1

Markets access and the IFAD-IFPRI PartnershipNick Minot and Maximo Torero

24 March 2008 IFAD, Rome

2

Objective of planning session:

Identify overlap between IFPRI expertise and IFAD needs

IFAD needs

IFPRI expertise

3

Areas of marketing research at IFPRI

• Global, regional and national trade agreements and market reforms

• Domestic marketing, with focus on diversification into high-value agriculture, diagnosis of supply chains, and transformation of marketing channels

• Role of institutions and infrastructure in market development

• Food and water safety

• Urban-rural linkages (new theme)

A

B

C

D

4

Research focus: Market failure Goal: To make agricultural markets work for the poor

at local, regional, and international levels

Means: By generating information that helps to• Release constraints to market participation • Enhancing benefits from market participation

Premise: Market failures contribute to poverty• High transportation costs• Information asymmetry• Externalities• Missing input markets• Policy induced barriers• Non economic barriers

Inefficiency and high

transaction costs

Lack of market opportunities and poverty

5

Globalization and tradeA

• Impact of multilateral trade liberalization in developing countries– Potential impact of Doha Development Agenda with a special focus on Least

Developed Countries and on distortionary effects of domestic support policies in rich countries

• Incorporating energy & biofuels into model– Better understanding of the relation between energy markets and food markets

with an implementation in the MIRAGE – improvement of database on biofuels

• Capacity development on trade issues and modeling• Technical improvements of the MIRAGE model

– a special focus on the baseline (global factor productivity, labor markets in developing countries, relation between consumers demand and national income)

 

6

Potential loss US$ 1.0 trillion• US$ 336 b of potential trade that would have come by DOHA • US$ 728 b of trade reduction because of return to protectionism.

Globalization and trade

7

Vision for domestic marketingB

Larger overall number of smallholders with marketable surpluses – i.e. movement from net buyers to net sellers1

Improved state of food security driven by productivity improvements (higher marketable yields) and crop income diversity

Small farmers able to participate in growing high-value market channels e.g. for supermarkets, processors, and exports

Access to trading and marketing mechanisms including storage, credit, and transportation

Enabling policy and regulatory environments, including support for smallholders and trade openness

2

3

4

5

8

Example 1: Staple crop marketing in sub-Saharan Africa (Gates Foundation)

Staple crops represent core food crops that are significant for dietary and caloric intake. In Sub Saharan Africa, the major food crops include:

• Maize, Cassava, Sorghum, Millet, Cow Pea, Yams, Rice, Millet , Bananas, etc

Production, popularity, and usages vary across regions.

• West and Central Africa: Roots and tubers predominate; largely “multi-staple” systems

• East and Southern Africa: Cereals predominate; “mono-staple” food environments

Focus Crops: Maize, Cassava, Rice and Sorghum

Core-Drivers of Crop Selection: Percentage of the crop grown

by smallholder farmers Importance for food security Relevance across regions in

SSA Significance to Agriculture

GDP Yields per annum Contribution to diet and caloric

intake Potential for value addition

and trade

1

2

9

Maize: A Case Study

Assembly markets

International flows

Internal flows

Complex Maize Marketing Channels – Benin Example • Maize production aggregated through

small traders and trader depots => farmer group development

• Markets offer poor facilities: storage, bagging, weighing, handling etc =>warehouse receipt systems + information systems

• Lack of standardized grading and weighing, and bagging => encourage adoption of standardized grades

Overview:

Maize interventions require regional approach: i.e. West, Central, East, and

Southern Africa

In order to address:• Policy barriers to trade• Transportation networks development• Regional standards adoption

10

Cassava: An Overview2006 Output as a % of the Top Producer

(Nigeria=46.6 Million Tons)

100%

10%

1%

• Sub-Saharan Africa world’s largest producer of cassava at 110 Million MT of fresh root

• Over 90% produced by smallholders• Over 90% produced for human consumption• Provides more than 50% of caloric intake for more than

50% of the total urban and rural populations of SSA

Production and Usage in SSA

• Highly commercialized in parts of West Africa, much less so in East Africa

• Fresh cassava highly perishable so marketing purely local

• Dried, chipped, or toaster cassava flour (gari) has longer shelf life that allows for longer-distance marketing

• Dry consumption popular in Benin and Ghana. Fresh consumption preferred in Uganda

Marketing Patterns

11

Example 2: High-value agricultural marketing in Indonesia (ACIAR)

Growth in supermarkets and processing Higher quality standards and minimum volumes raise question whether smallholders will be excluded

Commodity focus: Shallots, chillies, mangoes, mangosteen, and shrimp

Methods: Farm surveys to understand role and constraints of smallholders, trader interviews to explore quality requirements, and consumer surveys to understand quality requirements and determinants of shift to supermarkets

Expected outputs: Improved understanding of 1) rate of shift toward supermarkets, 2) implications for smallholders, and 3) policies and institutions to maintain smallholder participation in high-value agriculture

1

2

3

4

12

Infrastructure and InstitutionsC

Objective:

Understand the role of market institutions and public infrastructure in improving market performance in order to reduce poverty among small holder farmers

Major Milestones•Development of institutions necessary for reduction of transaction costs, better management of risk and redress missing markets

•Improvement in access to rural infrastructure, better coordination of rural infrastructure investments, and increased number of analysts with skills in market analysis

13

On infrastructure and InstitutionsC

Major projects:

•Impact evaluation and ways to improve provision of infrastructure:• Rural electrification (Ethiopia, Mozambique, Tanzania, Peru, Mongolia, and

soon in Pakistan)• Water and sanitation (Tanzania and El Salvador)• Rural roads (El Salvador)• ICT to reduce information asymmetries in potato farmers (India) and in

health (Perù)

•Contract farming experiments: Incentive-based contracts to increase the links of small-holders to growing markets (Vietnam, Tanzania and Peru)

•Cooperatives – Horizontal coordination and strengthening rural producer organization

•Risk management – Weather-index insurance (Ethiopia)

•Information problem: Aspiration failures (Ethiopia)

•Scaling up through profit efficiency frontier typologies

Bangladesh, 2000-2004

Electricity0%

10%

20%

30%

40%

50%

60%

% c

hang

e of

PC

HH E

xp

Elec + phone Elec + road Elec + road +phone

Source: Torero and Chowdhury, 2006

There exists complementarities in the provision of different types of infrastructure

-25

-20

-15

-10

-5

0

5

10

15

% c

hang

e in

tim

e al

loca

tion

Ag salaried Non-ag salariedAg self-empl Non-ag self empl

1 infrastr

2 infrastr3+ infrastr

Peru 2002

Households increase non-agricultural hours of work

Impact evaluation of rural electrification:Finding the causal link

Electricity: least accessed and most unequally distributed infrastructure, especially in Africa.

Few empirical studies addressing location and self-selection biases, indirect and long term effects of electrification on household welfare.

We use experimental design: vouchers to introduce random variations in the probability that a household will connect to the electrical grid Assess optimal subsidies Assess the impact of electrification with particular focus on changes in time allocation

April 2007: Baseline survey on 1400 households before electrification

May 2008: Repeat survey after electrification

Random selection…

16

Food and Water Safety

• Three major projects:(a) Economic impact of

avian influenza in select countries/regions

(b) Best Practices associated with AI compensation

(c) New initiative on aflatoxin in maize & groundnuts in Africa

D

17

Cross-cutting methods (1): New approaches to identifying recommendation domains

• In order to scale up projects, need to know what area are similar to pilot area

• Recommendation domains are areas with similar

• Market accessibility

• Agro-climatic characteristics

• Population density

• Use of new methods to identify areas of untapped potential

• Stochastic production frontier analysis

18

Cross-cutting methods (2): IFPRI Mobile Experimental Economics Laboratory (IMEEL)

PurposeImplementation of field experiments to understand behavior of the poor in rural and urban areas, especially in Africa, Central America and the Caribbean, Latin America and Southeast Asia.Benefits of experimentsExperiments grant a high degree of control over the manner in which data are generated. They enable us to establish counterfactual scenarios that tend to be otherwise non-existent. Experiments are different from surveys in that they use simple games to observe actual decisions.

Equipment12 laptops, 30 PDAs, solar panels and batteries as back-up power sourcesWhat next? Projects* Highly Pathogenic Avian Influenza (HPAI): Pro-poor policy options for controlling HPAI* Contract Farming: Innovative contracts for linking farmers to markets and reducing poverty

Implications for IFAD-IFPRI Partnership

19

What types of activities are promising areas for IFPRI to work with IFAD country programs?

1. Value chain analysis2. Survey design and analysis3. Experimentation for key information gaps4. Identification of development domains5. Capacity development

However, these are tentative, pending discussions with CPMs and other IFAD staff

IFAD needs

IFPRI expertise

Next steps

20

1. Bilateral discussions with CPMs

2. Country visits

3. Revised work plans