Producers’ organizations in business:

1. Producers’ organizations in business: Trends and challenges Roldan Muradian Agriterra / Center for International Development Studies (CIDIN). Radboud University Nijmegen Note: This is not an institutional presentation. Therefore, the statements presented do not necessarily reflect Agriterra’s institutional vision

2. Outline of the presentation • Global trends in the agri-business sector. Implications for small-scale farmers • 2. What is the role of producers’ organizations in coping with the new challenges? • 3. How are the development and private sectors coping? Is there hope for mainstreaming unusual business?

3. 1.Global trends in the agri-business sector. Implications for small-holders • A turning point, due to market liberalization and rapid globalization, took place in the 1980s, setting a new stage in the transformation of the agri-food industry • 1950’s – 1980’s; pre liberalization/ globalization stage • Major role played by the state in steering rural development, allocating resources to the agricultural sectors and intervening in input provision, extension, commercialization, price setting, etc. • The advocacy capacity of POs towards the state was a key element in achieving better conditions for producers • Defensive approach: cooperatives are there to solve market failures (e.g. non-competitive markets)

4. 1980’s - Liberalization/globalization phase • Mutinationalization: global value chains, transnational corporations as importance players • Specialization/differentiation: convenience products, niche markets; quality as salient feature of products • Vertical coordination: tailored business relationships • Private grades and standards: certification schemes, products specifications • Supermarket revolution: emergernce of superpowerful supermarkets (from spot-markets to concentrated markets) In the academic and development sectors: Emergence of the value chain thinking (a new level and logic of intervention)

5. 2005 -Globalization of price instability, crisis and uncertainty • Short worldwide boom and bust cycles in the agricultural sector • A new phenomenon: Agriculture for feeding cars • High inflation in input prices • Food crisis, also hardy hitting small-scale producers

6. Implications for agricultural producers • A shift in power relations along the value chain, favoring downstream agents (traders, retailers) • The ability to meet private standards becomes a critical competitive tool • Quality, consistency, volume and product specifications become very important elements in the transaction with buyers • High degree of uncertainty in the business

7. To what extent will small-holders benefit? • … It depends basically on • Who will remain on board • The conditions of participation • Price / Access to technology/knowledge, inputs and credits / Risk Bargaining power and market relations

8. 2.What is the role of producers’ organizations in coping with the new challenges? • From the point of view of small producers: Collective action as a tool for meeting standards, achieving product differentiation and tailoring transactions , reducing risk, while also gaining bargaining power • b. From the point of buyers: Cooperatives may hold some competitive advantages derived from lower transaction costs (particularly in sectors dominated by small-scale producers)

9. What are the challenges? • A mindset change: From defensive measures to “collective entrepreneurship” • Unusual business: building innovative partnerships • A trade-off between entrepreneurship and inclusiveness? • To face the main barriers for innovation in agricultural cooperatives in developing countries

10. Example of unusual business: • Cafedirect: • 4th U.K. coffee company • US$ 47 annual sales • Founded by development NGOs • It grants to producers’ groups stock shares and representation in the company board • Commit 90% of the profits to the producers-owned NGO Twin Trading (specialized in supply chain management) . It has a constituency of 24 farmer cooperatives in eight countries.

11. 3.How are the development and private sectors coping? How usual unusual business will be? • Private sector • Corporate social responsibility is becoming a matter of competitiveness • New wave of CSR: bottom of the pyramid approach/ inclusive business. Is the private sector discovering poverty? • Will the crisis lead to re-think business models? • Emerging markets require new models • It is not only a business but also an ethical issue: is there scope for a more human capitalism?

12. Development sector • Pre-liberalization/globalization vision still prevalent (emphasis on advocacy/representation/empowerment/generic institutional strengthening) . Entrepreneurship, in general, still a neglected issue • Why is adaptation so slow? Why projects dealing with innovative partnerships and entrepreneurship still unusual?

13. Example of innovative models: BRAC in Bangladesh (the world’s largest NGO in one of the poorest countries, to a large extent self-funded through economic activities)

14. What are the main barriers for innovation in the development sector? • …Basically a matter of lack of incentives • Overabundance of resources (too much, too easy money?). • Loose conditionality by donors • Execution (expenditure) becomes a goal in itself (the tyranny • of the project cycle) • Partnerships need time, donors want short term execution, • practitioners want the money from donors • Prevalent risk-aversion attitude: business involves risk, • practitioners prefer achievable goals

15. The future of international cooperation in the agricultural sector is about innovative business models How usual unusual business will become? ... Donor policies have a major role to play … the lead is not in Europe…the drivers of change are abroad (time to learn from them)