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CLUSTER APPROACHES TO AGROENTERPRISE
DEVELOPMENT
Lessons from the Maharashtra grape cluster
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Clusters widely reviewed
• Little research on agricultural cluster• Reason:
– Clusters = competitiveness & innovation
• Agriculture always clustered– Wheat, Rice, Fish
• Missing in clusters are linkages
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Agriculture 21st CenturyTransforming
• Globalization• Standardization• High Value Production• Growth in Demand• Retail & Packaging Innovation
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World Development Report
• High value products– Horticulture– Livestock– Floriculture– Organic produce
• 50% of exports• Traditional tropical commodities
– Coffee, Cocoa, Tea & Cotton• 21% of exports
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New Agriculture needs:
• New tools to:• Innovate• Become competitive• One potential tool• Formation of a cluster
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Definition of Cluster
• Concentration of – Producers– Agribusinesses– Institutions
• Same sector• Address common challenges• Opportunities
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Agricultural ClustersPromote
• Vertical linkages – (inputs & raw materials)
• Horizontal linkages – (coops & consortia)
• Support relationships – (governments & uni & research inst)
• Enhance access to market information
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Agricultural ClustersValuable to Small-scale Farmers &
Agribusinesses
• Engage in productive agriculture• Market orientated commodities• Higher value-added production
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Agricultural ClustersPromotion of AC’s in Developing
Countries not easy• Small-scale firms• Informal organization
– Until large investments• Weak internal linkages• Less critical mass
– Hampers investment & knowledge gathering• Lower value niches
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Characteristic of participants
• Low risk taking ability• Low investment potential
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Support of AC’s need concerted effort
• Multi & Bi-lateral agencies support AC’s• IDB = $380 million• Key differences in donor support• WB & IDB = governments• USAID, UNIDO & DFID = private sector• Converging efforts between agencies
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AC approach needs to overcome
• Market failures• Government policy failures• Systemic failures• One size fits all?• Look beyond public financing• Increased policy involvement
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Agricultural ClustersInitiatives should:
• Improve incentives– Producers & agribusinesses
• Provide core public good• Enhance climate for private investment• Build effective institutions• Reduce environmental drag• Support export strategy & Policy
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Agricultural ClustersBenefits of clusters
• Facilitate inter-firm cooperation• Diffusion of innovation• Efficient channeling of public support• Increase Competitiveness
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Agricultural ClustersChallenges of AC’s
• Economies of scale• Foreign competition• Improved food safety standards• New market driven products• Focus less on increasing
– Efficiency & Productivity
• Focus more on– Meeting consumer demand
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Agricultural ClustersContribution
• Regional/Brand identity• Links to tourism
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Agricultural ClustersReason for formation
• Product• Particular practice
– organics
• Social or Ethnic group– Fair trade
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Agricultural ClustersDangers
• Magnify environmental impact– Shrimps– Although mitigate impacts
• Magnify economic impact– Boom & bust
• Dynamism– Competition .vs. Cooperation
• Balance of linkages– Internal .vs. external innovation
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Maharashtra Grape ClusterIndia
• Top three in Vegetable & Fruit production• 2.3% of world trade• Smallholder dominated production
– Food safety requirements
• Knowledge of feasibility of exports• Processes involved in exporting
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Evolution of Grape Cluster
• State grape growers association (1961)• Technical advice (1970s)
– Gibberellic acid
• Over-supply markets (1985)• Investigate alternative markets• Public infrastructure development• National promotion authorities
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Cluster Transition
• Export market identified (1991)– Improve quality– Cold storage– Upgrade value chain
• Mahagrape formed - PPP– Pre-cooling & storage– Brand Identity– International reputation– GLOBAL GAP
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Maharashtra Grape ClusterSuccess Factors
• Producers acting collectively• Interaction along value chain• Individual initiatives• Coordination with institution
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Maharashtra Grape ClusterValue of grouping
• Economies of scale• Facilitate investigation of new markets• Coordinated research
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Maharashtra Grape ClusterPublic Support
• State boards– Technical– Markets
• Monitoring• Agri-export zones• Credit system
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Maharashtra Grape ClusterLimitations
• Quality standards– Costly ($400,000)– Rejection rate
• 80% (1992)• 10% (1995)• <1% (2001)
• Vertical linkages– Except R&D
• Profitability– Unit price below world average
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Thank you