Agribusiness Investments,
Value Chains, and Farmers
“Linking (Rich) Consumers to (Poor) Producers”
Johan Swinnen
University of Leuven
CEPS
& Stanford University
Milano, October 2015
Historical Perspective on
Agribusiness and Value Chains
1.
After WW II : State-controlled VC
2.
1980s and 1990s : Liberalization & privatization
transformed value chains (with major disruptions in
some countries)
3.
Past 20 years : Rapid growth of private sector value
chains
Economic Reforms and
Agribusiness Investments
(Modern retail investments in ECA (%))
Share of modern retail in total (%)
60
50
40
1998
R Sq. = 0,79
30
2002
20
10
0
2
2,5
3
EBRD Reform Index
3,5
4
The Growth and Nature of Value Chains
(Domestical & international)
 Drivers:





Economic reforms
Income growth
Urbanization
Foreign investment (FDI)
Trade
 Nature :
 Increasing quality and safety standards – public & private
 Vertical coordination in value chains
Rapid Growth of Agri-Food Standards
120000
14000
GlobalGAP producers
Total amount of SPS notifications to WTO
12000
100000
Private
10000
80000
Public
8000
60000
6000
40000
4000
20000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
/2011
2000
1999
1998
1996
1997
1995
0
0
2004 2005 2006 2007 2008 2009 2010 2011
Agri-Food Exports of
Developing Countries
Changing structure of trade
Product Share in Agri-Food Exports from
Developing Countries (%)
TROPICAL products
1980
2010
39.2
16.7
28.8
27.0
21.6
44.1
10.4
13.2
100.0
100.0
(Cocoa, tea, coffee, sugar, …)
TEMPARATE products
(Meat, milk, grains, …)
SEAFOOD, FRUIT & VEGs
Other PROCESSED
(tobacco, beverages, …)
Total
6000
A Changing World of AgriFood Value Chains
The Cocoa-Chocolate Trade
between Africa and EU
Cocoa exports from Africa
5000
tons
4000
3000
2000
1000
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
0
World
Africa
Western Africa
160.000
Chocolate imports in Africa
140.000
140.116
120.000
102.822
tons
100.000
80.000
67.769
60.000
40.000
26.563
20.000
1998
2000
2002
2004
2006
2008
2010
2012
Is this good or bad
for developing countries ?
• Do modern value chains marginalize poor
farmers who cannot satisfy the
requirements ?
• Does concentration in value chains lead to
rent extraction by agribusiness ?
• Does FDI threathen traditional land rights
(“land grabbing”) ?
Value Chain Studies
Empirical evidence *
1. Smallholder inclusion is mixed
(much more than typically argued)
2. Smallholders can have significant benefits if
included, even with concentrated supply chains
3. Benefits from employment are ignored
* See reviews by Maertens and Swinnen (JDS, 2012; WTO 2014;
ARRE 2015)
Value, Standards
& Commodity Characteristics

Governance and Organization
of Value Chain

Surplus Creation & Surplus
Distribution
along the Value Chain
(Impact on Farmers)
Vertical Coordination in Value Chains
• Standards imposed by “rich consumers” require
specific investments/inputs by “poor
producers”
• Farmer investments are difficult because of
various constraints and market imperfections
• This induces vertical coordination & contracting
in the value chains
Implications for
farmers & rural households
• Vertical coordination can imply:
– Transfer of technology, inputs, know-how, … to poor
• (arguably more important than many government
technology programs)
– Efficiency premia for poor suppliers
– Employment opportunities for poor households
• Potentially major implications for farm
productivity and poverty (employment)
Economic Reforms and
Value Chain Development
(Vertical coordination in dairy chains in ECA (%))
assistance (% interviewed
companies)
90
80
70
60
R2 = 0.9309
50
40
30
20
10
0
2
2.5
3
reform progress (EBRD)
3.5
4
“Private agricultural marketing companies
have become dominant providers of
smallholder input credit in Sub-Saharan
Africa. In various countries of the region,
they are today in practice the sole
providers of seasonal input advances to the
small-scale farming community.”
IFAD (2003, p.5)
Comparative Analysis:
3 Cases of Value Chain Development
Smallholders
Industry
structure
Madagascar
green beans
100%
contract
Monopoly
High value
exports to
EU
yes
Senegal
green beans
Mixed &
changing
Competition
yes
0%
Monopoly
yes
Senegal
cherry
tomatoes
1. High standard F&V exports from
Madagascar to the EU
•
Rapid growth
–
–
100 farmers in 1990
10,000 small farmers on contract in 2005
• Major technology (fertilizer) adoption effects
• Important productivity spillovers
– Rice productivity increased by 70%
– Length of lean periods falls by 2.5 months
- (with contract: 1.7; without contract: 4.3 months)
2. Green Bean Exports in Senegal
60%
50%
% household
participation in
region
40%
Employed
30%
Contract
Participation
20%
10%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
60%
50%
Average household income (1,000 F CFA)
2. Green Bean VCs in Senegal
% household
participation in
region
40%
30%
20%
10%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
7000
Income
Effects
6000
5000
4000
Employed
3000
Contract
2000
Participation
1000
0
Total sample
NonAgro-industrial
participants employees
Contract
farmers
Total household income
Income from farming
Income from agr. wages
Income from non-agr. sources
3. Vertical Integration
Worst Case Scenario ?
Tomato export chain in Senegal
1. Very stringent standards
2. Poor country
3. Complete exclusion of
smallholders
4. Extreme consolidation
5. Foreign owned multinational
(Maertens, Colen and Swinnen 2011 ERAE)
Worst Case Scenario ?
• Strong employment
growth: 40% of
households in the
region employed
• HH incomes double:
strong income and
anti-poverty effects
Average total household income
(million FCFA)
Standards, Value Chain Employment
& Incomes of Poor
2500
2000
1500
1000
500
0
Total sample
Households with
Households without
members employed in members employed in
the tomato export
the tomato export
industry
industry
Total income
Income from farming
Income from tomato export industry wages
Income from self-employment
Income from other wages
Non-labour income
Gender Effects
Employment effects
• Especially important for the poorest and for women
• Our hypothesis:
… women and the poor may benefit more and more
directly from employment in large-scale production and
agro-industrial processing, than from smallholder
contract-farming.”
(Maertens & Swinnen , 2012 JDS)
• Note that in this perspective indicators that look only at
“participation of small farmers” may be (double)
misleading in terms of welfare and poverty effects
Issues for Policy and Organizations
(How to ensure (poor) farmers benefit from linking
with (rich) consumers ?)
 Realizing the changed nature of agri-food value
chains
 Standards, etc.
 Role of trade agreements, investment rules, property
rights regimes
 To stimulate investment
 To protect households and companies against expropriation
 Enhance bargaining power & integration of farmers
(and workers !)
 Role of farm associations
 Competition policy
 Dispute settlement mechanisms in value chains
 Etc