Linking Small farmers to high value markets Ashok

Linking Small farmers to high value markets Ashok Gulati & Thomas Reardon Co-directors of IFPRI/MSU joint program on “Markets in Asia” Conference on Taking Action for the World’s Poor and Hungry People Jointly organized by the State Council Leading Group Office of Poverty Alleviation and Development and IFPRI Beijing Oct. 17 -19, 2007

Four key messages… • Small farmers to stay in Asia for next 15 -20 years… • Changing Asian platter towards high value agriculture (Benett’s law: share of HVA such as fruits and vegetables, dairy, meat and fish to go up); • Rapid transformation and scaling up of wholesale markets, processors, and organized retailers (Consolidating top) while farms are still fragmenting • Opportunity for small holders if they can connect to new markets, else a major challenge to remain afloat. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2

Small farms to stay in Asia… Source FAO (2001, 2004); And for China Fan and Chan Kang (2003) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3

Indian farm reality: fragmenting farms and swelling bottom Avg Size 2. 3 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 1. 82 Source: Agricultural Census Division, India 1. 55 1. 41 1. 37 Page 4

Changing Asian Platter: Diversification and “westernization” of diets Average Annual Growth in per capita consumption (1991 -2005) in Selected 8 Countries in South and South East Asia Notes: Grains include cereals and pulses, Consumption measured as grams/capita/day, the 8 countries include Bangladesh, China, India, Indonesia, Pakistan, Philippines, Thailand Viet Nam. Source: FAOSTAT, © FAO Statistics Division 2007, 30 July 2007 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5

Trade is still a tiny part of the story… • Trade is a very small part of the consumption of high value agriculture (usually less than 3% in most countries of south and south-east Asia); • Change is being driven primarily by domestic factors of growth, urbanization, …. . • And domestic production is responding… (e. g. , in India share of HVA in total value of agriculture output increased from 32% in 1981 -83 to 48% in 2003 -05; similar changes have occurred in China, Indonesia, etc…) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6

Next 10 years…. • Although staples are important from food security point of view, future sources of growth and prosperity in agriculture will come increasingly from high value products, driven by domestic demand, production & markets; • But being perishable in nature, it needs a fast moving infrastructure and institutions that can compress the value chains and reduce risk INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7

Dynamics of Agri-food System: expanding top and fragmenting bottom Retailers modern & kirana stores Agro Processors Input Suppliers Wholesalers, Logistic & Warehouse Suppliers Farmers INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8

All segments of the chain changing fast… • Wholesale markets (WM): from trucks in 1970 s to public WM in 1980 s to scaling up in 1990 s and restructuring in 2000 s (China, India…. , etc. ) • Processing industry: from small scale to large scale driven by increasing demand for processed food as well as by technological innovations (like tetrapak) to increase the shelf life • Organized Retailing in food: diffusion in three waves in emerging markets …taking off in south-Asia now… INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9

Supermarket Revolution: Average Annual Growth Rate in Grocery Sales of Top 10 Retailers in Selected 6 Countries in South and South East Asia (2000 -06) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10

What ensures production & price risk coverage for the small farmers? Retailers & Agro processors Market Information incl. Food safety Credit & Insurance Input delivery & Extension services Farmers INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11

Can the large players connect to small holders? • Mother dairy in India …. (Co-op. model) • BRAC in Bangladesh…. (NGO model with multifarious activities supporting small holders…. . ) • ITC (e-choupal) in India… (Multinational model) $1. 25 billion investment linking 4 million farmers, largely middle and small…moving from soya to fresh veg. • Celebrate Life Agriventures Philippines Inc… a farmer company in Philippines exporting bananas to Japan • Mahagrapes…. a farmers’ company in India exporting grapes to UK. . • Metro cash and carry in China… buying from producer groups INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12

How do we judge: which way to go? ? Solving the “Rubik cube” puzzle • Innovative Institutions and Organizations Linking smallholders to Modern Value Chains • Mapping and Designing Institutions for CISS C-Competitiveness I-Inclusiveness S-Sustainability S-Scalability INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13