Livestock Marketing and Supply Chain Management of Livestock Products

Steven J. Staal

International Livestock Research Institute

74th Annual Conference of the Indian Society of Agricultural Economics

December 18 - 20, 2014 • Aurangabad, Maharashtra, India

Outline of the Presentation

• Global Trends in Livestock Markets and Demand• Livestock Trends in India • The Role of Smallholders• Forces Driving Unorganized and Super Markets• Linking Farmers to Markets• Upgrading Unorganized Markets• Key Lessons and Conclusions

Trends in Livestock Markets and Demand

• Some of the most dynamic markets both globally and in South Asia are for livestock and livestock product.

• This Livestock Revolution is being driven largely by local demand due to growth in purchasing power and urbanization.

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Per capita GDP (US$ PPP)

USA

JapanChina

India

Brazil

Growing Incomes = increased consumption of livestock products

Projected change in global and regional demand for food to 2050: Livestock and other commodities

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developed developing SSA SA% c

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• Developing country demand for meat and milk may grow by 50% to 2050. South Asia, with currently low per capita meat consumption, may grow the fastest, estimated at 4% annually to 2050.

Where will the supply come from to meet this growing demand?

• Livestock products are perishable and require drying, freezing, canning to trade. Generally only 10% of global meat and milk is traded.

• Large majority of supply to developing countries will thus be produced in developing countries, which is already happening.

• Developing country milk production is expected to grow by 1.8% annually to 2050 (2.0% in the case of South Asia), compared to only 0.3 % for developed countries.

• For meat the expectation is over 3% annual growth for developing countries, compared to 0.4% for developed countries

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Global 1987 Global 2012 Asia 1987 Asia 2012

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Crops Livestock

Net Value Of Global Agricultural Production 1987-2012

Source: Delgado (2014)

• The share of value of production in Asia has grown to nearly half of the global total, and the share of livestock in value of agricultural production had also increased significantly, both globally and in Asia.

Livestock trends in India

• Livestock value increasing in share, recently estimated at some 27% of agricultural GDP, steady at 5% of total GDP even while agricultural GDP declines in share.

• India is the world largest milk producer, and growing, although trade in dairy products remains relatively small.

• India also the world’s largest bovine meat exporter since 2012, mostly offtake from dairy buffalo systems.

Trends in the quantity and value of production of milk and meat in India since 1980

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India Milk Production

Production: Whole fresh, cattle & buffaloNet Value: Whole fresh, cattle & buffalo

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India Meat Production

Production: Cattle & buffalo Production: Goat & sheep

Production: Chicken Production: Pig

Net Value: Cattle & buffalo Net Value: Goat & sheep

Net Value: Chicken Net Value: Pig

Source: FAOStats

The quantity and value of milk increasing steadily at an annual rate of some 4% since 1995

The case of meat, the feature that stands out clearly is the strong growth in poultry production.

Annual value of dairy, meat and live animal products imported and exported since 1995

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India Meat & Live Animal Trade Value

Import, Cattle & Buffalo Import, Goat & sheepImport, Pig Import, Chicken Export, Cattle & Buffalo Export, Goat & sheep Export, Pig Export, Chicken

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India Milk & Milk Products Trade Value

Import, Whole Milk Import, Butter & ButtermilkImport, Skimmed Milk Import, CheeseExport, Whole Milk Export, Butter & ButtermilkExport, Skimmed Milk Export, Cheese

Source: FAOStats• Strong demand and increases in the quota for duty-free

milk powder imports, has produced higher powder imports.

Sheep and goat exports growing

Livestock price trends in India

• The price/value trend seems to be towards ruminant products.

• Monogastric production (poultry, pig) has been demonstrated to be generally more efficient at scale, using concentrate feeds. Relative price of poultry has been in decline for some time, as production has been commercializing

• Ratio of mutton to poultry unit prices tripled to 2.9 from 0.7 since 1963.

• Same trend in other developing countries, also related to the fact that mutton is often regarded as superior product in many countries.

Role of smallholders in production

• Smallholders continue to dominate livestock production in many developing countries, including India, and particularly in the case of ruminants.

• Smallholder farmers are estimated to produce the large majority of the small ruminants and 70% of the milk in India.

• In contrast the Indian poultry sector has been rapidly commercializing and broiler production is estimated to be 70% in the organized sector

• “two worlds” of livestock in India, competing sets of producers , differentiated mostly by state or region.“leading” zones = production is increasingly commercialized and market-driven (Haryana and Gujarat)“lagging” = subsistence and livelihood oriented (Odisha)

Smallholders competitiveness

• The large scale “enterprise model” of production (1 objective and benefit=profit) Capital intensive , mechanization and economies of scale

advantages only work when labor costs are high, dependent on market-priced inputs and labor

• Competitiveness of smallholder livestock producers is closely linked to their “household model” of production (multiple objectives, multiple benefits). Multiple benefits, maximum use of low

cost resources and farm synergies, interactions, not completely dependent on profits, up to 40% non-market “return”

• Smallholders are competitive. Multiple studies across continents, including some studies from India, demonstrate reasons for underlying competitiveness

• Limited economies of scale in production in ruminants• Often comparable unit costs of production, small vs large• Fresh/Traditional product markets also buffer import competition

Unorganized or informal markets

• Driven by a significant gap between buyer demand for characteristics of market products, and the standards in the formal market for those characteristics.

• The level of formally processed livestock products in India is low. Only 6% of meat (including beef and pork) is formally processed.

• Organized market share in dairy is estimated to have grown to only 25%, in spite of efforts in cooperative development efforts.

• Similar in other developing countries e.g. pork in Vietnam

• Informal markets generally generate more employment. Milk markets in Africa and South Asia were found to employ between 1 and 5 full time people per 100 liters of milk handled daily, at above the minimum wage

Consumption drivers shaping markets

Conceptual relationship between level of safety or standards and consumer purchasing power

The “Supermarketization” Phenomenon

• “Supermarketization” is the increasing market share of large food retailers. Convenience of being able to buy a wide range of products in a

single location, sometimes at lower prices, and to perceptions of higher product quality.

• On-going “quiet revolution” in Indian food supply chains, with modern retail sales growing at 49% annually, driven by the private sector.

• Supermarketization’ threatens smallholder market participation,although smaller impact on fresh foods.

- Driving higher standards for quality and food safety.- Changing market structure towards vertical integration, larger

scale of production.

Linking farmers to markets

• In spite of Operation Flood and the Anand model, cooperatives have had a mixed record in livestock supply chains, and have been most prominent in dairy, where is continued growth.

Producer company: A hybrid between a private limited company and a cooperative

• It aims towards greater levels of efficiency and developing opportunities to move further along the value chain

• Some for handling a range of commodities with market niches, and some are large, with thousands of members

• Although cooperatives can opt for conversion under the law, there is little evidence of that occurring on a significant scale, and state support varies.

Collectives and producer companies

Contract farming

• Means to link smallholder producers to modern supply chains to reduce risks and uncertainty among both producers and buyers, manage quality and timing of supply

• However, may be large barriers to entry, e.g pig production in Vietnam, and non-compliance is routine

• Most success examples are in poultry (broilers)• Experience in dairy contract farming in India, “leakage” limits

application to dairy

• Key feature for success: Batch production and critical timing

• Emerging lessons: No clear livestock examples suitable for smallholders, except poultry

Hubs and clusters

• Combine public and private sector actors; exploit the presence of a number of actors in a dynamic process that can evolve over time to change with needs of producers and the market; build on the geographical proximity of multiple producers

EADD Dairy hubs

Employs a

Business

Development

Services

approach

BDS is

catalyzing a

‘3rd party

actor

Innovation platforms

• ‘Innovation platforms’ as a means to create new linkages between a wider range of market actors & BDS

• IPs are simply arrangement which allow individuals and organizations to come together regularly to address issues of mutual concern and interest.

• Emphasis on ‘innovation capacity’ –and fostering local ownership of the process to enhance sustainability

• Typically not intended to be self-sustaining organizations, but rather to operate for a time to catalyze

Structure of the Innovation Platforms

Organisational issues in extensive and dispersed livestock systems

Some livestock products markets are particularly resistant to forms of collective action, often because of the structure of production.

• Small ruminants - may be raised as complementary outputs in mixed crop-livestock systems or extensive systems

• The generally atomized , irregular and infrequent offtake of production, in addition to distances, imposes market and organizational constraints.

• Low density of economic livestock activity in small ruminant production systems, compounded by remoteness, poor infrastructure, and long-standing traditional relationships between buyers and brokers

• Result is limited producer bargaining power, high TCs, asymmetrical information, limited transparency in transactions

Food safety in livestock product markets

• India has been identified as a hot spot for threats from zoonoticdiseases for people.

• India emerged as the country at greatest risk globally (based on

analysis conducted of the interface of the three key factors of (a) poverty, (b) rapidly changing livestock systems and (c) the prevalence of zoonotic disease)

• Disease transmission through livestock products – salmonella in meat,

brucellosis in milk, pathogens causing diarrhea in children

• In India, e-coli and campylobacter contamination in some meat products at up to 50% among other pathogens. (It is difficult to obtain

systematic data on livestock product related threats to food safety in India)

• Aflatoxins may occur in milk from animals fed contaminated feed (potentially

poisonous and carcinogenic effects in people )

Engaging with unorganized markets for safety and quality

• (In East Africa and Assam) Through working directly with informal market actors to increase both their capacity for improved hygiene and food safety, as well as their incentives for doing so.

• Informal market actors regarded as exploitative middle men providing no real service and creating threats to health

• Typically ignored by market development projects, which prefer to work with groups of producers, collectives and with modern private sector market players

• Regulators and policy makers either ignore informal market actors, or actively block their activities

• As a result, have no training and limited capacity

Training and certification with BDS

(In both East Africa and Assam)

Use a BDS approach to develop their capacity to upgrade value chains, provide better services to clients, higher quality/safer products to consumers

• Market actor training and certification’ strategy has 3 components: (1) accreditation of trainers

generally in a local NGO or business development services (BDS) provider, (2) training of market actors by the BDS provider in handling, hygiene, processing and business skills and (3) involvement of he local regulatory agency to provide some sort of certification or recognition of the trained market actors

“Bridging the gap”

• ‘Bridging the gap’ strategy

• The gap between the inadequate traditional standards on one hand, and the sometimes costly standards of the modern market

• Address the reality that small scale or traditional agents often occupy by far the largest market share in developing countries

• An evolutionary process that recognizes that

• until consumer demand and willingness to pay for higher food safety and quality standards rises,

• informal markets will supply lower cost products with lower standards, regardless of policing or enforcement

Not discussed in this paper

• The potential for new ICT tools for better market information

• Policies and incentives to facilitate public-private-partnerships and investment

• Livestock auctions, which have a mixed history in developing countries

• Potential for valuable niche markets, branding and certification for indigenous breeds of livestock e.g. indigenous chickens

Key lessons and conclusions

• Smallholders will likely continue to supply the bulk of ruminant livestock products for the foreseeable future.

• In spite of supermarketization, unorganized or traditional markets are likely to continue to be important.

• Continued innovation is needed for better linking smallholders to markets.

• Extensive production systems may need specific development models to address unique characteristics

• More use of BDS will reduce reliance on public services

• An evolutionary approach is needed to ‘bridge the gap’ between unorganized and organized supply chains, for improving standards over time.

• Research on these issues should continue.

Thank you for your

attention

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