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Contributor : FAO-AGS (2008-02-28 15:03:35)
Strengthening Business Linkages: value chain development
The Proposition
Farmers will benefit from initiatives to strengthen business linkages in agricultural value chains
only if the value chains are competitive. Therefore, governments and NGOs must not look at value chains exclusively from the perspective of the farmer.
Rational and Recommended Response (Click here to read)
Update on the debate
The discussion concentrated around the proposition statement "farmers are only likely to benefit from initiatives to strengthen business linkage in agricultural value chains only of the vlaue chains are competitive". For this reason governments and NGOs needed to look at value chains from the perspective of both the farmers and the other actors in the value chain.
Concerns were raised, however, that more had to be done to safeguard farmers to ensure that they are not exploited. Some participants felt that not enough had been done to establish viable farmer organizations that protect their interests. Some participants felt that the key area of attention should be to gain consensus amongst government, NGOs, farmers and the private sector on regulations and laws of governance... [More]
Current Focus of the Debate
What should be the role of the public sector and non-profit organisations in building linkages?
How can linkages be developed without distorting the market?
What should be the role of the private sector and NGOs in building linkages?
28 Comments
Carlos Felipe Ostertag , (2008-04-26 22:44:43)
I belong to CIAT´s rural business development group since 1994. The value-chain approach is very useful in rural development, especially if one is aware of the key aspects that differentiate a value chain from a conventional production or supply chain. I am an optimist, but not naive, relative to the potential for linking farmers or smallholders to markets (LFM). I understand the serious limitations that constrain the sustainable smallholder linkage with growth markets, such scarce education, low technology level, lack of a business and market orientation, low access to and management of working capital, and the image problem with the private sector.
However, recent case studies conducted by international organizations worldwide indicate that there really is a great potential for LFM in a sustainable fashion, especially when the focus consists of specialization by the rural actors and establishmento of vertical alliances with the private sector.
I also recognize the importance of segmenting smallholders relative to their interest in, or potential for, in marketing products. I am also aware that an integrated, or holistic approach is required to obtain this smallholder and market linkage, and that one of the main reasons for past failures has been precisely the lack of this holistic approach. This same reason has negatively affected agrarian reform in the past.
Specifically, the public sector, private sector, rural organizations, and development NGOs have a role to play in this integrated strategy. The public sector can facilitate the process thru policies and national programs directed to linking farmers to markets, as has been the case in the last years in Colombia. Governments can provide incentives to the private sector and NGOs to participate in realistic LFM efforts. The private sector can exercise social business responsibility (SBR) and identify win-win opportunities to link with smallholders, specially with respect to labor-intensive, high-value products or with products where local knowledge is key for marketing. Smallholder organizations have the responsibility of adopting a serious business and market orientation, and improving transparency within the organization. If rural organizations do not reduce transaction costs significantly, then they are useless. Development NGOs can act as process facilitators, or intermediaries between rural smallholders and the private sector, with the role of helping these two parties understand each other´s needs and motives. NGOs can support these market linkages by providing technical and business training.
I belong to CIAT´s rural business development group since 1994. The value-chain approach is very useful in rural development, especially if one is aware of the key aspects that differentiate a value chain from a conventional production or supply chain. I am an optimist, but not naive, relative to the potential for linking farmers or smallholders to markets (LFM). I understand the serious limitations that constrain the sustainable smallholder linkage with growth markets, such scarce education, low technology level, lack of a business and market orientation, low access to and management of working capital, and the image problem with the private sector.
However, recent case studies conducted by international organizations worldwide indicate that there really is a great potential for LFM in a sustainable fashion, especially when the focus consists of specialization by the rural actors and establishmento of vertical alliances with the private sector.
I also recognize the importance of segmenting smallholders relative to their interest in, or potential for, in marketing products. I am also aware that an integrated, or holistic approach is required to obtain this smallholder and market linkage, and that one of the main reasons for past failures has been precisely the lack of this holistic approach. This same reason has negatively affected agrarian reform in the past.
Specifically, the public sector, private sector, rural organizations, and development NGOs have a role to play in this integrated strategy. The public sector can facilitate the process thru policies and national programs directed to linking farmers to markets, as has been the case in the last years in Colombia. Governments can provide incentives to the private sector and NGOs to participate in realistic LFM efforts. The private sector can exercise social business responsibility (SBR) and identify win-win opportunities to link with smallholders, specially with respect to labor-intensive, high-value products or with products where local knowledge is key for marketing. Smallholder organizations have the responsibility of adopting a serious business and market orientation, and improving transparency within the organization. If rural organizations do not reduce transaction costs significantly, then they are useless. Development NGOs can act as process facilitators, or intermediaries between rural smallholders and the private sector, with the role of helping these two parties understand each other´s needs and motives. NGOs can support these market linkages by providing technical and business training.
Pedro Díaz Jerónimo , (2008-04-25 20:16:48)
Key characteristics of agricultural food supply chain (biological proccess, product specifications, preferences in consumer demand) make a dificult task to achieve efficiency and equity for all participants of the chain. as a consequences an uneven
distribution of costs and benefits may have effects for the viability of agrifood chain.
In many agri food supply chains, farmer and consumer has not market power, and food-processing and retail companies abuse in their market power to increase profit margins. Farmers consequently receive too little and consumers pay too much for their food products (banana farmers from Ecuador received 10% of the consumer price. The retailer and trader companies both received 71%).
Initiatives to strengthen the business linkages of farmers in agricultural value chains will benefit farmers, but who need to work on that.
Proccesors and retailers, farmers, consumers, government all play a role: More contract farming is requiered, training programs, investmen on research, adoption technology, increase the transmition from the folk to the farm. Improvements in these areas will increase efficiency and market power of farmers, at the end we will have more efficiency and more equity in the agricultural food supply chain. But most important, farmers will have a long term perspective of their bussiness.
Key characteristics of agricultural food supply chain (biological proccess, product specifications, preferences in consumer demand) make a dificult task to achieve efficiency and equity for all participants of the chain. as a consequences an uneven
distribution of costs and benefits may have effects for the viability of agrifood chain.
In many agri food supply chains, farmer and consumer has not market power, and food-processing and retail companies abuse in their market power to increase profit margins. Farmers consequently receive too little and consumers pay too much for their food products (banana farmers from Ecuador received 10% of the consumer price. The retailer and trader companies both received 71%).
Initiatives to strengthen the business linkages of farmers in agricultural value chains will benefit farmers, but who need to work on that.
Proccesors and retailers, farmers, consumers, government all play a role: More contract farming is requiered, training programs, investmen on research, adoption technology, increase the transmition from the folk to the farm. Improvements in these areas will increase efficiency and market power of farmers, at the end we will have more efficiency and more equity in the agricultural food supply chain. But most important, farmers will have a long term perspective of their bussiness.
Mark Lundy , (2008-04-04 15:02:44)
Effective government involvement in value chains can be focused on meso-level policy and development fora. These spaces seek to bring together relevant actors in a specific production chain (i.e. not just the ones that are already collaborating) to discuss the generic needs of the chain for public investment. In some cases, Colombia for example, this is formalized at Competitiveness Agreements while in others, Honduras, it is somewhat less formal. In both cases the decisions made in these spaces influence public investments (i.e. in Colombia substantial public funding for R&D is earmarked based on the needs identified by the chain committees).
As far as NGOs are concerned, there are two big roles. First, the need to get farmers to a pre-business phase of organization. This can take many forms but the goal is to make farmers attractive partners for business (i.e. sufficient volume and quality). Once that is achieved, the NGO should shift its focus to service provision. In the former case, there is a strong argument for subsidies while in the later these services should be provided on a cost-recovery basis. How to achieve that raises many questions. Some general principals that may be useful are the use of local service providers (i.e. farmer extensionists)and the promotion of embedded services between commercial actors. The NGO should only become a direct service provider when there are no alternatives for the service in question and/or the organization decides to become an active member of the commercial flows in the chain.
Effective government involvement in value chains can be focused on meso-level policy and development fora. These spaces seek to bring together relevant actors in a specific production chain (i.e. not just the ones that are already collaborating) to discuss the generic needs of the chain for public investment. In some cases, Colombia for example, this is formalized at Competitiveness Agreements while in others, Honduras, it is somewhat less formal. In both cases the decisions made in these spaces influence public investments (i.e. in Colombia substantial public funding for R&D is earmarked based on the needs identified by the chain committees).
As far as NGOs are concerned, there are two big roles. First, the need to get farmers to a pre-business phase of organization. This can take many forms but the goal is to make farmers attractive partners for business (i.e. sufficient volume and quality). Once that is achieved, the NGO should shift its focus to service provision. In the former case, there is a strong argument for subsidies while in the later these services should be provided on a cost-recovery basis. How to achieve that raises many questions. Some general principals that may be useful are the use of local service providers (i.e. farmer extensionists)and the promotion of embedded services between commercial actors. The NGO should only become a direct service provider when there are no alternatives for the service in question and/or the organization decides to become an active member of the commercial flows in the chain.
David Kahan , (2008-04-03 13:08:55)
The role of government as facilitator cannot always be assured. Government extension services have a legitimate role to play in offering a public good (covering environmental issues, technology transfer, and addressing food insecurity and poverty). All too often support of this kind has the potential to distort markets. And again there are NGO´s also funded by donors providing essential services. The dividing line between those services that distort markets and those that don´t, is very fine and to get it right requires a broader collaborative approach between donors, and targeted assistance whilst taking into account the impact on the markets.
The role of government as facilitator cannot always be assured. Government extension services have a legitimate role to play in offering a public good (covering environmental issues, technology transfer, and addressing food insecurity and poverty). All too often support of this kind has the potential to distort markets. And again there are NGO´s also funded by donors providing essential services. The dividing line between those services that distort markets and those that don´t, is very fine and to get it right requires a broader collaborative approach between donors, and targeted assistance whilst taking into account the impact on the markets.
Christian Fischer , (2008-04-03 04:34:50)
Policy makers can convene (i.e., organise and finance) round tables and serve as “chain brokers”. In addition, funds (grants or loans) for pilot projects could be offered. If governments adopt the role of facilitators in open private-sector initiatives, market distortion would be low.
Policy makers can convene (i.e., organise and finance) round tables and serve as “chain brokers”. In addition, funds (grants or loans) for pilot projects could be offered. If governments adopt the role of facilitators in open private-sector initiatives, market distortion would be low.
David Kahan , (2008-04-02 10:38:43)
The problem is that any individual effort to design schemes that support market development is likely to be undermined by other donor supported activities that fail to do so. There is no effective way to harmonise approaches amongst donors and development agencies to ensure that market development can occur in practice. These principles are all very good on paper, but the reality on the ground as to that development aid will continue to impede a business approach to development.
The problem is that any individual effort to design schemes that support market development is likely to be undermined by other donor supported activities that fail to do so. There is no effective way to harmonise approaches amongst donors and development agencies to ensure that market development can occur in practice. These principles are all very good on paper, but the reality on the ground as to that development aid will continue to impede a business approach to development.
Vinay Chand , (2008-04-01 18:17:51)
We all know that there are NGOs out there who are the product of a community desire to help or self help groups. However, there are very few which are commercially sustainable or able to even survive without receiving development funds. In this they are surrogates of development agencies, not a bad thing since it is cost effective for the agencies. But it runs the danger of distorting markets since it creates independent entitites enjoying an artificial financial existence. As long as they are able to target interventions which do not seek to substitute themselves for market actors the distortion is minimised.
personally, I prefer helping market actors create commercially viable entities which exist in the market purely as such and do not depend on subsidies other than required in the way of initial capital investment to finance infrastructure that market actors have not been able to do. Unfortunately, even this sails close to the wind and can end up distorting markets. Dangers are minimised by helping market actors rather than substituting them.
We all know that there are NGOs out there who are the product of a community desire to help or self help groups. However, there are very few which are commercially sustainable or able to even survive without receiving development funds. In this they are surrogates of development agencies, not a bad thing since it is cost effective for the agencies. But it runs the danger of distorting markets since it creates independent entitites enjoying an artificial financial existence. As long as they are able to target interventions which do not seek to substitute themselves for market actors the distortion is minimised.
personally, I prefer helping market actors create commercially viable entities which exist in the market purely as such and do not depend on subsidies other than required in the way of initial capital investment to finance infrastructure that market actors have not been able to do. Unfortunately, even this sails close to the wind and can end up distorting markets. Dangers are minimised by helping market actors rather than substituting them.
David Kahan , (2008-04-01 13:47:10)
The public sector has a well recognised role, to create an enabling environment, while NGO and other non-profit organisations are viewed as facilitators - organising farmers into producer groups, building capacity of farmers to negotiate, and acting as an intermediary body to link farmers in to value chains. In some situations, however, the non-profit organisations themselves may not have the capacity to undertake this function. Donors have been stepping in to support the setting up of intermediary organisations (business services providers amongst others)by providing subsidised support and grants. This in turn carries a risk of distorting the market and impeding the sustainable development of the value chain. A question often posed is how can donors most effectively bring smallholder farmers into value chains in a way that prevents market distortion?
The public sector has a well recognised role, to create an enabling environment, while NGO and other non-profit organisations are viewed as facilitators - organising farmers into producer groups, building capacity of farmers to negotiate, and acting as an intermediary body to link farmers in to value chains. In some situations, however, the non-profit organisations themselves may not have the capacity to undertake this function. Donors have been stepping in to support the setting up of intermediary organisations (business services providers amongst others)by providing subsidised support and grants. This in turn carries a risk of distorting the market and impeding the sustainable development of the value chain. A question often posed is how can donors most effectively bring smallholder farmers into value chains in a way that prevents market distortion?
Istvan Feher , (2008-03-27 18:48:20)
The direct linkages has several advantages. The key to direct sale of farmers is"mutual advantages"Both producers and consumers. The producer has work and gains income, while the customer is provided heathy food. Hence , the customer does not have worry any longer about products beyond expiration date that has been repacked or redated.Farm sale, also known as a direct sale, provides major opportunities to farmers in the future. This kind of sale is of increasing popularity in Europe, but farmers have to be familiar with regulations concerning processing and sales.
Mainly small and medium farmers prefer direct sale.In this activity, they must compete with an increasing number of hypermarkets and wholesale markets. When taking abouit direct sale, it means that farmers sell their products directly to the customers.There are more options: (i) sale in their own shop, (ii) through a catalogue, (iii) delivers to restaurants and shopes.
The hyper- and supermarkets also recognized the marketing possibilities in product differenciation, they are starting to built a special relations with the smaller producers, in Hungary we have several good examplaires.In the case of economies in transition, such as in Hungary,the market organizations in food chains have not yet been established in each field. The lack of these organisations pses numerous difficulties, mainly in coordination. It taks special cares from the trade side, but the producers should cooperate and use solidarity approach among them.
The direct linkages has several advantages. The key to direct sale of farmers is"mutual advantages"Both producers and consumers. The producer has work and gains income, while the customer is provided heathy food. Hence , the customer does not have worry any longer about products beyond expiration date that has been repacked or redated.Farm sale, also known as a direct sale, provides major opportunities to farmers in the future. This kind of sale is of increasing popularity in Europe, but farmers have to be familiar with regulations concerning processing and sales.
Mainly small and medium farmers prefer direct sale.In this activity, they must compete with an increasing number of hypermarkets and wholesale markets. When taking abouit direct sale, it means that farmers sell their products directly to the customers.There are more options: (i) sale in their own shop, (ii) through a catalogue, (iii) delivers to restaurants and shopes.
The hyper- and supermarkets also recognized the marketing possibilities in product differenciation, they are starting to built a special relations with the smaller producers, in Hungary we have several good examplaires.In the case of economies in transition, such as in Hungary,the market organizations in food chains have not yet been established in each field. The lack of these organisations pses numerous difficulties, mainly in coordination. It taks special cares from the trade side, but the producers should cooperate and use solidarity approach among them.
Peter Steele , (2008-03-19 11:01:14)
Some interesting exchange thus far, but pretty academic in places. The whole concept of the ´value chain´ reflects a top-down approach and therein the role of the public sector planner, etc. Enterpreneurs by definition are predatory and seek to marshal resources and harness ideas that will exploit market opportunities. We know this. Bring in the state farm and/or the NGO apparatus and the peope involved rarely ´go that extra mile´ to ensure that every dollar, kwacha or baht is earned. Private funding has that element of personal risk and people work twice as hard (for half the rewards) - but, again, you will know this. The key issue here is one of encouraging the ´commercial farmér´; and these people inevitably accumulate, exploit, develop and so on. Restrict them or tax them into oblivion and they become lost to the industry, community or country. You only have to explore the mistakes made by governments when envy takes control of logical decision-making with the take-over of successful private ventures. Mention Central Africa and land holdings. But there are real issues behind the poverty of subsistance systmes that have no place within the develop planning required of states, communities and/or that are under enormous pressure to boost agricproduction. The point made by Bill Samuel when quoting the Economist is valid. Here is the next challenge for the industrializing countries - how to free up national assets in sensitive and creative ways that the many thousands of poor people involved are provided with security and choice for their families. Peter Steele. Rome. 19/03.
Some interesting exchange thus far, but pretty academic in places. The whole concept of the ´value chain´ reflects a top-down approach and therein the role of the public sector planner, etc. Enterpreneurs by definition are predatory and seek to marshal resources and harness ideas that will exploit market opportunities. We know this. Bring in the state farm and/or the NGO apparatus and the peope involved rarely ´go that extra mile´ to ensure that every dollar, kwacha or baht is earned. Private funding has that element of personal risk and people work twice as hard (for half the rewards) - but, again, you will know this. The key issue here is one of encouraging the ´commercial farmér´; and these people inevitably accumulate, exploit, develop and so on. Restrict them or tax them into oblivion and they become lost to the industry, community or country. You only have to explore the mistakes made by governments when envy takes control of logical decision-making with the take-over of successful private ventures. Mention Central Africa and land holdings. But there are real issues behind the poverty of subsistance systmes that have no place within the develop planning required of states, communities and/or that are under enormous pressure to boost agricproduction. The point made by Bill Samuel when quoting the Economist is valid. Here is the next challenge for the industrializing countries - how to free up national assets in sensitive and creative ways that the many thousands of poor people involved are provided with security and choice for their families. Peter Steele. Rome. 19/03.
Likando Mukumbuta , (2008-03-18 13:15:12)
At the Zambia Agribusiness Technical Assistance Centre (ZATAC) our field experience has brought us to believe that the most competitive smallholder linkages to value chains are those founded on smallholder enterprise development support. This means clearly separating direct support to farmers’ on-farm productivity needs from the coordination, bulking, sorting, processing and/or marketing function - by supporting a commercial entity to undertake such functions that is owned in full or in part by the primary producers. Although cooperatives are usually intended that way, their management is usually dominated by farmers themselves (Chairman, Secretary, Treasurer, etc.) that are part-time and ill equipped to manage a competitive enterprise.
The value chains that are most amenable to igniting rural prosperity among smallholders are those whose products attract income throughout the year. Income that makes it possible for the secondary enterprise to become profitable and able to hire specialized full time management personnel that are not themselves farmers. Milk collection centres, banana plantations and aquaculture projects are examples of value chains where smallholder integration can prosper based on enterprise development approaches. Value chains with seasonal smallholder incomes, such as paprika and cotton, are more challenging in realizing smallholder economic empowerment and lend themselves more readily to outcomes that have earned outgrower schemes a reputation for exploitation. But they too can be transformed into better pro-poor value chains through Association Development interventions. It is important for Governments, international development agencies and NGOs to clearly understand the different outcomes various ways of organizing different value chains may generate for smallholder prosperity. The role of these organizations should be to facilitate the most appropriate models for specific value chains.
In a spirit of putting markets first, only when the second tier of smallholder value chain integration has been addressed or catered for, should focus shift to interventions that enhance farmer productivity . Actual interventions would most likely be implemented simultaneously, but the planning and designing is advised in that order.
At the Zambia Agribusiness Technical Assistance Centre (ZATAC) our field experience has brought us to believe that the most competitive smallholder linkages to value chains are those founded on smallholder enterprise development support. This means clearly separating direct support to farmers’ on-farm productivity needs from the coordination, bulking, sorting, processing and/or marketing function - by supporting a commercial entity to undertake such functions that is owned in full or in part by the primary producers. Although cooperatives are usually intended that way, their management is usually dominated by farmers themselves (Chairman, Secretary, Treasurer, etc.) that are part-time and ill equipped to manage a competitive enterprise.
The value chains that are most amenable to igniting rural prosperity among smallholders are those whose products attract income throughout the year. Income that makes it possible for the secondary enterprise to become profitable and able to hire specialized full time management personnel that are not themselves farmers. Milk collection centres, banana plantations and aquaculture projects are examples of value chains where smallholder integration can prosper based on enterprise development approaches. Value chains with seasonal smallholder incomes, such as paprika and cotton, are more challenging in realizing smallholder economic empowerment and lend themselves more readily to outcomes that have earned outgrower schemes a reputation for exploitation. But they too can be transformed into better pro-poor value chains through Association Development interventions. It is important for Governments, international development agencies and NGOs to clearly understand the different outcomes various ways of organizing different value chains may generate for smallholder prosperity. The role of these organizations should be to facilitate the most appropriate models for specific value chains.
In a spirit of putting markets first, only when the second tier of smallholder value chain integration has been addressed or catered for, should focus shift to interventions that enhance farmer productivity . Actual interventions would most likely be implemented simultaneously, but the planning and designing is advised in that order.
Kevin Gallagher , (2008-03-17 11:39:12)
Aren´t large farms only "efficient" in labour? American farmers are poor. Big businesses with large areas and very slim profit margins survive on massive subsidies and poor labour practices (less than minumum wages, no health insurance, low quality of life). With oil prices going up, will the balance of labour cost and equipment change to favor more labour again?
Aren´t large farms only "efficient" in labour? American farmers are poor. Big businesses with large areas and very slim profit margins survive on massive subsidies and poor labour practices (less than minumum wages, no health insurance, low quality of life). With oil prices going up, will the balance of labour cost and equipment change to favor more labour again?
Vinay Chand , (2008-03-16 01:51:52)
There are interesting models of how the private sector can integrate the small farmer with the value chain. One of the best models was refined by BAT and what was impressive was good profits for BAT and higher revenues for farmers. There are also many good examples of cooperatives who fulfilled the purpose, some with state support and you only have to look at Agrexco in Israel or the Cyprus Cooperative.
I have helped refine the model from experience in Indonesia, Sri Lanka, Cambodia and Kyrgyzstan but find that Development Institutions either think that the structure should evolve from the private sector without intervention or they remain scpetical about coops and farmer organisations. Personally I am convinced that a wholesaler/exporter enterprise can do it and make very good profits.
There are interesting models of how the private sector can integrate the small farmer with the value chain. One of the best models was refined by BAT and what was impressive was good profits for BAT and higher revenues for farmers. There are also many good examples of cooperatives who fulfilled the purpose, some with state support and you only have to look at Agrexco in Israel or the Cyprus Cooperative.
I have helped refine the model from experience in Indonesia, Sri Lanka, Cambodia and Kyrgyzstan but find that Development Institutions either think that the structure should evolve from the private sector without intervention or they remain scpetical about coops and farmer organisations. Personally I am convinced that a wholesaler/exporter enterprise can do it and make very good profits.
Christian Fischer , (2008-03-13 00:33:52)
Small or large is perhaps not the key issue. After all, large businesses are just successful small ones which have grown. The real issue is whether a business is competitive or not. And there is no systematic link between farm/firm size and competitiveness. For example, Italy’s rather successful agribusiness sector consists mostly of SMEs. By contrast, large-scale CEE/GUS farms and processing plants have widely failed. Hence, small or large both can work. Production economies of scale are only one (out of several) contributors to competitiveness. Management skills and supporting industrial policies are others.
Support policies need to consider the structural differences between small and large firms/farms. Small businesses are typically run by owners (i.e., entrepreneurs), hands-on and generalists. They also tend to be locally rooted (i.e., relocation to other regions or countries is usually not an option). Securing financial liquidity is crucial for them, as is the availability of general business support services such as accounting and human resource management. Large businesses are mainly run by managers which tend to be specialists. General production costs (wages) and tax issues (i.e., industrial policies) matter much more than for SMEs.
As for farmers and linking them to value chains, perhaps a more segmented approach may also be more effective. Integration into global value chains may be a valuable option for some. Yet the traditional market channel (either spot, or through repeated, but non-contracted, transactions with the same buyer/supplier) will not disappear. In fact, there is evidence that in Europe today this is still the most practiced option for farmers. Diagnosis tools need to be developed which help to identify the best suited support measures (policies or NGO initiatives) for different types of farmers and agribusinesses – small or large, north or south, chain-linked or independent market supplier.
Small or large is perhaps not the key issue. After all, large businesses are just successful small ones which have grown. The real issue is whether a business is competitive or not. And there is no systematic link between farm/firm size and competitiveness. For example, Italy’s rather successful agribusiness sector consists mostly of SMEs. By contrast, large-scale CEE/GUS farms and processing plants have widely failed. Hence, small or large both can work. Production economies of scale are only one (out of several) contributors to competitiveness. Management skills and supporting industrial policies are others.
Support policies need to consider the structural differences between small and large firms/farms. Small businesses are typically run by owners (i.e., entrepreneurs), hands-on and generalists. They also tend to be locally rooted (i.e., relocation to other regions or countries is usually not an option). Securing financial liquidity is crucial for them, as is the availability of general business support services such as accounting and human resource management. Large businesses are mainly run by managers which tend to be specialists. General production costs (wages) and tax issues (i.e., industrial policies) matter much more than for SMEs.
As for farmers and linking them to value chains, perhaps a more segmented approach may also be more effective. Integration into global value chains may be a valuable option for some. Yet the traditional market channel (either spot, or through repeated, but non-contracted, transactions with the same buyer/supplier) will not disappear. In fact, there is evidence that in Europe today this is still the most practiced option for farmers. Diagnosis tools need to be developed which help to identify the best suited support measures (policies or NGO initiatives) for different types of farmers and agribusinesses – small or large, north or south, chain-linked or independent market supplier.
Farhad Mirzaei , (2008-03-13 00:23:00)
Nowadays, linkage of farmers to market is discusing at national as well as international meeting and conferences, but all of us, are knowing very well, farming is very hard worh and implementation of both marketing and production are very difficult for rural people, so, we should lookpeerely this direction which is fruitful for farmers benefits.
Nowadays, linkage of farmers to market is discusing at national as well as international meeting and conferences, but all of us, are knowing very well, farming is very hard worh and implementation of both marketing and production are very difficult for rural people, so, we should lookpeerely this direction which is fruitful for farmers benefits.
Michael King , (2008-03-11 17:09:00)
Bill,
The issue of small versus larger farms has been gaining an increase in attention. Yet, the evidence either way is not clear cut. IFPRI in a recent study, recognised that in terms of efficiency small farms typically make intensive use of land by using much labour (since the costs of supervising household labour are low). This is an on-farm benefit. Large farms, on the other hand, have lower costs when transacting with the outside world. However, small farm development is more likely to impact on poverty reduction. Employment is locally available and income generated is usually spent locally on goods and services. Small farms should still be in position to compete in local or regional markets for products that don´t require credence attributes while larger farmers will more readily enter more formalised supply chains.
Having said this you´re most probably right about the future trends globally but farming is currently a way of life for the vast majority of the rural populace, and in many developing countries the alternative sources of income and employment do not exist. The public sector (including the role of donors and technical agencies)is to recognise the long term trend whilst addressing issues of poverty reduction by supporting small farmer development. This is a moral imperative. Yet the question still remains now this should be achieved. It is not the target beneficiaries at issue, but rather the forms of assistance.
Bill,
The issue of small versus larger farms has been gaining an increase in attention. Yet, the evidence either way is not clear cut. IFPRI in a recent study, recognised that in terms of efficiency small farms typically make intensive use of land by using much labour (since the costs of supervising household labour are low). This is an on-farm benefit. Large farms, on the other hand, have lower costs when transacting with the outside world. However, small farm development is more likely to impact on poverty reduction. Employment is locally available and income generated is usually spent locally on goods and services. Small farms should still be in position to compete in local or regional markets for products that don´t require credence attributes while larger farmers will more readily enter more formalised supply chains.
Having said this you´re most probably right about the future trends globally but farming is currently a way of life for the vast majority of the rural populace, and in many developing countries the alternative sources of income and employment do not exist. The public sector (including the role of donors and technical agencies)is to recognise the long term trend whilst addressing issues of poverty reduction by supporting small farmer development. This is a moral imperative. Yet the question still remains now this should be achieved. It is not the target beneficiaries at issue, but rather the forms of assistance.
Ronald Msoni , (2008-03-11 09:50:40)
The above are good and valid comment. its true we need to balance our focus but in a country like mine (Zambia Southern Africa)we may need to direct more of our efforts to organising farmers and building their capacity play an effective role in the value chains. This is necessary because in our case we are dealing with farmers who in the majority have very humble education with very limited exposure to the business way of doing things. However, in addition to farmers we need also to deal with service providers to bring about an understanding of mutual relationships between the farmers and the service providers.
The above are good and valid comment. its true we need to balance our focus but in a country like mine (Zambia Southern Africa)we may need to direct more of our efforts to organising farmers and building their capacity play an effective role in the value chains. This is necessary because in our case we are dealing with farmers who in the majority have very humble education with very limited exposure to the business way of doing things. However, in addition to farmers we need also to deal with service providers to bring about an understanding of mutual relationships between the farmers and the service providers.
N.Srinivasan , (2008-03-10 18:54:04)
The attention to the farmer is needed, but it should be given very differently. So far farmer has been conditioned (in India) to target production, not incomes and profits. The support mechanisms that have come up have targetted inputs and not the outputs and realised prices. Unless the farmer is celarly oriented towards the market and targets income stabilisation, he would not be able to deal with those who buy his produce. So let us support the farmer a bit more, but differently.
"We" should be in a position to ensure that linkages with the market are fair and just. The farmer should be able to do business on equal tems. Given all the other risks that Indian farming faces today, it would be unfair to ask the farmer to bear a part of enterprise risk of agro enterprises as well.
The attention to the farmer is needed, but it should be given very differently. So far farmer has been conditioned (in India) to target production, not incomes and profits. The support mechanisms that have come up have targetted inputs and not the outputs and realised prices. Unless the farmer is celarly oriented towards the market and targets income stabilisation, he would not be able to deal with those who buy his produce. So let us support the farmer a bit more, but differently.
"We" should be in a position to ensure that linkages with the market are fair and just. The farmer should be able to do business on equal tems. Given all the other risks that Indian farming faces today, it would be unfair to ask the farmer to bear a part of enterprise risk of agro enterprises as well.
Bill Samuel , (2008-03-10 16:57:01)
In the West small farmers have now largely disappeared. Those that remain tend to survive because of government hand-outs. Yet organizations like FAO continue to push the "small farmer". Don´t we need a sense of realism here? Very small farmers cannot compete in the modern world: they lack funds for investment; education and skills to provide what buyers want and are often remote from markets, either in terms of distance or because of poor infrastructure.
As this week´s Economist notes in the context of India, governments need to be looking at ways of encouraging unviable farmers to get off the land and move into more productive activities. So let´s stop clinging to this romantic notion of the small farmer as a tool for development and start to address some hard economic realities.
In the West small farmers have now largely disappeared. Those that remain tend to survive because of government hand-outs. Yet organizations like FAO continue to push the "small farmer". Don´t we need a sense of realism here? Very small farmers cannot compete in the modern world: they lack funds for investment; education and skills to provide what buyers want and are often remote from markets, either in terms of distance or because of poor infrastructure.
As this week´s Economist notes in the context of India, governments need to be looking at ways of encouraging unviable farmers to get off the land and move into more productive activities. So let´s stop clinging to this romantic notion of the small farmer as a tool for development and start to address some hard economic realities.
Patricia Lyttle , (2008-03-07 17:39:41)
Is it possible to focus attention on both farmers and the agribusiness value chains without shifting attention more to one sector? I think that farmers and the agribusiness value chains share a symbiotic relationship. Hence it would be difficult for one sector to make any significant progress without the other.
Is it possible to focus attention on both farmers and the agribusiness value chains without shifting attention more to one sector? I think that farmers and the agribusiness value chains share a symbiotic relationship. Hence it would be difficult for one sector to make any significant progress without the other.
Dr. Damian Ihedioha , (2008-03-07 09:46:24)
I agree completely. For a way forward, markets should drive production at the farm level. This is the concept of demand/market-led value chain development. This concept focus on expanding economic opportunities in the agricultural sector by increasing agricultural productivity, enhancing value added processing and increasing commercialization through private sector-led market-driven grouwth and development. With so much attention focused on production in the value chain, we experience glut during the harvesting season, with over 50%% of the produce wasted. In this situation, food insecurity, hunger and poverty dot the landscape.
I agree completely. For a way forward, markets should drive production at the farm level. This is the concept of demand/market-led value chain development. This concept focus on expanding economic opportunities in the agricultural sector by increasing agricultural productivity, enhancing value added processing and increasing commercialization through private sector-led market-driven grouwth and development. With so much attention focused on production in the value chain, we experience glut during the harvesting season, with over 50%% of the produce wasted. In this situation, food insecurity, hunger and poverty dot the landscape.
Vinay Chand , (2008-03-06 00:08:16)
Obviously the efficiency or viability of the entire chain is important and value chain analysis as a methodology looks at the sum total of the chain as well as its individual components to spot weaknesses and opportunities.
However, out motive in doing so as a development process is not impartial but rather committed to decreasing poverty and that is why we focus on the smaller farmers. Rather than too much being done for the them, we are not doing enough. It is easier to focus on other parts of the chain.
Obviously the efficiency or viability of the entire chain is important and value chain analysis as a methodology looks at the sum total of the chain as well as its individual components to spot weaknesses and opportunities.
However, out motive in doing so as a development process is not impartial but rather committed to decreasing poverty and that is why we focus on the smaller farmers. Rather than too much being done for the them, we are not doing enough. It is easier to focus on other parts of the chain.
Annette Bogere , (2008-03-05 14:29:05)
Definately, certain issues are over emphasised. Several approaches target issues like input supplies and markets for the farmers while doing this, only the supply side of the value chain is being addressed. Whereas looking at the demand side, considering all various players in the value chain and addressing the different dynamics would help in unlocking much of the value withn the chain enhancing competative ness.
Definately, certain issues are over emphasised. Several approaches target issues like input supplies and markets for the farmers while doing this, only the supply side of the value chain is being addressed. Whereas looking at the demand side, considering all various players in the value chain and addressing the different dynamics would help in unlocking much of the value withn the chain enhancing competative ness.
Dr. Rafaqat Raja , (2008-03-05 11:11:33)
I tend to differ and say that not much attention is being given to needs of farmers.There is dire need to organize farmers in to active organizations to enable them to acess inputs and access markets collectively. This will result in to scale of economy which will be viable.
I tend to differ and say that not much attention is being given to needs of farmers.There is dire need to organize farmers in to active organizations to enable them to acess inputs and access markets collectively. This will result in to scale of economy which will be viable.
Deris Hlophe , (2008-03-05 09:30:01)
There is a need to have enough safeguard in the system that guarantees that farmers will not be exploited in a way that there has to be a marketing and investment support fund, that is;
1. establish a fund assisting small farmers and enterprises to join value chains, comply with standards and norms
2. identify and assit entry to specific market opportunities
3. assist incoming investors in reaching out to small producers
4. assist existing enterprises to expand markets
There is a need to have enough safeguard in the system that guarantees that farmers will not be exploited in a way that there has to be a marketing and investment support fund, that is;
1. establish a fund assisting small farmers and enterprises to join value chains, comply with standards and norms
2. identify and assit entry to specific market opportunities
3. assist incoming investors in reaching out to small producers
4. assist existing enterprises to expand markets
Dr. Prabhat Kumar , (2008-03-04 10:03:07)
I see the entire debate form another perspective; do we have enough safeguard in Indian system that guarantees that farmers will not be exploited? Whose value chain for what? If not, then why not Govt., farmer’s association, companies sit down and make sure to have set guidelines, norms and if needed laws to govern this sector. Second important aspect is quality of procurement, how and what standard of quality are there in country like India, where most produces comes form small (less than ha.) in most cases.
And, the extension services provided by cooperates are often short sighted, what about the issues of environment, biodiversity, ecological perspective of agriculture? How these extension services offered by corporate are related to the state of art green research and how?
So, the issue of farmers first and their positive engagement in the process should be key as without it any venture is bound to fail. Also, no western model will work in India as socio-economic realities of two are pole apart! A new local based value chain design should be developed for each part of country for crops/livestock/fisheries etc.
Alternately, a alliance of resreach scientists-extension (both govt. and private-farmers-industries) should work on local needed technologies and also plan and incorporate elements of quality and later to the value chain for any future sustainability..
Thanks..
I see the entire debate form another perspective; do we have enough safeguard in Indian system that guarantees that farmers will not be exploited? Whose value chain for what? If not, then why not Govt., farmer’s association, companies sit down and make sure to have set guidelines, norms and if needed laws to govern this sector. Second important aspect is quality of procurement, how and what standard of quality are there in country like India, where most produces comes form small (less than ha.) in most cases.
And, the extension services provided by cooperates are often short sighted, what about the issues of environment, biodiversity, ecological perspective of agriculture? How these extension services offered by corporate are related to the state of art green research and how?
So, the issue of farmers first and their positive engagement in the process should be key as without it any venture is bound to fail. Also, no western model will work in India as socio-economic realities of two are pole apart! A new local based value chain design should be developed for each part of country for crops/livestock/fisheries etc.
Alternately, a alliance of resreach scientists-extension (both govt. and private-farmers-industries) should work on local needed technologies and also plan and incorporate elements of quality and later to the value chain for any future sustainability..
Thanks..
David Kahan , (2008-03-03 14:15:06)
The proposition as presented seems to be sound but the question posed should be whether Government and NGOs should continue to focus attention on farmers? In my view Government does need to recognise the importance of the private sector in developing agribusiness linkages and value chains and as such its role should be to create an enabling environment that is conducive for this. Yet the situation of NGOs is different. They have an important facilitation role in strengthening the position of farmers within value chains and linking them to larger businesses in order to create wealth and ensure that farmers capture their fair share.
The broader question that should be raised is whether too much attention is being given to farmers´needs and priorities rather than meeting the competitive challenges facing agribusiness value chains?
The proposition as presented seems to be sound but the question posed should be whether Government and NGOs should continue to focus attention on farmers? In my view Government does need to recognise the importance of the private sector in developing agribusiness linkages and value chains and as such its role should be to create an enabling environment that is conducive for this. Yet the situation of NGOs is different. They have an important facilitation role in strengthening the position of farmers within value chains and linking them to larger businesses in order to create wealth and ensure that farmers capture their fair share.
The broader question that should be raised is whether too much attention is being given to farmers´needs and priorities rather than meeting the competitive challenges facing agribusiness value chains?
Don Taylor , (2008-03-03 12:57:11)
I´m managing the USAID-sponsored Growth Oriented Micro-Enterprise Development(GMED) project for ACDI/VOCA. We are taking a value chain approach to helping incorporate smallholder vegetable and fruit farmers (mostly one to five acres) into organized retail and export supply chains. The opportunities for doing this include:
1. The rapid growth of organized retail that started around two years ago in India;
2. The consequent burgeoning demand for consistent supplies of vegetables and fruit that meet supermarket and export specifications;
3. The almost complete lack of modern supply chains for fresh produce;and,
4. The very small number of farmers that are currently capable of meeting the requirements of these markets.
The result of the above is that the corporate buyers are willing to provide extension services and other resources to organized clusters of farmers in order to obtain their fresh produce needs and remain competitive. Following a year and a half pilot program with one of the retailers to prove that the system is effective, we are currently working with several major wholesale/retail chains to train their extension staff in technology transfer to small-scale farmers and advise them on farmer organization, farmer loyalty programs and various aspects of fresh produce supply chain development. We are also working with a 5,400 member farmer cooperative, two large NGOs and two state governments to help bring farmers into productive linkages with higher value markets. We are the first organization in India to work with smallholder horticulture farmers in this manner.We are in fact successfully meeting the action provisions under items (i),(ii)and (iii) above. Thus far there has been no need for government intervention in this area.
I´m managing the USAID-sponsored Growth Oriented Micro-Enterprise Development(GMED) project for ACDI/VOCA. We are taking a value chain approach to helping incorporate smallholder vegetable and fruit farmers (mostly one to five acres) into organized retail and export supply chains. The opportunities for doing this include:
1. The rapid growth of organized retail that started around two years ago in India;
2. The consequent burgeoning demand for consistent supplies of vegetables and fruit that meet supermarket and export specifications;
3. The almost complete lack of modern supply chains for fresh produce;and,
4. The very small number of farmers that are currently capable of meeting the requirements of these markets.
The result of the above is that the corporate buyers are willing to provide extension services and other resources to organized clusters of farmers in order to obtain their fresh produce needs and remain competitive. Following a year and a half pilot program with one of the retailers to prove that the system is effective, we are currently working with several major wholesale/retail chains to train their extension staff in technology transfer to small-scale farmers and advise them on farmer organization, farmer loyalty programs and various aspects of fresh produce supply chain development. We are also working with a 5,400 member farmer cooperative, two large NGOs and two state governments to help bring farmers into productive linkages with higher value markets. We are the first organization in India to work with smallholder horticulture farmers in this manner.We are in fact successfully meeting the action provisions under items (i),(ii)and (iii) above. Thus far there has been no need for government intervention in this area.
