shepherd asia rice_valuechains
TRANSCRIPT
Author
www.fao.org
Developing rice value chains
in SE Asia
Andrew W. ShepherdBased on a presentation made at the FAO “Knowledge exchange on the promotion of efficient rice farming practices”, Yogyakarta, Indonesia, 26–29 September 2016.
www.fao.org
The presentation
1. What do we mean by “value chains”?
2. Traditional rice value chains in SE Asian countries
3. Scope for developing modern value chains for rice
www.fao.org
The use (and abuse) of “value chains”
1. “Value chain” was initially used in the agricultural context to describe identifiable linkages between the producer of a particular product and the consumer, where value is added at all stages of the chain in the process of meeting consumer demand
2. However, over time the usage has become broader, such that it is now often used synonymously with:
▫ The world market for a commodity (e.g. the rice value chain), or
▫ All of the marketing channels for a particular product in a country (e.g. The Philippines rice value chain)
• To avoid confusion I refer to 1. as a “modern value chain” and 2. as a “traditional value chain”. The next slide illustrates a proposed example of a modern rice chain under discussion for development in Cambodia. This is followed by a slide illustrating the traditional “value chain” for rice in the Philippines.
www.fao.org
A proposed modern rice value chain
for Cambodia
www.fao.org
The Philippines traditional
rice “value chain”
www.fao.org
Whichever definition you use the chain
involves ….
• Those who produce and handle the product (farmers; buyers; processors; exporters; retailers; etc.)
• Those who provide direct support to the above (input suppliers; extension staff; mechanization services; transporters; banks; etc.)
• Those who provide indirect support (researchers, utility and communication companies; certification agencies; etc.)
• A policy and regulatory environment that dictates how the chain can function
www.fao.org
Traditional rice “value chains” in SE
Asia
The following slides provide a brief description of the main features of traditional chains in Cambodia, Indonesia, Lao PDR, Myanmar, the Philippines, Thailand and Vietnam
www.fao.org
Cambodia
www.fao.org
There has been a rapid increase in harvest mechanization
in the last decade, reflecting labour shortages and market
opportunities
www.fao.org
Cambodia
• Vietnamese purchase of wet paddy has caused Cambodian mills to also start drying to compete with Vietnamese traders
• Significant changes to the milling sector with several large-scale mills recently constructed and some medium-sized ones going bankrupt
• Mobile millers, such as the one shown here, mill for farmers’ own consumption
www.fao.org
Indonesia
• Two harvests (Feb-May 60%; Oct. onwards 40%)
• Rice harvesting, post-harvest and milling are complex and vary much across the country
• Little harvesting mechanization. In Java, heavy use of hired labour groups with high post-harvest losses. Elsewhere individual farmer harvesting or community groups
• Threshing equipment usually rented but delays between harvest and threshing cause quality and quantity losses, as does poor drying
www.fao.org
Indonesia• Farmers sell wet or dry paddy
to traders with whom they sometimes have credit linkages
• Important role of rural cooperatives
• Some modern, high-quality mills mainly supplying supermarkets but many mills, like the one shown here, are antiquated, with low conversion rates.
• Around 110,000 mills. Surplus capacity. Some smaller mills just remove the bran and sell on to larger mills
www.fao.org
Lao PDR
• Insufficient returns to labour for small farmers and number of rice farmers declining
• Ageing farm population
• At same time, yields are increasing, mainly through wet season lowland production
• Increased availability of improved seeds needed
• Multiple paddy and rice traders with complex marketing systems
• Significant informal trade of paddy to neighbouring countries
www.fao.org
Lao PDR
• Market dominated by “sticky” rice
• Large number of small and medium-sized rice mills, with most having 2-6 t. a day capacity with old technology and low conversion rates. No resources to upgrade
• Some investment in new mills
www.fao.org
Myanmar
• Following marketing liberalization and abolition of government marketing agency, Myanmar again has a (small) export surplus
• Farm size 2-3ha on average. HYV and traditional. Inadequate seed availability
• 80% production wet season, other 20% in irrigated areas
• Farmers often have other work, but employ labour when needed. Obtaining finance a common problem
• Government provides seasonal loans but insufficient
• Possibility of warehouse receipt finance being actively investigated
www.fao.org
Myanmar• Sales both at mill and farm
gate. 20,000 mills, half with capacity over 15t a day. 30,000 dehuskers for farmers’ own consumption.
• Farmers and traders sometimes deposit paddy at mill to await a favourable price, but this can be risky as storage is poor, as shown
• Efficient system for rice marketing with wholesale market in Yangon
www.fao.org
Philippines• Farmers do own harvest or
employ labourers
• Threshing is mechanized
• Palay drying at side of road, etc., although large proportion delivered wet to mills, particularly on Luzon
• Good-quality drying facilities are limited
• Palay for farmers’ own consumption milled at small huller mills known as “kikisan”
• Around 10,000 commercial mills but most not of good standard.
www.fao.org
Philippines• Financing a major constraint. Farmers sometimes receive
production loans from traders
• Market dictated by price and does not reward good post-harvest handling. Highest proportion of “brokens” in SE Asia region
• Government continues to target self-sufficiency although rising production costs, rapidly growing population, production difficulties and antiquated milling equipment make this difficult
• National Food Authority (NFA) has intervened in the market both as a buyer of palay and as an importer of rice. The Authority is highly indebted and its activities criticised for disrupting the market
www.fao.org
Thailand• Farmers sell directly to
traders or to mills at assembly markets. Around 1000 mills
• Very few facilities for farmers to mill own paddy. Poorest 50% of farmers buy more rice than they produce
• Millers sell to exporters or domestic rice traders, who may carry out further polishing, cleaning and broken separation
www.fao.org
Thailand• Exports usually account
for 40-50% of production.
• Retailing most advanced in region. Rice increasingly sold branded, with 5% “brokens”
• Biggest problem faced as result of political involvement in the Paddy Pledging Scheme
www.fao.org
Vietnam• Main production systems:
Mekong Delta; Red River Delta and northern uplands
• Liberalized market and move away from collective production from 1981 moved Vietnam from deficit to major exporter
• Farm size remains small and rice quality low with use of farmer-retained seed common
• Production of specific varieties for the market relatively rare
• High-yielding varieties with fertilizer give 3-4 crops a year
www.fao.org
Vietnam
• Subsidies to sector gradually reduced and now concentrated on the poorest
• Rice remains unprofitable compared with other crops and farmers diversifying, but land conversion has to be approved by Government
• Farmers sell both dry and wet paddy through collectors and directly to mills. Close relationship between traders and farmers, and credit arrangements sometimes involved
• Adoption of integrated farming in Mekong Delta, (paddy with ducks, fish, shrimp)
www.fao.org
Vietnam
• Dehusking (to produce brown rice) and polishing (to the white rice stage) often done by different companies.. One estimate: 300,000 dehuskers and 30,000 mills
• Transportation in Mekong area mainly by boat
• New value chains slowly under development to target niche markets (e.g. “safe” rice; jasmine rice)
• Increasing differentiation and branding
www.fao.org
Summary of main issues relating to
traditional rice value chains• Small size of individual farms, unimproved seeds, farming
systems fairly slow to change, low yields and poor returns
• Poor post-harvest handling (harvesting, threshing, drying)
• Small and inefficient mills (with the exception of Thailand) with relatively little new investment in most countries
• Farmers are often net rice buyers
• Government involvement in value chains (everywhere)
• Obsession with self-sufficiency (Indonesia; Malaysia; Philippines)
• Evidence of dynamic value chain response where opportunity presents itself
www.fao.org
Some conclusions on traditional chains
• Difficulties are experienced throughout the chains. This argues for a “whole chain” approach to upgrading
• For example, there is little point in improving production techniques if post-harvest handling, milling and storage are not also considered
• Similarly, finance is often a constraint. An approach to financing that addresses all stages of chains rather than one that just targets farmers is required
• Better mills and traders are concerned with product quality and would increasingly prefer to purchase wet paddy and dry it themselves
• Development agencies need to work more with traders and millers and not see them as the “evil middlemen” who exploit farmers.
www.fao.org
The scope for developing modern
value chains for rice
www.fao.org
Modern value chains for all products are driven by consumer trends
• urbanization
• growth of supermarkets
• women’s employment (urban and rural)
• smaller families
• refrigerators and cars
• demand for processed, semi-processed and ready-to-eat products
• globalization
• increased awareness of quality and safety
www.fao.org
Modern value chains usually require
contract farming or similar arrangements
• credit access is enhanced (in-kind or via banks)• inputs can be more easily obtained (less uncertainty
regarding availability, timing, quality)• services and technological assistance also available
(mechanization, transportation, extension)• production and management skills of farmer groups
can be enhanced • market outlet is more secure, promoting a reliable
revenue stream and income stabilization• meeting certification standards becomes possible, as
does provision of traceability
www.fao.org
But there are potential risks for
farmers
• firms might renege on contractual terms:
of particular concern for long-term crops (e.g. oil palm) or other products where there is “asset specificity” (i.e. when investments made cannot be used for any other purpose)
• firms may fail to deliver inputs on time
• loss of flexibility and possible increase in risk
• inability to benefit from high market prices when contract fixes price in advance
www.fao.org
And not all farmers are suitable for
modern value chainsThey must have capacity to meet market requirements in terms of:
• agronomic suitability, climate, pests and diseases in the
farming area
• location, input supply and infrastructure
• assets and access to finance (e.g. to pay labourers)
• meeting certification requirements
• land area
• social structure and education levels
• a certain willingness to take risk
www.fao.org
There can be gender and other problems
from involvement in modern chains
• land used by women for food crops is allocated by men for value chain production
• contracts in man’s name, men attend training courses but women do the work
• payment to men, who spend the money unwisely
• social obligations (e.g. funerals) can conflict with contractual obligations, particularly for perishable products
• farmers may encounter jealousy from those who are not part of the value chain
• value chain involvement may lead to labour constraints
www.fao.org
However, developing modern value
chains for rice through contracts could
permit
• Introduction of new varieties to an area
• Strict technical supervision
• Closer collaboration between farmers and buyers
• Certification
• Traceability
• Approved input and service supply and access to finance
• Improved farmer organizations
www.fao.org
This requires TRUST, which can be
enhanced through ….
• Transparency – maximizing communication (e.g.
through exchange visits between farm and mill)
• Reliable assessments of potential profitability for
farmers
• Clear transparency in grading and pricing
• Timely delivery of inputs and input price transparency
• Timely payments
• Agreed arbitration procedures
www.fao.org
Mutual trust can also be strengthened
by …• Working through groups or
through farmer leaders
• “On-the-ground” presence
of extension workers
• Planning for possible
problems right from the
beginning
• Contract flexibility
• Contract language that is
easily understood
www.fao.org
Still relatively few “modern” value
chains in the SE Asian rice sector
• Rice is mainly a “commodity” that can be traded without meeting quality requirements that farmers find difficult to meet
• For standard rice there are multiple buyers so purchase guarantees in contracts give little benefit
• As there are many buyers, side-selling is easy
• However, there are a few examples of rice contract farming (examples on the following pages) and the number is likely to increase
www.fao.org
Enhancing Milled Rice Production in
Lao PDR (EMRIP)
• Project provided training to mills and mills received support for improvements
• Millers organized and paid for extension to farmer groups with intention of buying high-quality paddy from farmers
• Main lessons:
▫ Flexible pricing arrangements are preferred
▫ Farmers need to be sure of alternative outlets
▫ Side-selling an issue unless strong relationships are built
www.fao.org
Lao Arrowny Corporation
• Joint venture between Lao and Japanese investors in Vientiane province
• Koshihikari rice was marketed as “bio-organic” rice as use of some fertilizers was permitted
• 2004 study concluded that contract farming had been beneficial to farmers involved
• No in-house processing capacity and high transport costs to have paddy processed in Thailand for export to Japan.
• 2009 flooding in Laos made production difficult and farmers unable to repay credit
• Political turmoil in Thailand increased milling problems
www.fao.org
Rice seed production for
PT Pertani, Indonesia
• Smallholders provided with free foundation seed and extension advice
• Must deliver at least 75% of production to PT Pertani and remaining 25% only for own use
• Four extension visits per farmer per crop.
• 15% of crop rejected on visual inspection prior to harvest but could be sold for consumption purposes
• Company does drying of paddy seed
• Final price paid is less than market price but accepted by farmers as other benefits are provided by the company
www.fao.org
SL Agritech, Philippines
• Company has contract farming arrangements for hybrid seed. Said to be largest hybrid seed company in Asia
• Also does contract growing for its brand, “Dona Maria Premium Quality Rice”, with hybrid seeds provided on credit
• Expansion planned in Visayas and Mindanao to meet needs of rapidly growing urban areas.
• Yields of over 14t per hectare have been achieved
www.fao.org
AKR Cambodia
• Contracts with farmers to grow aromatic variety
• At one time 87,000 participating farmers, working through farmer associations
• Company provides seed, with farmers supplying mill with the same quantity of paddy at harvest
• Associations monitor production progress and provide technical advice.
• Tendency for farmers to move out of the contract as they became more experienced
www.fao.org
AMRU Cambodia
• Around 2,000 farmers to produce organic rice, with plans to increase to 10,000
• Supported by French-funded project
• Contracts implemented through agricultural cooperatives
• Contract development and negotiation involves Ministry of Agriculture
• No financial support or input supply to farmers
• Company provides technical support and training, transport for the paddy, and bags, which are marked to ensure identification of the producer
www.fao.org
Elsewhere• Thailand. Production of “Japanese rice”
▫ Several mills involved, using variety of contractual terms and conditions
▫ Seed shortage a problem
▫ Mill liquidity also a problem
• Myanmar. Rice Leading Companies (RLCs)
▫ Provide inputs on credit as well as technical support
▫ Aim to improve quality and link with exporters
▫ Liquidity has been a problem
• Vietnam. e.g. An Giang Plant Protection Joint Stock Company (AGPPS)
▫ Input supply, private extension service, storage to await price rises
▫ An Giang’s model has encouraged replication by other companies
www.fao.org
Factors that should contribute to
success of modern rice value chains
• Value chains most likely to be successful when rice with specific characteristics is produced (e.g. specific varieties; aromatics; organic; certified)
• To avoid side-selling the total price paid should offer a significant premium over the local market price for paddy
• Companies need to hold numerous meetings with farmers to ensure that each party’s needs are fully understood
• Field staff can both improve production and identify potential problems with the contract
• Companies must have sufficient liquidity to supply inputs on time and pay for paddy on delivery. Alternatively, linkages with financial institutions should be developed.
