Spencer HensonInternational Food Economy Research GroupDepartment of Food, Agricultural & Resource EconomicsUniversity of Guelph

The allure of higher-value markets Challenges posed by higher-value markets Processes of smallholder inclusion/exclusion Donor strategies Assessing impacts of donor interventions Donor interventions: Cross-cutting issues Who should do what? Conclusions

Changes in consumer demand: Industrialized countries Developing countries

Increased trade in ‘non-traditional’ agri-food exports

Emergence of high-value market ‘niches’ Scope for ‘decommodification’ of traditional agri-

food exports Evident opportunities for developing countries Focus on ‘hitching’ smallholders to a vibrant

engine of growth

Supply chains distinct from those for traditional agri-food products

Rapid evolution of high-value supply chains Distinct capacities required Implications for smallholders

Traditional Products Low price elasticity Trader or processor-

driven supply chains Fragmented supply

chains Limited supply chain

integration/coordination Low value to volume

ratio Often low perishability Differentiation along

limited quality attributes Historically high level of

state intervention

High-Value Products High price elasticity Buyer-driven supply chains Concentrated supply

chains High levels of supply chain

integration/coordination High value to volume ratio Often high perishability Differentiation along

multiple quality attributes Historically little state

intervention

Global supply chains Spatial agglomeration Firm concentration in processing and

distribution Quality-based competition Coordination & Integration Standards as mode of governance:

Risk management Product differentiation

Lot of donor support Wide range of approaches:

‘Bottom-up’ ‘Top-down’

Not many countries like Kenya Spectre of smallholder exclusion Interest in ‘good practice’

Practitioner survey Buyer survey Country studies:

Kenya Uganda Ghana Zambia

Study products: Horticultural products Dairy products Honey Spices

Buyer-driven supply chains – key role of exporter

Exporter sources from available supply chains Inclusion driven by:

Meet buyer requirements in export markets: Critical capacities

Minimise procurement cost: Supplier price Own transaction costs

Competing uses for resources

Production costs

Transaction costs

Source 2002 2008

Intermediaries 37.4% 23.9%

Small—scale out-growers

74.2% 66.1%

Medium and large-scale out-growers

43.2% 49.4%

Own production 39.7% 40.6%

Other exporters 16.8% 5.6%

Resources internal to supply chain: Human assets Physical assets Natural c Financial capital Social capital

Resources external to supply chain: Infrastructure Institutions Technological conditions

Strategy Examples

Augment internal resources of supply chain

Farmer extensionGroup formation/strengthening

Technical assistance to exportersStrengthen industry associations

Facilitate industry ‘code of practice’ development

Finance production/management upgrades

Augment resources external to supply chain

Strengthen physical infrastructureModernise rules/regulations

Capacity-building for conformity assessment Strengthen BDS

Off-set additional production and/or transaction costs

Direct provision of market intermediary services

Cover adjustment costsSubsidy/payment for conformity assessmentPayment/subsidy for buyer outreach costs

Enhance price received by exporter

Market researchTrade promotion

Diminishing returns as move up high-value continuum

Capacity-bridging versus capacity-building Long-term sustainability – fixing the

fundamentals Need to have critical minimum capacities Sequencing Working with lead firms Role as ‘honest broker’ Role as ‘risk taker’

Production costs

Transaction costs

Diminishing returns as move up high-value continuum

Capacity-bridging versus capacity-building Long-term sustainability – fixing the

fundamentals Need to have critical minimum capacities Sequencing Working with lead firms Role as ‘honest broker’ Role as ‘risk taker’

Performance Capacity-Bridging

Capacity-Building

Time to achieve impacts

Short Long

Number of entrants

High Low

Rate of drop-out High Low

Diminishing returns as move up high-value continuum

Capacity-bridging versus capacity-building Long-term sustainability – fixing the

fundamentals Need to have critical minimum capacities Sequencing Working with lead firms Role as ‘honest broker’ Role as ‘risk taker’

Lots of interventions: Producer groups Technology transfer Residue monitoring plan for access to EU Processing facilities Trade fairs Organic certification

Efforts undermined by: Vibrant local informal market Persistence of traditional production methods Weakness of producer groups

Diminishing returns as move up high-value continuum

Capacity-bridging versus capacity-building Long-term sustainability – fixing the

fundamentals Need to have critical minimum capacities Sequencing Working with lead firms Role as ‘honest broker’ Role as ‘risk taker’

Critical role: Cost discovery Establishment of key resources:

Internal to supply chain External to supply chain

Key market linkage Substitution of private and donor capital Inevitably ‘top down’ Less scalable More rapid impacts

Direct support for exporters Promoted enhancement of food safety capacity Basic principles of operation:

Needs assessment Cost-sharing

Considerable success at building firm-level capacity……

…..but excluded (smaller) less able firms

Diminishing returns as move up high-value continuum

Capacity-bridging versus capacity-building Long-term sustainability – fixing the

fundamentals Need to have critical minimum capacities Sequencing Working with lead firms Role as ‘honest broker’ Role as ‘risk taker’

Experimented with wide range of fresh produce Activities:

Brought in new ideas & practices Procured biomass internationally Funded field trials

High failure rate Successes:

Vanilla Chilies

Government•Logistics/infrastructure•Legal framework•Policy framework•Training/extension

Private Firms•Technical support•Market linkages•Access to fixed/working capital•Identification of market opportunities

Donors•Linking smallholders and exporters•Support to government/promoting policy reform•Training/capacity-building•Provision of fixed capital•Sharing/promoting ‘good practice’

Project Implementers•Linking/brokering smallholders and exporters•Training/capacity-building•Market identification and assessment•Farmer mobilisation and organisation

High-value markets very challenging for smallholders

Don’t have to aim ‘for the stars’ …. there is a world outside of GlobalGAP

Need to see processes of inclusion/exclusion from exporter’s perspective

Key role of internal and external resources Challenges in seeing appropriate role for donor

support