Keys to inclusion of small producers in dynamic markets

A global programme of collaborative research and policy support to:

• To understand the keys to inclusion into restructured market in order to address implications and opportunities for small scale producers and enterprises

• To understand what is best practice in connecting small scale producers to dynamic markets

• To bring these findings into the wider policy arena with facts and recommendations, practical action for public sector policy and private sector strategies.

Regoverning Markets

Program Components

Component 1: Studies of market restructuring

1. Horticulture Markets in China

2. Dairy Markets in India

3. Horticulture Markets in Indonesia

4. Strawberry Markets in Mexico

5. Dairy Markets in Poland

6. Horticulture Markets in South Africa

7. Tomato Markets in Turkey

8. Beef and Chicken Markets in Zambia

Component 2: Best Practice Case Studies

• Round 1: 15 cases selected from 39 proposals from 23 countries – 6 business models (eg Carrefour, China FFV, Haleeb Food, Pakistan, Dairy) and 7 collective action (Morakert, Hungary, FFV; NorminVeggies Phil, Vegetables)

• Round 2 (on going): 15 case studies selected from 81 proposals

Component 3: Policy Dialogues and Learning Platforms

• 8 Reference Group (RG)- 1 for each country with component 1 research

• RG is a multi-stakeholder group who provides advice, feedback and helps champion policy and c3 initiatives

• 4 Policy and Institutional Mapping workshops (Turkey, Indonesia, South Africa and Morocco)

• Policy and Institutional Mapping Toolkit/Manual/Learning Workshop

Modern Markets Traditional Modern Low operating costs Low margins Proximity to customers Long opening hours Home delivery Credit provision to consumers Sale in small units Provision to transport, packaging, inputs market information Building of trust with both supply and demand side – social networks Haven for manipulation and exploitation

Product differentiation Quality and food safety as key driver of vertical integration Private standards Reliability of supply Wholesale /cash and carry consolidation Contracts Group marketing Brand name and value Centralised procurement Specialised wholesalers and logistics companies Dedicated wholesalers Preferred suppliers Dragon heads – supply and trade functions Produce concession in store Physical infrastructure – cold chain etc Service provision to preferred suppliers – TA, credit, transport, training, IT services and advice, loan guarantor Interest in CSR and Fairtade

Consumer ‘pull’

Policy ‘push’

Urbanisation

Commercialopportunity

Food standards

Foreign Investment

Local investment

Technology

Management

Organization

Industry structure, concentration

Procurement

Standards

Finance

EXCLUSION

INCLUSION

Collective Action

Business Models

InstitutionsPolicies

Entry PointsSupport Systems

Research and Development

Factors driving dynamicmarket change

Createschanges in supply chains….

Skills and assets of producers and SMEs

Leading to small-scale producer and SME..

..in dynamicmarkets

Re-governance and market inclusion: Conceptual framework

0

5

10

15

20

25

30

35

40

45

1986 1988 1990 1992 1994 1996 1998 2000

Sal es (Bi l l i on US$)

The rapid rise of both supermarkets and wholesale markets in China (sales, $ bn)

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002

Supermarkets Wholesale

Source: CCAP

Retail strategy as practice..Cash and Carry investor in Pakistan

• Cash and Carry investor - 2 stores in 2006, 5 more in 2007 which each store costing $30-40m

• Suppliers must have tax number, fax machine etc.. • Success of C&C depends on inefficiency of wholesale.

Eg tomatoes. Rp 20 at farm, and Rp 140 in city 5 days later, with up to 5 people involved along chain. Broker (arthi) provide very little service other than pre-financing. 40-45% losses -- packing, logistics, grading.

• C&C can buy for Rp40, sell for Rp60 and still get enough margin.

Types of strawberry producers in Michoacán, Mexico

1996

1. Traditional system

2. Traditional system with higher input use

2006

1. Traditional system– Cost = $7,500/ha– 80% of farmers / 25% production

2. Medium tech system– Cost = $20,000/ha– 15% of farmers / 40% of

production3. High tech system

– Cost = $45,000/ha– 5% of farmers / 35% of production

The Market Divide

Traditional Market - Traders

Fastfood chains

Processors

Modern, dynamic market chains

Hotels & Restaurants

Supermarkets

Consolidators

Fragmenting farms (Roy 2006)

Avg farm size over time: The shrinking block

1.42.3

5.3

3.63.12.2

11.10.61.5

0.80.91.40.4

10.50123456

1st period 2nd period

Average Farm size: expanding block(source: Roy, 2006)

Average farm size: over time The expanding block

157.6

55.120.7 8.7 21

5122.1 14.2 26 17.8 17.8

178.4

70.224.5

52.8 61.930.3

52.226.7 31.5 31.4 23.9

020406080

100120140160180200

• Regulation of below-cost selling?– Eg Germany: Restraints on Competition Act (1999)

• Regulation of supplier relations?– Eg Germany: Reform of competition legislation, July 2005.

Large companies now prohibited from using market power to demand “unjustified and repeated” special terms and conditions from suppliers

• Codes of Conduct on supplier relations?– Voluntary?. Eg UK, March 2002– Mandatory? Eg Argentina, Australia– Europe-wide?

Regulating buyer power?

Any impact? Transferable from NS?

(service)

•Independent growers

•NGOs & POs- (Small farmers)• Corporate farms

• Input/service providers

•Honorary members

(Marketing)

Sweet pea

Carrots

Lettuce

Tomato

Squash

CLUSTERS

Bell pepper

Cabbage

Regoverning Markets programme in short..

• Can the new agrifood business drivers be partners in development?

• Can smaller scale producers and their organisations be partners in new business?

• Can anticipatory public policy make any difference?

Strong link between research and policy and learning platforms