Often cannot undertaking complex tasks, such as
  price monitoring
• Limited information on legal and policy
  environment by enterprises

52
Resource Access and Sustainability

• Limited understanding of access to resource
• Linking resource ownership and local
  entrepreneurship
• Market demands versus environmental sustainability

53
Private Sector and Policy

• Bridging the gap between farmers and the private
  sector
• Cooperation on corporate social responsibility
  initiatives
• Unfair competition due to the absence of policy

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Export Oriented Agro-Industries

• Sector Development Case Studies

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Zambian Paprika Case Study
Peter Langmead
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Overview

• Introduced as a cash crop in 1993
• After initial fluctuation, increased steadily
• Main markets - South Africa, Europe, United
  States
• Small-scale farmers - 70 percent of growers but
  less than 40 percent of production
• Farmers with paprika, incomes increase by
  32 percent for men and by 52 percent for women

57
Market Organization

• Most buying conducted by seven companies
• Most farmers have contract with one buyer
• Buyer guarantees to purchase crop, usually
  quoting a minimum price
• Farmers generally receive seed, chemicals and
  occasionally fertilizer
• In virtually all cases, the company attempts to
  get a down-payment
• Buyers provide extension advice and varying
  degrees of information

58
Success Factors

• Strength of buyers
• Practice of supplying inputs on credit
• Traders could conduct business under fairly free
  market conditions
• Licence applications are not difficult and helped
  regulate unscrupulous traders

59
Constraints

• Funding for buyers
• Availability of fertilizer
• Availability and cost of labour
• Technical management requirements
• Irrigation without reduces yields to 20 percent
  of potential

60
Challenges

• Quality
• Important in the paprika industry
• Area of conflict between farmers and buyers
• Factors impacting on quality - seed quality,
  pests and disease, poor drying and storage
  techniques

61
Challenges

• Donor support
• Considered by some buying companies to be crucial
  to the continuation of the paprika industry
• Others believe disparities in support have led to
  unlevel playing field

62
Challenges

• Side-buying
• Prevalence of side-buying
• Ingrained culture of debt delinquency
• Enforcement of credit contracts - judicial system
  inadequate

63
Challenges

• Market risk
• World market price highly sensitive to small
  fluctuations in output
• Industry relies heavily on a single South African
  processor

64
Papua New Guinea Vanilla Industry
Andrew McGregor
65
Overview

• World market
• Very small niche market
• Extreme price fluctuations
• Cyclone in Madagascar in early 2000 triggered a
  rapid price
• For three years farmers earned unheard of returns
• By early July 2004, the inevitable price collapse
  had begun

66
Overview

• Papua New Guinea
• Around 50,000 people involved in vanilla industry
• Five years ago, no more than a few hundred
  households
• 1998 - no official exports of vanilla from PNG
• 2003 exports had estimated value of
  US 35 million
• 11 of PNGs agricultural exports in that year

67
Overview

• Papua New Guinea
• Vanilla industry is almost entirely smallholder
  based
• Around 80 of production from East Sepik - a
  relatively poor coastal province

68
Market Organization

• Marketing
• Disorderly and largely unregulated
• In the short run, farmers benefited from the
  competition
• Many traders had little understanding of the
  product and purchases inferior-quality vanilla at
  inflated prices hurt PNG reputation

69
Market Organization

• Farmers cure their own beans
• Helped spread the benefits of the industry widely
• Allowed the participation of farmers in the most
  isolated locations
• Seriously mitigated against quality

70
Success Factors

• Prices
• PNG grower price increased 1,300 percent over a
  two-year period
• Depreciating exchange rate significantly inflated
  nominal prices received by growers
• Expectations of PNG vanilla farmers were not
  tempered by the experience of previous low price
  episodes

71
Success Factors

• Other factors
• Agro-ecological conditions in parts of the East
  Sepik Province ideal for vanilla
• Foundation of the industry was laid by a
  visionary nucleus producer
• Sufficient land could be obtained through
  traditional land-tenure
• High unit value and non-perishability suited
  farmers in remote locations

72
Constraints

• Lack of information or misinformation on
  agro-ecological, agronomic and processing
  requirements
• Most farmers did not have access to information
  on best practices
• Absence of rural financial services contributed
  to adverse effects

73
Challenges

• Industry not sustainable
• Substantially lower prices by 2005
• Over planting
• Large volume of inferior-quality beans
• Harvesting of immature beans
• Reliance on small-scale curers
• Lack of exporter standards

74
Challenges

• Downsides of price instability
• Unrealistic expectations - misallocation of
  household resources
• Large foreign-exchange leakages
• Little of the windfall income saved
• Many farmers prematurely departing from the
  industry

75
Challenges

• Programmes to assist farmers
• Information on high-value niche product markets
• Information on quality requirements and how meet
• Empowerment of industry to establish and enforce
  quality standards
• Farming systems that minimize risk
• Rural financial services that encourage savings
  and investment

76
Vietnam Robusta Coffee
Anthony Marsh
77
Overview

• 1975 less than 10,000 ha of coffee
• 2004 estimated 506,500 ha
• Robusta coffee 95
• Largest Robusta producer in the world
• 95 private run farms remaining 5 State farms

78
Market Organization

• Many collection, processing and export roles
  performed by state owned enterprises
• VINACAFE - state owned enterprise umbrella
  company
• Over 100 registered coffee exporters
• Growing range of private businesses for local
  coffee trading, fertiliser importation and sale,
  general farm supplies

79
Success Factors

• Mass organised and free migrations to the
  under-developed, resource rich area
• Robusta ideally suited to the land and climate
  resource
• Robusta relatively simple to grow, process,
  store, trade and transport

80
Success Factors

• Very high yields leading to high profitability
• Successful monoculture model for Robusta
• High input models developed on state farms have
  been adopted by farmers

81
Success Factors

• Government planning and policy supported and
  subsidised initial establishment of the industry
• Key agricultural inputs were provided
• Later - market liberalization, land reforms, move
  from a collective farming model to a market
  economy allowed profits earned to on-flow to the
  farmers
• High coffee market prices in 1990s gave very
  strong incentive

82
Challenges

• Government support and subsidises
• Difficult for private organizations to move into
  the market
• Private organizations cannot take the risks state
  enterprises were allowed to take

83
Challenges

• Human and environmental costs
• Ethnic minority groups receive fair share of
  economic benefits
• Deforestation, land degradation and depletion of
  water resources due to coffee planting

84
Asparagus in Peru
Luz Díaz Rios
85
Overview

• 2000-2005 - non-traditional agriculture exports
  grew at an average annual rate of nearly 20
  percent
• Asparagus exports rank at the top 25 share of
  the total value of non-traditional exports
• Peru number one exporting country of fresh
  asparagus and second largest exporter of
  processed asparagus
• 40 percent considered small-scale producers
  account for 8.4 percent of supply

86
Market Organization

• Export companies and suppliers generally have a
  written agreement or contract
• Terms of the contracts vary from very basic
  agreements on quality, volume, duration and
  mechanisms for determining price, to contracts
  that include provision of technical assistance
  and inputs
• Companies prefer medium- and long-term
  relationships with suppliers

87
Success Factors

• Initiative of visionary producers
• Ica Producers Association initiated project to
  establish 500 ha of asparagus

88
Success Factors

• Public action also crucial
• Coordinating mechanisms between producers and
  exporters
• Reforms allowed agro-entrepreneurs to own land
  and thus vertically integrate
• Enterprises were given flexibility in hiring
  workers according to needs of the production and
  processing system

89
Success Factors

• Institutional framework to support
• Peruvian Export Promotion Agency (PROMPEX)
• Agrarian Health Service (SENASA)
• Inter-American Investment Corporation (IIC) a
  multilateral financial institution that is part
  of the IDB group

90
Success Factors

• Reliable quality and safe products
• Proactive initiatives to promote quality
  improvements and ensure product safety
• SENASA ensures compliance of sanitary and
  phytosanitary requirements

91
Success Factors

• Highest yields/ha in the world
• Introduction of modern irrigation systems
• Transfer of technological knowledge from USA
• Efficient methods for the control of pests and
  diseases

92
Constraints

• High investment and working capital needed to
  meet level of efficiency required
• Lack of credit constrains participation of
  smallholder producers
• Low logistical efficiency
• Lack of proper infrastructure for transportation,
  storage, packing
• Inefficient handling and administrative
  procedures in the ports

93
Challenges

• Certification
• Private certification - required to maintain a
  companys market position
• Growing importance as a strategy for
  differentiation
• Competition among third-party certification
  bodies helped reduce costs

94
Challenges

• Trend towards concentration
• Many export companies are expanding production on
  their own land
• Reduction in transactions costs
• Economies of scale
• Need to ensure a consistent quality supply
• Negative experiences with contract farming

95
Challenges

• Sustainability of agro-export industry
• Coordination of public and private efforts to
  solve bottlenecks
• Proper management of critical production
  resources
• Ability to diversify agro-export products
• Reduce logistic inefficiency
• Implement innovations in distribution systems to
  increase margins

96
Concluding Observations
97

• There is a need to develop skills, coaching and
  information sharing so that poor groups are
  organized and therefore better equipped for
  competitive pressures that demand efficiency and
  economies of scale

98

• Greater use of market information systems and
  capacity building in business and financial
  planning can shift the over emphasis on
  production planning to market-oriented planning

99

• Networking, alliances and inter-institutional
  collaboration help to define stakeholder roles,
  entry points for interventions and can help
  partners address common problems faced related to
  planning, funding and capacity building

100

• Methods that bridge gaps between small farmers
  and the private sector can encourage actors with
  high capital assets and bargaining power to
  distribute their gains to poorer people

101

• Interventions should be built around exit
  strategies that encourage the use of and payment
  for existing local service providers and that
  promote this sector as an important pillar for
  sustainability of initiatives

102
Thank you!