quiet revolution in agrifood value chains: asia with comparisons to africa
TRANSCRIPT
Quiet Revolution in Agrifood Value Chains:
Asia with comparisons to Africa
Thomas Reardon
Michigan State University
1. Focus on rapid transformation of VCs: Key points of talk
a) VCs important to farms & food security: … post-farm gate segments (downstream + midstream) = 50-70% of food price cost formationb) domestic VCs are rapidly transforming in all three off-farm segments: … downstream (retail), … midstream (processing & wholesale), … upstream (rural factor markets)c) Pulled by… rapid urbanization… diet change
2. Driver #1: Urbanization
Rural to Urban VCs dominate the food economy
a) Asia is urbanizing fast & urban market already majority of food market
… urban share of population: 18% in 1950, 44% in 2010, projected 56% by 2030
… Urban food markets: 65-75% of Asian food expenditures by urban consumers
.. compare with 5% share of exports in output…
rural-urban food VCs are the majority of food in the countries
extreme importance of these VCs for national food security … and for farmer incomes
b) ESA Africa: urban shares in food economy(red is share in purchased market, green overall): > ESA Urban population share 30% (like India)> Waf share is 45-50% (like Southeast Asia)> ESA Urban has 46% of purchased + produced,
61% of just purchased cereals… rural has 54% (39%)> Urban has 43% (56%) of pulses … rural has 57% (44%)> Urban has 31% (49%) of roots/tubers market … rural has 69% (51%)
> ESA African Urban has 52% of purchased + produced,
63% of just purchased fruits/veg
… rural has 48% (37%)
> Urban has 58% (63%) of meat/fish
… rural has 42% (37%)
3. Driver #2: Diet Changea) Rapid diversification of food across product
categories (Bennett’s Law)
a.1) ... Cereals are 25-30% of food expenditure in Asia
… rapid rise of fruit/vegetables, fish/meat, eggs/dairy, edible oils/fats
b) Africa Share of staples (cereals, roots/tubers, pulses)
Total staples = 38% of purchased expenditure, 56% of purchased + produced expenditure
So “diversification foods” already 62% of purchased market … a majority of expenditure!
b.1) Processed foods HUGE in consumption rising rapidly in Asia:
… in urban Asia, overall 73% of food expenditure
is processed, with “low processed” 58% of the
total processed and 42% “high processed”
… in rural Asia, overall 59% of food expenditure
is processed, with “low processed” 69% of the
total processed and 31% “high processed”
b.2) Rapid rise of processed food consumption as share of diet in Africa
… Rural “low processed” share (outside maize) = 21% of food expenditure
… Urban “low processed” share (outside maize)
= 25% of food expenditure
… Rural “high processed” share: 18% of expen.
… Urban “high processed” share: 28% of expen.
Outside of maize expenditure,
Share of all processed in total rural expenditure = 39% !
Share of all processed in total urban expenditure = 53% !
4. Double Revolution in the value chains – focus on Asia
a) … a MODERN revolution (rise of supermarkets, large processors)
&
b) … a QUIET revolution (grass-roots investments by 10’s of 1000s of small/medium enterprises along the supply chains
… findings based on our “stacked surveys” of 9000 farms/firms in segments along value chains in past 8 years in Bangladesh, India, China, Indonesia, Philippines, Vietnam
c) But the transformation is NOT evenly distributed: we find there are 2 rural Asia’s:
… dynamic/commercializing zones (7-8 hours from Tier 1&2 cities – for example, perhaps half of Indian food economy)
… less in hinterland areas (but still transforming, e.g., cold storages rise in Bihar)
5. Rapid change in Downstream Segments
a) Supermarket Revolution … overall in Asia: 2-4x faster than GDP growth… India:(49% sales growth per annum 5x rate of GDP growth)…. Penetration of rice (7% in Delhi, 50% in Beijing, starting in Dhaka)… penetration of fresh produce (5% in Delhi, 20% in Beijing) but early by international standardsb) Food security effects: cheaper staples in Delhi in supermarkets compared with traditional retail
6.1. Rapid change in Midstream segments
6.1.1. Modern Sector Midstream
a) Processing: Rapid growth, concentration, and capital/labor increase, India case
b) Rise of modern wholesale/logistics companies
c) Big retail and big processing growing in symbiosis: Beijing supermarkets buy direct from large-scale rice mill companies
d) A little bit of early direct sourcing (collection centers) and contract farming: pays farmers well
6.1.2. Quiet Revolution in “traditional” midstream
a) Dis-intermediation in wholesale (massive decline of rural broker/village trader role with shortening of chain, direct sale by farmers to mills and city wholesale markets)
Example:
… cut out role of village trader (VT) in rice (Bangladesh, 7% to VT, China, 29% to VT, India, 18% to VT)
… farmers sell direct to mills: 63% in China, 60% in Bangladesh; little in India (APMC act constrains shift)
b) Rapid development of cold stores for potato in India and Bangladesh, raising farm prices and reducing seasonality for consumers
… in Bangladesh, 22% of farm sales from Cold Store
… in India, 73% from cold storage in 2009 (40% start of 2000s, 5% in 1990)
… India case: displacing (regardless of APMC regulation…) the mandis (as venue for intermediation)
… India case: providing credit to farmers
c) Disappearance of tied credit-output markets of wholesalers with farmers, freeing farmers to choose best buyer… in UP and MP surveys, only 2-5% of crop market transactions linked to credit from traders (advances)… found this pattern ALL OVER ASIA
d) Waste in supply chain much lower than typically stated in public debates: instead of “40%”, around 5-7%
7.1. Farm Sector Transformation
a) Farming intensification, examples:
… Quality differentiation and hybrid diffusion in rice
… horticulture boom (golden potato-triangle)
… rapid uptake of pesticides and herbicide (linked with nonfarm employment and opportunity cost of time)
b) Farm sector commercialization – selling into the supply chains…
… in Asia, farmers sell 60-90% of their rice crop
… 80-90% of their fruit/veg crop
7.2. Input Markets Development
a) Rapid development: Farmers linking to input
markets
… Land rental markets
… farm machine rental and service-outsourcing
… farm chemical markets
… Water markets
… Cold storage market
b) Rapid development of “outsourcing” service sector to farmers
… rice harvesting clusters/companies going cross-province in China
… “sprayer-traders” in Philippines and Indonesia mango sector
… Economies of scale for and of farmers
8. Conclusionsa) Rapid change and ferment/churning
b) Modern sector AND transforming traditional chain
c) Importance of off-farm segments of supply chain: SANDWICH (transformation upstream and downstream from farmer)
d) Opportunities & challenges for small farmers
e) But nagging constraints in public goods and regulations