1. Building Empowering Value Chains: Integrating Smallholders into the New Opportunities in Agriculture
IFAD and WB Presentation to ECOSOC High Level Segment Thematic Debate on Rural Development 3 July 2008

2. Key Messages The context for agriculture is changing rapidly
New opportunities have emerged for smallholders
Several key constraints limit realizing these opportunities
Innovations in both public and private actions are needed to overcome these constraints
There are a number of good examples which can be expanded and scaled up
We must ensure that those smallholder families who will not integrate or will do so slowly are not forgetten

3. I. Rapidly Changing Food Markets Create New Opportunities

4. High food prices provide an opportunity for producers

5. Food demand is changing
Developing Country Consumption
Meat
Horticulture
Cereals
Developing country exports
Fruits and vegetables are one of the fastest growing agricultural markets in EAP countries, with production increasing by 7.3 percent a year for fruits and 6.1 percent for vegetables over
During this period 58 percent of the increase in worldwide horticulture production came from China.
In Indonesia, the value of fresh fruits and vegetables output doubled during , to become a 10 billion dollar industry almost exclusively for the domestic market.
Horticulture
Meat
Cereals

6. 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

7. …but smallholder sourcing adds retail value

8. Increasing demand for environmental services from agriculture
While energy use accounts for the lion’s share of GHG emissions in developed countries, agriculture (including livestock waste) and deforestation associated with land use conversion to agriculture account for almost 70% of GHG emissions from developing countries.
At the same time, given its dependence on rainfall and other climatic factors, agriculture is particularly subject to the dynamics of climate change

9. Agriculture is also critical to climate change in developing countries
While energy use accounts for the lion’s share of GHG emissions in developed countries, agriculture (including livestock waste) and deforestation associated with land use conversion to agriculture account for almost 70% of GHG emissions from developing countries.
At the same time, given its dependence on rainfall and other climatic factors, agriculture is particularly subject to the dynamics of climate change

10. 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

11. II. Smallholder Sector and Empowering Value Chains

12. The Smallholder Sector – Why Care?
3/4 of the world’s poor live in 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 increasingly managed by women

13. 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

14. 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 investment in greenhouses and irrigation

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

16. 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

17. Marketing Systems are Inefficient
Large number of intermediaries increases costs, risks and losses

18. Property Rights Need to Work for the Poor
smallholder advantages depend, in large part, on tenure security as incentive for farmer to invest

19. Limited Access to finance
Credit constrained use less inputs and earn lower incomes
Credit constraint is often associated with risk rationing as well

20. Under-investment in agriculture and rural infrastructure
Agriculture and rural infrastructure’s share of public expenditures have declined significantly

21. Need to improve efficiency of investment in rural development

22. 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 to 28% in

23. IV. The way forward

24. 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, and Sanitary and Phytosanitary Standards
Market information
Producer organizations in order to help farmers engage on less skewed terms

25. 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

26. 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

27. 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
While contract farming coordinates from the market or processing stage of the supply chain towards the farm, farmer associations can provide a similar coordination service from the farm towards the market.
This example from Tanzania shows how farmer associations can help to balance the market power of plantation operators and processors for a win-win outcome.

28. 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

29. Parting Message:
Supporting Empowering Value Chains requires not just a new approach by smallholders and the market, but a significant change in the role and actions of the public sector and external public support

30. On behalf of IFAD and World Bank
Thank you