AGRIBUSINESS & COMPETITIVE AGRO-INDUSTRIES

1. AGRIBUSINESS & COMPETITIVE AGRO-INDUSTRIES David K. Hitchcock Senior Agribusiness & Infrastructure Officer FAO - Bangkok

2. MY PRESENTATION • “Real” differences • Sector trends & impacts • Priority policy reforms & institution strengthening • Strategies & interventions for promoting agro-industries & value chains • Effects of industry standards and quality requirements • Challenges ahead

3. Risk-averse. Limited internal resources. Poor access to external resources. “Shock”-sensitive – low threshold. Poor or non-existent business skills. Risk-takers. Adequate internal resources. Able to access external resources. Shock-proof - buffer systems in place. Proven survival business skills. Real DifferencesSMALL HOLDERS AGRI-BUSINESSMEN

4. Inaccessible markets. Independent decision-makers – household. Planning flexibility limited to < 1 week. Reluctant to cooperate. Input supply, land tenure, food security. On their doorstep. Corporate decision-making. Extended planning time 6 – 12 months. Require cooperation and organization. Real DifferencesSMALL HOLDERS AGRI-BUSINESSMEN

5. SECTOR TRENDS & IMPACTS

6. SECTOR TRENDS & IMPACTS General: • Emphasis on market-driven systems; • Role of private sector important; • Smallholders becoming commercialized; & • Agribusiness & agro-industry policy reforms & investment accelerating pace of AA development.

7. SECTOR TRENDS & IMPACTS Agrifood Systems: • Soaring food prices - primary production more viable • Higher incomes – demand for high value commodities • Technological changes - value addition • Trade liberalization - cross border demand • Urbanization - product quality & delivery standards • Changing diets - more meat, fish & fruits • More women earning - processed or pre-prepared • Global manufacturing - value addition

8. SECTOR TRENDS & IMPACTS Organizational & Institutional Changes: • Growing concentrations - retail & processing • Larger agribusiness enterprises - economies of scale • Increasing private sector standards – food quality & safety • Food transactions - increasing use of contracts • Retailers/manufacturers - rely on specialized procurement/dedicated wholesalers • Sale of food - supermarkets replacing local markets

9. SECTOR TRENDS & IMPACTS Positive effects: • Increases value addition opportunities. • Agro-processing stimulates demand & market size. • Exporters/agro-processors provide crucial inputs & services. • Agro-industries stimulate innovation. • Encourages productivity & improves quality.

10. SECTOR TRENDS & IMPACTS Negative effects: • Standards and contracts difficult for small-holders. • Small-scale agro-processors unable to compete with large scale manufacturers. • Traders in local markets squeezed out by specialized procurement practices & certified products.

11. SECTOR TRENDS & IMPACTS Agribusiness Development is context-specific & dependent on: • The product sector & market requirements; • Development stage of the country; • Ag’ sector policies, institutions & services; • Government action to promote A&A (If agribusiness is to play a key role in reducing poverty, Government needs to create enabling conditions, while monitoring & taking steps to protect & enhance farmers & others most likely to be affected by agri-business)

12. POLICY REFORM & INSTITUTIONAL STRENGTHENING

13. POLICY REFORM &INSTITUTIONAL STRENGTHENING The business environment is an important driver for domestic & export agro-enterprises, but it is not very conducive to A&A. Many countries have: • Complex laws & regulations governing business, • Ineffective intellectual property rights; • Inadequate commercial services; • Lack of infrastructure; • Ineffective local governments; & • Weak information & communication systems

14. POLICY REFORM &INSTITUTIONAL STRENGTHENING Policy environment requires: • Legal & regulatory frameworks that define rules & determine rights with respect to resources and business operations; • Strengthen public sector cooperation with the private sector; • Commodity, regional industrial & professional based associations inc’ producer ass’ & cooperatives; • Trade-offs between pace & nature of agro-industrial development & poverty; and • Institutional mandates for influencing, regulating & supporting PS investment in AA.

15. POLICY REFORM &INSTITUTIONAL STRENGTHENING Legal & Regulatory Frameworks: • Covers rules, rights & obligations for resources, assets & business operations. • Level of protection of intellectual property rights. • Legal or procedural preferences favoring government owned/assisted enterprises. • Employment/contractual conditions & distribution of benefits from agri-business development.

16. POLICY REFORM &INSTITUTIONAL STRENGTHENING “P-P-P” Cooperation: • Requires communication/cooperation between public and private sector; • Public investment support of private sector innovation/product development mobilizes assets, knowledge & capacities of A&A; • Policy attracts foreign investments & access to technologies; & • Enhances effectiveness of regulatory framework & PS compliance.

17. POLICY REFORM &INSTITUTIONAL STRENGTHENING Institutional Support: Commodity, regional, industrial & professionally-based associations, including producer organizations & cooperatives play a key role in: • Connecting producers and clients; • Vocalizing view points; • Taking collective actions; • Networking & facilitating linkages; • Providing training, technology & legal support.

18. POLICY REFORM &INSTITUTIONAL STRENGTHENING Trade-Offs include: • Rapid agro-industrial development can displace small farmers, processors, stores and traders. • AA policies unlikely to address food insecurity and poverty by themselves.

19. POLICY REFORM &INSTITUTIONAL STRENGTHENING Institutional Mandates: • Very few government department mandates cover all issues that enable/inhibit AA. • Mechanisms are required to strengthen linkages among public agencies responsible for policies, institutions and services impacting on AA

20. AGRO-INDUSTRY & VALUE CHAINS PROGRAMS

21. AGRO-INDUSTRY & VALUE CHAINS PROGRAMS An increasing need for value chain programs that: • Improve delivery of services; • Create value addition for small farmers; & • Help farmers respond to changing markets and consumer requirements. These programs should complement AA policy reforms and institutional strengthening.

22. AGRO-INDUSTRY & VALUE CHAIN PROGRAMS The programs should be designed to complement AA policy reforms and institutional strengthening through: • Business linkages; • Reducing transaction costs; • Aligning capacities of farms & firms; • Ensuring fair governance within chains; • Improving market practices, strengthening producer organizations; & • Upgrading technologies.

23. AGRO-INDUSTRY & VALUE CHAIN PROGRAMS Key lessons – Strategies & Interventions: • PPP must ensure that specialized PS management skills & technical expertise is directed at benefiting small farmers & processors. • Entrepreneurial capacities of small farmers must be strengthened to understand/meet timing, quality & safety requirements of the supply chain. Capacity building must address start-up, financing & development of small/medium agro-processing enterprises. • Value chain programs should facilitate and support FBO & producer organizations – they provide economies of scale & platform for small farmers to do business. But they must be profitable & business management & governance very important.

24. AGRO-INDUSTRY & VALUE CHAIN PROGRAMS Key lessons – Strategies & Interventions: • Financial & business services to small farmers & processors important – reduces costs and expands operations, especially where transaction costs-to-output high. Contractual arrangements critical. • Reduce vulnerabilities by building capacities of chain participants to innovate, diversify or exit as markets change. • Comparative advantage & investment appraisals before implementation & monitoring of impacts & benefits essential to reduce vulnerabilities. • Public-Private sector engagement ensure AA are rules-based & non-discriminatory & committed to good governance, development & poverty reduction.

25. INDUSTRY STANDARDS & QUALITY REQUIREMENTS

26. INDUSTRY STANDARDS & QUALITY REQUIREMENTS Industry standards: • Manage risks relating to product safety & quality; • Enable comparisons of prices between suppliers, • Reduce transaction costs; & • Strengthen consumer confidence & loyalty. Branding & labels can differentiate products. Certification informs consumers about supply chain practices. Standards ensures consumer protection & provides both incentives and sanctions for improvement of product quality & safety.

27. INDUSTRY STANDARDS & QUALITY REQUIREMENTS Unlikely poorer countries can keep up & benefit from advances in product specification & certification requirements, without access to sophisticated technologies, efficient & low-cost communication & information systems, adequate infrastructure & supportive institutions & services. Need to initiate dialog on standards between P&P on: • Strengthen compliance & certification & reduce costs; • Reform of institutions & legal frameworks; • Investments in physical facilities, labs, equipment, infra’; • Support institutions responsible for food safety, control of fraud, animal & plant health; • Technical assistance to establish PPP

28. RESPONDNG TO CHALLENGES

29. RESPONDING TO CHALLENGES Information & Analysis: • Analysis of trends, changes & factors affecting transformation of agri-food systems; • Characterization & appraisal of structure of agro-industries and value chains; • Analysis & benchmarking to identify strategies for agro-industry &value chain development; and • Development of information & knowledge management systems for A&A as well as small-scale producers and processors.

30. RESPONDING TO CHALLENGES Enabling Policies, Institutions & Services: • Strategies for improving AA policies, legal and regulatory frameworks, institutions & services; • Incorporation of AA strategies and actions into country-level program frameworks & strategic plans for agricultural development; • Reinforce communication & cooperation with PS firms, foundations and NGOs active in AA development; • Reinforce compliance & certification systems for food safety standards and industry quality requirements; • Reinforce market information services & financial institutions & services for market-oriented farmers and agro-enterprises; and • Provide basic infrastructure to improve market access and reduce business costs.

31. RESPONDING TO CHALLENGES Support to Agro-Industries & Value Chains: • Appraise market & agribusiness opportunities & develop sound methods for prioritizing agro-industries & value chains; • Facilitate innovative arrangements linking smallholder farmers with commercial farmers, exporters or agro-processing firms in long-term relationships • Identify innovative micro-financing products that facilitate the participation of small farmers in agribusiness ventures; • Design & implement initiatives that improve entrepreneurial capacities of smallholder farmers and small agro-enterprises to participate in value chains for high-value products, including branded and certified products; and • Identify & use innovative mechanisms to link public funding with private sector resources.

32. Thank you and enjoy the workshop!