Regoverning Markets Securing opportunities for smallscale producers in dynamic markets

1
Regoverning Markets Securing opportunities for
small-scale producers in dynamic markets

• Bill Vorley (IIED), Felicity Proctor (NRI),
  Julio Berdegué (RIMISP), Petra van de Kop (KIT)
• December 9, 2004USAID

2
Structure of presentation

• Introduction to Regoverning Markets initiative
• Why now?
• What are the options?
• Sound analysis to underpin policy
• Building on innovation and guiding practice
• New policy dialogue
• Next steps

3
Regoverning Markets

• Collaborative research and policy network 18
  countries in 7 regions
• Analyse the increasing concentration and changing
  practices in the processing and retail sectors of
  national and regional agri-food systems in
  emerging markets
• With a focus on how smallholders can make it in
  these new markets
• In order to provide strategic advice and guidance
  to anticipate and manage these impacts.

4
What we want to achieve

• Small-scale producers more successful in
  accessing and securing a place in new and dynamic
  markets through
• Improved incentives that ensure that the private
  sector is more responsive to small scale
  producers
• Policies and actions of development agencies more
  coherent with and responsive to trends
• National policies better able to define the right
  incentives and strengthen the capacity of small
  scale producers

5
CEE Coordination Budapest University of
Economics (BKAE) Hungary BKAEAKII Romania
Romanian Institute of Agricultural
Economics Poland University of Warsaw.
Research network, Phase 1
China Chinese Centre for Agricultural Policy
SE AsiaCoordination SEARCA Philippines
University of the Philippines, Mindanao Vietnam
Nong Lam UniversityThailand Chiang Mai
University
Latin America Coordination RIMISP Ecuador
Miguel Zamora Central America partnership
between RIMISP, MSU, ILRI
S AsiaCoordination SDPI Pakistan SDPIIndia
Development AlternativesBangladesh BCAS
E Africa Coordination Tegemeo Institute of
Egerton UniversityKenya Egerton UgandaLucy
Aliguma
Southern Africa Coordination University of
Pretoria S Africa U Pretoria Zambia Rosemary
Emongor
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PROCUREMENT
Specialised wholesalers
Preferred suppliers
Distribution centres
Private grades and standards
Traditional wholesale markets
Regional procurement
RETAIL
Emerging markets e.g. Vietnam Key factors large
traditional wet markets, low tech gt10
Maturing markets e.g. South Africa Supermarkets
gt45 of sales few traditional wet market
Consolidated markets e.g. W Europe Supermarkets
gt65 of sales few traditional wet markets, hi-
tech
Fragmented markets e.g. Pakistan Key factors
large traditional wet markets, low tech, gt5
SMALLHOLDERS
Some engagement
Less general engagement
Little mainstream engagement only niche
?
?
CONSUMER INCOME
20,000
2,000
5,000
10,000
7
Anticipatory policy
Emerging markets e.g. Vietnam Key factors large
traditional wet markets, low tech gt10
Maturing markets e.g. South Africa Supermarkets
gt45 of sales few traditional wet market
Fragmented markets e.g. Pakistan Key factors
large traditional wet markets, low tech, gt5
Consolidated marketse.g. W. Europe Supermarkets
gt65 of sales few traditional wet markets, hi-
tech
8
Why now?

• Dramatic restructuring of agrifood markets in
  every region
• Assumptions of the recent past are no longer
  valid -- models are no longer appropriate
• Tremendous new opportunities, but we dont know
  how to grasp them
• Impacts of agrifood restructuring are below the
  radar of public policy
• Mechanisms for policy response do not exist
• New (pro-poor) business models are out there, but
  we must learn how to mainstream them
• But agrifood markets are crucial to poverty
  reduction

9
The ChallengeGlobal retail concentration
Retail banner sales (including VAT and/or sales
tax) are the sum of the sales of all stores under
a retailer's banner.
Top 15 Retailers Hold 26 Global Market Share

10
The Challenge Rapid growth of supermarkets
Around 40 annual growth between 1998 and 2002
Around 20 annual growth between 1998 and 2002
Sales (US Billion))
Unit numbers
China
11
The Challenge Rapid growth of supermarkets
SE Asia 5-7 years behind Latin America but
even faster growth rate Number Annual
Growth Thailand 4,200 100 Philippines
3,989 100 Vietnam 170 1,153
12
The Challenge Concentration in processing
Concentration in the dairy industry, Hungary
Share of the 7 leading companies Net sales in
1998 and 2002
Regoverning Markets
13
The ChallengeSmall farm production dominant
Classification of dairy milk farms by size
classes Romania
49 heads

245

0.02

8
,
900

0.56

50
-
99 heads

148

0.01

9
,
850

0.62

100
-
499 heads

130

0.01

25
,
800

1.63

gt500
heads

6

0.001

3
,
350

0.21

TOTAL

1
,
180
,
800

100

1
,
583
,
000

100


Note also rapid change observed during course of
Phase 1 in Ecuador, Philippines, Vietnam..
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The ChallengeSmall farm production getting
more winners than losers
   
Policy objective

15
The challengePrivate sector perception of
opportunities not factored into public policy
Attractiveness of emerging markets (Kearney)
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The challengePrivate sector perception of
opportunities not factored into public policy
Chile, Argentina
India
Central Europe
CencosudUS 2.4 bn (2004)
Margin Free Market US 0.28 bn
CBA trade alliance US1.6 bn (2001)
Thailand
Africa
Regional players show different attitude to
business risk and low-income sectors
CRC (Central Group) US 1.5 bn
ShopriteUS 4.1 bn
17
(No Transcript)
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The challengeDynamic change not limited to
retailWholesale and Cash Carry the vanguard
of agrifood restructuring
Metro Cash Carry, India
3 December 2004MAKRO Plans for Pakistan
Entry According to reports in the local press,
SHV Makro has expressed interest in establishing
some 30 cash carry stores in Pakistan. "A team
of the company will soon visit Pakistan to
explore opportunities in this big market with
over 150 million people," the chief executive
officer (CEO) Pakistan Horticulture Development
and Export Board (PHDEB), Shamoon Sadiq said.
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The Challenge Meeting new private standards..

• Supermercados La Favorita
• Variety
• Shape
• Mechanic damage
• Plant health
• Cleanness
• Odors
• Size
• Color
• Ripeness
• Temperature
• Packaging
• Place, time and volume
• Payment periods

• Wholesale Market
• Variety
• Color
• Size
• Mechanic damage

• Standards in potatoes, Ecuador
• Preferred suppliers
• Dedicated, specialized wholesalers
• Distribution center
• More formal contracts with new suppliers
  (quantities, timelines, prices)

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Regoverning Markets programme Outputs 2004

• Country Reports
• East Africa Kenya, Uganda
• Southern Africa South Africa, Zambia
• Latin America Ecuador, Guatemala, Nicaragua,
  Costa Rica
• China
• South Asia Bangladesh, India, Pakistan
• South-East Asia Philippines, Thailand, Vietnam
• Central and Eastern Europe Hungary, Poland,
  Romania

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Regoverning Markets programme Outputs 2004

• Regional overviews 7
• Global Briefing Papers 4
• Global dynamics of grocery retail restructuring
• Institutional and organisational change in
  agri-food systems
• Rural economic organisations
• Supermarkets and Rural Livelihoods Research
  Methods
• E-conference
• Web site www.regoverningmarkets.org

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Regoverning Markets 2004 What have we achieved?

• Flexible global and local learning network
• Built capacity for action research and policy
  dialogue in a very dynamic environment
• Insights into market restructuring and issues
  that constrain smallholder participation
• Examples of innovation, early insights of keys to
  inclusion, including implications for policy and
  investment
• Research tools developed and tested

23
A deeper shared understanding Speed of change

• S Asia/E Africa--slow
• Things can move very fastretail, wholesale..
• Romania, Ecuador, Philippines, southern Africa
• A retail or wholesale format for almost every
  market
• No longer just continuing rise of the big global
  players
• Regional players very knowledgeable and
  confident, taking strategies into riskier and
  poorer markets
• Business expansion is predicated on
• Economies of scale (squeeze on suppliers)
• Supply chain management (can exclude large
  proportions of the supply base)
• Risks to small producers in more dynamic markets
  very high, and opportunities for sustained
  participation in market are limited
• Spillovernoticed in many countries

24
A deeper shared understanding drivers of change

• Common driving forces
• Urbanization
• FDI (not everywhereeg Ecuador)
• Income growth
• Price / quality (eg potatoes, Ecuador)
• Government active push in restructuring markets
• China Replacing wetmarkets with supermarkets
  programmes. Target 2008 wetmarkets 10,
  supermarket and community market 90. Providing
  cheaper land and other advantages
• Vietnam Eradicating road-side traders.
  Development plan of supermarkets in HCMC
• Retailer market segmentation
• Discount formats eg Supermercados La Favorita,
  Ecuador
• Franchised convenience and cashcarry formats

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A deeper shared understanding Limited capacity
for policy response

• Capacity for public policy response
• Lack of information and mechanisms for
  anticipatory policy development and planning
• A moving targetdynamic and complex
• Interventions on behalf of small producers or
  retailers have had limited success
• Private sector can be interested, but incentives
  for smallholder/SME participation are low
• No clear civil society scrutiny of the sector, or
  strong demands for accountability
• Lack of validated/replicable models to support
  intervention (public and private)

26
A deeper shared understanding The challenge of
effective public response

• Regulations to protect producers buyer power
• Competition policy, industry codes of conduct (eg
  UK), sanctioning of unfair trading practices (eg
  Korea), fair trade guidelines (eg Thailand),
  ombudsmen (eg Australia), prohibition of sale of
  goods below cost price, transparency in the
  buying prices (eg France)
• Experience Difficult to apply competition policy
  to discipline abusive buyer power
• Regulations to protect retailers
• Zoning, eg Thailandresponse to small retail
  lobby Large (gt 1,000 m2) retail stores have to
  be located at least 15 km from commercial centres
  of provincial towns
• Restrictions of opening hours
• Experience from Europe regulations tend favour
  one form of supermarket business (eg convenience
  formats) over another, rather than curtail the
  sectors growth

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Case Xiaotangshan vegetable company (XVC), China

• XVC contracts farmers that are 65 km from
  Beijing, who specialize in vegetable production
• Farm gate prices 50 higher than selling to local
  wholesale market, but quality is higher
• XVC provides technical assistance to these
  farmers
• Centralized processing is conducted by hired
  labor near Beijing
• Contract enforcement is coordinated by local
  government
• Mainly supply Green Food to the supermarkets
• Lessons
• Positive impacts to farmers from supermarket
  development
• The main beneficiaries are specialized producers
  and farmers near urban area
• Contracted farmers have weaker bargaining power
• Supermarkets prefer certified products, such as
  Green Food and Organic Food

28
Case Capital Requirements of Participation in
Modern Supply Chains Thailand

• 15 60 days payment period, vendors need high
  working capital
• Entrance fee
• Price discount during promotion period, have to
  pay for advertisement
• Additional fee for each new branch (US 250 per
  new branch)

Agreements vary from chain to chain. Thai
supermarkets are more flexible for negotiation
These requirements are major constraints to small
producers participation
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What are the options?

• 1. Empirical Research to Inform Policy
• Keys to inclusion

• 2. Case studies
• Points of innovation

3. Policy platforms New alliances
30
What are the options?

• 1. Empirical Research to Inform Policy
• Keys to inclusion
• Framework for analysis
• Agreed set of questions
• Comparable quantitative methods combined with
  qualitative approaches

• 2. Case studies
• Points of innovation
• Variety of objectives eg
• new business models
• Some agreed case study questions
• eg cost of intervention

3. Policy platforms New alliances International,
Regional, Cross-regional, National. Personal
networks and Multi-stakeholder dialogue.
31
What are the options?1. Empirical Research to
Inform Policy Analysis of participation in
differentiated markets

• a) Key determinants of small farmer household
  access and sustainable performance at each stage
• b) Technological, managerial, organizational,
  financial challenges that small farmer household
  need to implement at each stage to perform
  sustainably
• c) Costs and benefits for small farmer household
• d) Multi-market strategies?
• e) Labour, land, and credit effects in the wider
  rural economy (including very poor rural
  households)
• f) Links and spillovers between restructured and
  traditional markets

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The case for empirical research Findings from
Central America

• Assumptions about entrance requirements, costs
  and benefits of coordinated supermarket supply
  chains are not always the same as received
  wisdom

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Farm size relation to procurement systems cattle
Note link between supermarket procurement and the
export sector grades and standards
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Income effects - tomato
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Economic benefit of different procurement
systems--tomato
Echoed in Vietnam potato case study
36
Labour effects at farm level
Note importance of analysing impacts on the rural
economy, rather than farm-level only
37
Findings from C America

• Three legs of small producer participation in
  modern coordinated supply chains
• Technical upgrading
• Collective action
• Working capital
• The challenge is to combine all three, within a
  favourable market environment.
• But the bottom line is that we cannot assume
  that profits will always be higher, especially in
  medium-long term.

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What are the options?

• 1. Empirical Research to Inform Policy
• Keys to inclusion
• Framework for analysis
• Agreed set of questions
• Comparable quantitative methods combined with
  qualitative approaches

• 2. Case studies
• Points of innovation
• Variety of objectives eg
• new business models
• Some agreed case study questions
• eg cost of intervention

3. Policy platforms New alliances International,
Regional, Cross-regional, National. Personal
networks and Multi-stakeholder dialogue.
39
What are the options?2. Building on innovation
and guiding practice

• Innovative experiences (SFOs, new business
  models, PP partnerships, public policies and
  programmes...) that can be used as sources of
  inspiration elsewhere, at different stages
• Coordinated case study analysis
• Costs, prerequisites and contexts of these
  innovative experiences

40
The case for building on innovation and guiding
practice

• New business models example of SPAR
  Thohoyandou, S Africa
• Franchise
• Interest free loans to emerging farmers
• Business planning
• Market access provided
• Verbal contractual arrangements (trust long
  term relationships)
• Coaching / mentoring / training at farm level
  (technical, marketing, financial, quality
  standards)
• Community involvement

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FRESH PRODUCE
42
COMMUNITY INVOLVEMENT
43
COMMUNITY INVOLVEMENT
44
THE FUTURE

• 2 400 m2

• 5 800 m2

• 7 000 m2

45
Innovative modeldairy in Ecuador

• Grupo Salinas, Ecuador
• 60 rural organizations in seven Andean provinces
• Processes and sells cheese and other dairy
  products
• Now every organization has a processing plant
• 30,000 lt of milk processed daily
• 15 small stores in big/medium cities
• 60 sold through supermarkets, sales increasing
• Demonstrates that it is possible for organised
  groups to find mechanisms to meet quality
  requirements of the markets

46
Innovative public interventions

• Broker eg China (veg) Vietnam (milk) between
  informal and formal economy
• Contract enforcer

47
What are the options?

• 1. Empirical Research to Inform Policy
• Keys to inclusion
• Framework for analysis
• Agreed set of questions
• Comparable quantitative methods combined with
  qualitative approaches

• 2. Case studies
• Points of innovation
• Variety of objectives eg
• new business models
• Some agreed case study questions
• eg cost of intervention

3. Policy platforms New alliances International,
Regional, Cross-regional, National. Personal
networks and Multi-stakeholder dialogue.
48
What are the options?3. Learning Platforms and
Policy Dialogue

• Options for restructured markets to be more
  inclusive of small farmers at each stage
• How governments / development agencies / private
  sector can help at each stage
• Reforming markets
• Rather than just reforming farmers
• Challenges for private actors
• Bringing into public policy, as development actors

49
The case for learning platforms and policy
dialogue

• Thailand country consultation How the rapid
  growth of modern retailing system assist small
  producers' participation result of Phase 1
• Provided the stage for direct linkage between
  vegetable growers group and Carrefour
• 1) FFV producers facing major constraints
  (logistics, certification, payment terms, fees)
• 2 Chiang Mai University (CMU) is requested to
  provide platform for training and dialogue
• 3) CMU is to assist arrangement for entering
  hypermarket
• 4) Conflict of interest seems reduced when
  platform is well conducted.

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Taking the agenda forward

• Empirical research to inform policy
• Keys to inclusion
• Framework for analysis
• Agreed set of questions
• Comparable quantitative methods combined with
  qualitative approaches

• Case studies
• Points of innovation
• Variety of objectives eg
• new business models
• Some agreed case study questions
• eg cost of intervention

Policy platforms New alliances International,
Regional, Cross-regional, National. Personal
networks and Multi-stakeholder dialogue.
51
Selection of countries
Emerging markets e.g. India Key factors large
traditional wet markets, low tech gt10
Maturing markets e.g. South Africa Supermarkets
gt45 of sales few traditional wet market
Consolidated markets e.g. Europe Supermarkets
gt65 of sales few traditional wet markets, hi-
tech
Fragmented markets e.g. Pakistan Key factors
large traditional wet markets, low tech, gt5
52
Structure and governance

• Consortium
• Chair
• Working groups
• Empirical Research to Inform Policy (MSU)
• Building on Innovation and Guiding Practice
  (RIMISP)
• Learning Platforms and Policy Dialogue (NRI)
• Regional coordinators
• L America, CEE, Middle East and North Africa, W
  Africa E Africa, Southern Africa, China, SE
  Asia, S Asia
• Advisory Group
• Ad-hoc Peer Review Panels

53
Consortium (draft)

• MSU Component 1
• RIMISP Component 2
• NRI/KIT Component 3
• CIRAD..
• Regional coordinators
• BKAE Hungary Central and Eastern Europe
• Tegemeo Institute Kenya Eastern and Central
  Africa
• University of Pretoria, South Africa Southern
  Africa
• SDPI Pakistan South Asia
• SEARCA Philippines SE Asia
• CCAP China China
• RIMISP Chile Latin America
• tba Middle East and North Africa
• tba - West Africa

54
Next steps

• Duration 2-3 years
• Partnerships
• Doornbos Initiative
• USAID
• FAO
• OECD
• Industry Groups
• etc
• Multi-donor funding proposed