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Opportunities and Challenges for the Rural Poor

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Title: 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
Strengthening Farm-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 Organization Success Factors Constraints Ch
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
19
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

22
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

28
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
39
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

54
Export Oriented Agro-Industries
  • Sector Development Case Studies

55
Zambian Paprika Case Study
Peter Langmead
56
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!
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