1. Demand-driven Agriculture Development by Kees van der Meer World Bank WB-CEI-FAO Workshop on Agriculture, Agribusiness and the Retail Sector in South-East Europe Sarajevo, 24-27 May, 2004

2. Contents Traditional supply-driven agriculture Changes in consumer demand Changes in technology Changes in trade and foreign investment policies Changes in food distribution Changes in food processing Changes in food safety requirements Changes in competition The challenge of changing demand

3. Traditional supply-driven agriculture Supply driven by supply factors Natural conditions Technology and productivity Producers aim at more volume Impacts Often mismatch between supply and demand in quantities and qualities, especially for perishable products Strong price competition

4. Changes in consumer demand  Increased income  Urbanization, modern life style  Diverse and aging populations  Rising demands for fish, fruits, vegetables, some animal products, processed foods  Rising demand for easy-to-consume, variety, quality, freshness, appearance, safety, packing

5. Changes in technology  Information technology and logistics  Development of new varieties  Food processing and handling technologies  Scientific understanding of food safety  Detection methods

6. Changes in trade and foreign investment policies Liberalization of trade and foreign investment Bigger markets, more opportunities, more competition More vulnerable to shocks in exchange rates and product markets New players in retail and processing

7. Changes in food distribution  Ascendancy of the supermarkets  Rapid expansion in food service for out-of home consumption  Increased importance of branded products  Retail paradox: consolidation, yet more competition between different formats  Fewer ‘gatekeepers’ handling products

8. Changes in food processing Competition between retailers and branded products Competitive challenges and changes in demand Continuous need for product innovation Subsequent needs to adjust supply of raw material Need for steady supply of high quality raw material

9. Changes in food safety requirements: food scares  Mad cows (34 countries)  Bad berries  Salmonella scares; e.coli outbreaks  Hormone/antibiotic concerns  Dioxin in animal feed  Pesticides in children’s food  Avian flu

10. Changes in food safety requirements: unfolding responses Unfolding public responses to food scares  restructuring regulatory authorities; revision of laws  tightening standards and procedural requirements  Increased requirements for importing countries Unfolding private responses to food scares  Food safety dealt with as a commercial risk  Shift from open to coordinated and closed supply chains  Preferred suppliers with guarantees of safety and quality  Protocols for suppliers with requirements for HACPP, GMP/GAP, ISO 9000

11. Changes in competition Traditional facors still important: Cost of production Physical productivity New factors of increasing importance Quality (appearance, consistency) Quantity Safety Scheduled delivery of product with many specifications

12. The challenge of changing demand (1) Risk To compete at low prices in low quality and shrinking market segments Opportunity To supply higher value added products To supply to more attactive market segments

13. The challenge of changing demand (2) Requirements often include Some form of coordination between producers and buyers with regard to:  Quality specifications, delivery schedules  Food safety guarantees  Flexibility in supply with regard to demand Cooperating with other small producers for scaling- up quantities of consistent, high quality product Upgrading technology Investment in production and handling

14. Conclusions Demand in food markets is rapidly changing This poses major risks for losing income and markets It also poses opportunities for growth and value added Turning challenges into opportunities by:  Establishing coordinated supply chains  Cooperating with other small producers  Upgrading technology and facilities