Quiet Revolution in Agrifood Value Chains:

Asia with comparisons to Africa

Thomas Reardon

Michigan State University

1. Focus on rapid transformation of VCs: Key points of talk

a) VCs important to farms & food security: … post-farm gate segments (downstream + midstream) = 50-70% of food price cost formationb) domestic VCs are rapidly transforming in all three off-farm segments: … downstream (retail), … midstream (processing & wholesale), … upstream (rural factor markets)c) Pulled by… rapid urbanization… diet change

2. Driver #1: Urbanization

Rural to Urban VCs dominate the food economy

a) Asia is urbanizing fast & urban market already majority of food market

… urban share of population: 18% in 1950, 44% in 2010, projected 56% by 2030

… Urban food markets: 65-75% of Asian food expenditures by urban consumers

.. compare with 5% share of exports in output…

rural-urban food VCs are the majority of food in the countries

extreme importance of these VCs for national food security … and for farmer incomes

b) ESA Africa: urban shares in food economy(red is share in purchased market, green overall): > ESA Urban population share 30% (like India)> Waf share is 45-50% (like Southeast Asia)> ESA Urban has 46% of purchased + produced,

61% of just purchased cereals… rural has 54% (39%)> Urban has 43% (56%) of pulses … rural has 57% (44%)> Urban has 31% (49%) of roots/tubers market … rural has 69% (51%)

> ESA African Urban has 52% of purchased + produced,

63% of just purchased fruits/veg

… rural has 48% (37%)

> Urban has 58% (63%) of meat/fish

… rural has 42% (37%)

3. Driver #2: Diet Changea) Rapid diversification of food across product

categories (Bennett’s Law)

a.1) ... Cereals are 25-30% of food expenditure in Asia

… rapid rise of fruit/vegetables, fish/meat, eggs/dairy, edible oils/fats

b) Africa Share of staples (cereals, roots/tubers, pulses)

Total staples = 38% of purchased expenditure, 56% of purchased + produced expenditure

So “diversification foods” already 62% of purchased market … a majority of expenditure!

b.1) Processed foods HUGE in consumption rising rapidly in Asia:

… in urban Asia, overall 73% of food expenditure

is processed, with “low processed” 58% of the

total processed and 42% “high processed”

… in rural Asia, overall 59% of food expenditure

is processed, with “low processed” 69% of the

total processed and 31% “high processed”

b.2) Rapid rise of processed food consumption as share of diet in Africa

… Rural “low processed” share (outside maize) = 21% of food expenditure

… Urban “low processed” share (outside maize)

= 25% of food expenditure

… Rural “high processed” share: 18% of expen.

… Urban “high processed” share: 28% of expen.

Outside of maize expenditure,

Share of all processed in total rural expenditure = 39% !

Share of all processed in total urban expenditure = 53% !

4. Double Revolution in the value chains – focus on Asia

a) … a MODERN revolution (rise of supermarkets, large processors)

&

b) … a QUIET revolution (grass-roots investments by 10’s of 1000s of small/medium enterprises along the supply chains

… findings based on our “stacked surveys” of 9000 farms/firms in segments along value chains in past 8 years in Bangladesh, India, China, Indonesia, Philippines, Vietnam

c) But the transformation is NOT evenly distributed: we find there are 2 rural Asia’s:

… dynamic/commercializing zones (7-8 hours from Tier 1&2 cities – for example, perhaps half of Indian food economy)

… less in hinterland areas (but still transforming, e.g., cold storages rise in Bihar)

5. Rapid change in Downstream Segments

a) Supermarket Revolution … overall in Asia: 2-4x faster than GDP growth… India:(49% sales growth per annum 5x rate of GDP growth)…. Penetration of rice (7% in Delhi, 50% in Beijing, starting in Dhaka)… penetration of fresh produce (5% in Delhi, 20% in Beijing) but early by international standardsb) Food security effects: cheaper staples in Delhi in supermarkets compared with traditional retail

6. Rapid change in Midstream (Processing, Wholesale)

6.1. Rapid change in Midstream segments

6.1.1. Modern Sector Midstream

a) Processing: Rapid growth, concentration, and capital/labor increase, India case

b) Rise of modern wholesale/logistics companies

c) Big retail and big processing growing in symbiosis: Beijing supermarkets buy direct from large-scale rice mill companies

d) A little bit of early direct sourcing (collection centers) and contract farming: pays farmers well

6.1.2. Quiet Revolution in “traditional” midstream

a) Dis-intermediation in wholesale (massive decline of rural broker/village trader role with shortening of chain, direct sale by farmers to mills and city wholesale markets)

Example:

… cut out role of village trader (VT) in rice (Bangladesh, 7% to VT, China, 29% to VT, India, 18% to VT)

… farmers sell direct to mills: 63% in China, 60% in Bangladesh; little in India (APMC act constrains shift)

b) Rapid development of cold stores for potato in India and Bangladesh, raising farm prices and reducing seasonality for consumers

… in Bangladesh, 22% of farm sales from Cold Store

… in India, 73% from cold storage in 2009 (40% start of 2000s, 5% in 1990)

… India case: displacing (regardless of APMC regulation…) the mandis (as venue for intermediation)

… India case: providing credit to farmers

c) Disappearance of tied credit-output markets of wholesalers with farmers, freeing farmers to choose best buyer… in UP and MP surveys, only 2-5% of crop market transactions linked to credit from traders (advances)… found this pattern ALL OVER ASIA

d) Waste in supply chain much lower than typically stated in public debates: instead of “40%”, around 5-7%

7. Asia Upstream: Farming & Input Supply

7.1. Farm Sector Transformation

a) Farming intensification, examples:

… Quality differentiation and hybrid diffusion in rice

… horticulture boom (golden potato-triangle)

… rapid uptake of pesticides and herbicide (linked with nonfarm employment and opportunity cost of time)

b) Farm sector commercialization – selling into the supply chains…

… in Asia, farmers sell 60-90% of their rice crop

… 80-90% of their fruit/veg crop

7.2. Input Markets Development

a) Rapid development: Farmers linking to input

markets

… Land rental markets

… farm machine rental and service-outsourcing

… farm chemical markets

… Water markets

… Cold storage market

b) Rapid development of “outsourcing” service sector to farmers

… rice harvesting clusters/companies going cross-province in China

… “sprayer-traders” in Philippines and Indonesia mango sector

… Economies of scale for and of farmers

8. Conclusionsa) Rapid change and ferment/churning

b) Modern sector AND transforming traditional chain

c) Importance of off-farm segments of supply chain: SANDWICH (transformation upstream and downstream from farmer)

d) Opportunities & challenges for small farmers

e) But nagging constraints in public goods and regulations