Meaning and Strategy of Global Food Value Chain

Prof. Dr. Keishiro ITAGAKI

Tokyo University of Agriculture

◆Global Food Value Chain

●What is Food Value Chain(FVC)?

To increase the value added at each sector from producing agricultural products, food processing, storage, transportation, distributing to retailing(selling) food and agricultural products . In this process “Main Activities” mean such a stream as producing→processing →storing →transporting→distributing →retailing(selling) while “Support Activities” meaning the infrastructure, human resources, capital fund, resource management and its procurement as the supporter of stream. To maximize the margin which will be raised by taking away costs related to main activities and supporting activities from total sales taken in overall food chain(Michael E. Porter, 1985) . Speaking FVC from an eye of typical firm, it will mean how maximizing a customers’ satisfaction with response to his/her necessity flexibly and integrating main activities. Networking stakeholders concerning food supply and consumption from farm to table （Deloitte, 2013).

Support Activities

Main Activities

Value Added at Retailing

Value Added at Distributing Value Added at Processing Value Added at Producing

Total Value=Value Added from each sector

♣FVC makes added value from each sector

Producing

Added value

Processing

Added value

Distributing

Added value

Retailing

Added value

●What does “Global Food Value Chain”（GFVC） mean? 【GFVC from stand point of Japan】 ◉To tie up Japanese food to the world market, focusing on Asia region scaling economy up. ◉To make a close relationship between government and private firms related to food industry, contributing to growth of food industry in developing countries. ◉To transfer strength of Japanese food with “high quality”, “healthy” and “safety” to developing countries, contributing to the establishment of modernized food value chain （Cited from MAFF, Japan）

●Why take up GFVC? -To share the practical framework of FVC built in Japan with other countries. -To extend “Main Activities” of FVC to the world economy. That will also give the business chance across FVC for Japanese firms launching to foreign countries as well as foreign firms. -To strengthen the supporting sectors shown in infrastructure needed in taking the business actively. In this case Japan will be undertaking “ Support Activities” in foreign countries to give the help to firms. -To educate and train the human resources on business over GFVC activities. -To improve and modify the legislation and institution on business so that firms could do business more smoothly.

●Why take up GFVC in ASEAN Member Countries? ◉ASEAN MC have great potentials in the development of agri-business. ◉Development of agri-business in ASEAN MC will have great potentials in food export. ◉It may be meaningful to examine the way of creating out the added values along the stream of Main Activities. ◉It may be meaningful to examine the way of linking Main Activities with Support Activities. Japan will is at position in giving the helpful suggestions in this aspect. ◉Development of FVC will enable to create out job opportunity and generate income in ASEAN MC. Eventually it will greatly contribute to economic development.

Roles of stakeholders relating to FVC

●Stakeholders relating to FVC - Producers: Small scale family farm is overwhelming. - Processors：They consist of supplier of raw materials for processed food and manufacturer of processed food. - Retailers and Distributors：Marketing channels and types of logistics firms are diversifying. - Consumers：Concerns for food consumption are food security, food price and food safety. - Government/NGOs/Regulators: Main roles are to intensify the system ensuring the available and sustainable food supply.

Roles and Main Challenges of Stakeholder

in Food Value Chain

Source：Deloitte Tohmatsu Consulting Co. Ltd.(2013), “The food value chain: A Challenge for the next century”

Stakeholder

1．Producers 2．Processors 3．Retailers and Distributors ４．Consumers

Roles ・Investigation /Development ・Harvesting ・Distributing ・Shopping ・Farming ・Animal slaughtering ・Retailing ・Consumption ・Animal raising ・Processing ・Trade ・Added value creating

・Food manufacturing ・Marketing/business

Main Challenges

・Efficiency ・Innovation supporting growth

・Responsibility for supply with high quality

・Food security and high price

・Market fluctuation ・Food globalization ・Variety of marketing channels ・Fatness and welfare

・Capital ・Safety of supply chain ・Management of complexity on business

・Increased awareness for food safety

・Innovation ・Energy efficiency ・Increased importance of e- commerce channel

・Disposal management ・Innovation of package

Stakeholder 5．Government/NGOs/Regulators

Roles ・Public health and safety ・Public policy

Main Challenges ・Change of trade relation in importer and exporter

・Food safety and increased tension for agri. and bio terrorism ・Surging of land rush globally

Relationship between the parties which make up the sector

• Analytical perspective consists in interpreting the agrifood chain as a group of economic entities involved in fulfilling the functions of production, transformation and distribution of the agrifood product, and which are linked by functional and structural relationships aimed at meeting the food requirements of demand side.

Cited from Bertazzoli A. and others, “Food chains and value system: the case of potato, fruit, and

cheese”, Paper prepared for presentation at the 113thEAAE Seminar” A resilient European food industry and food chain in a challenging world”, Chania, Crete, Greece, date as in: Sep.3-6, 2009

FVC Competitiveness

• The ability to act and react to market-generated stresses more quickly than competitors.

• The ability to stay in business by making the most effective use of the available resources and safeguarding investment.

• The capacity of a company to generate value and attain and retain over time a favorable position in the market.

• The capacity to make a company or a system of companies favorably different in the eyes of consumers.

• The capacity of a company to perform its activities in a better way than its competitors.

• Optimizing and coordinating the various links in the value chain contributes to gaining competitive advantage through various competitive strategies, such as reducing production costs, differentiating the product offered for sale, and reducing transaction, distribution and product utilization costs.

As a whole, the value system represents the result of the value created by the company added to the value created by the activities of all the businesses which make up the system. Each company has a share of participation in the value created, which depends on the value perceived by the final customer and on the characteristics of the system in which the company itself operates, such as the level of competitiveness of the markets, bargaining power in relation to suppliers and customers and relationships and level of integration, as well as the policies implemented in the sector. Cited from Bertazzoli A. and others, “Food chains and value system: the case of potato, fruit, and cheese”, Paper prepared for presentation

at the 113thEAAE Seminar” A resilient European food industry and food chain in a challenging world”, Chania, Crete, Greece, date as in: Sep.3-6, 2009

Wholesale Market as a Key of FVC

Roles of Wholesale Market

1.Collecting agricultural products with great amounts and many varieties and sorting it. 2. Selling and delivering agricultural products to retailer and consumer. 3. Standardizing and classifying agricultural products. 4. Pricing agricultural products properly. 5. Doing payment to farmers and other relations accurately and as fast as possible. 6. Financing the capital fund to the stakeholders in FVC. 7. Collecting the market information, analyzing it and making available to the public.

Wholesale market is keystone in FVC

• It takes the consumers’ demand and its change of accurately.

• Price determined at the wholesale market not only let us informed the trend of demand and supply, but also optimizes the resource allocation in production and distribution.

• It makes clear of position and way for cost reduction on logistics.

• It suggests the way for increasing the added value along each sector in the food chain.

• It proposes the newly developed products, production method and renovated distribution.

How gives added value in each sector along FVC?

Processor Added Value

Producing

Processing

Distributing

Retailing

Total Added Value

Producer

Consumer

Retailer

Added Value

Added Value

Distributor

Added Value

Added Value in Producing Sector ① To produce agricultural products with high quality. ② To reduce a production cost through technological efficiency. ③ To get the better agricultural supplies at the lower price. ④ To produce agricultural products meeting with users’ requirement. ⑤ To ship agricultural products taking the movement of market condition and price into consideration. ⑥ To keep agricultural products from damage and spoilage in packaging and transporting.

Added Value in Processing Sector ① To manufacture a processed food with high quality. ② To reduce a production cost through technological efficiency. ③ To get the better foodstuff at the lower price. ④ To manufacture a processed food meeting with users’ requirement. ⑤ To ship a processed food taking the movement of market condition and price into consideration. ⑥ To keep the processed food from damage and spoilage in packaging and transporting.

Added Value in Distributing Sector ① To improve a distribution with efficient transportation system. ② To ensure a marketing system putting an emphasis on quality maintenance. ③ To keep food and agricultural products from damage and spoilage by means of improved transportation. ④ To deliver food and agricultural products properly by use of storage and quality management. ⑤ To distribute food and agricultural products smoothly and transmit necessary information to the concerns . ⑥ To make a payment as fast as possible.

Added Value in Retailing Sector ① To make a sales promotion taking account into the consumers’ requirement. ② To sell many kinds of commodity. ③ To diversify marketing channels coping with various commodities. ④ To sell the commodities at the variety of retailing shops. ⑤ To promote the sales by means of advertisement and communication. ⑥ To give some kinds of service for consumers.

Support Activities are Important Essentials in FVC

◉To fulfill an infrastructure in production and distribution.

◉To develop a technology and extend it to the concerns.

◉To educate and train human resources.

◉To supply a capital fund (financing under lower interest)

◉To build up institutions(marketing system, system of

collecting, analyzing and disseminating the information).

◉To create a capacity of designing and producing new

product dealing with users’ requirement.

◉To upgrade an ability of entrepreneurship of firm and

networking among the concerns in relation to FVC.

◉To make up a platform for the consultation for the concerns.

Challenges in FVC in ASEAN Members

Countries • Consumers’ requirement for food and agricultural products is being

intensified and diversified due to the urbanization and increased middle income class. However, supply side is not catching up with this movement.

• To begin with, it is not analyzed fully about consumer’s willingness

of payment for added value as well as contents of added value requested by consumers.

• It is not examined fully about the objective evaluation of economic values produced by each sector in FVC.

• It is not examined fully about the sectors’ linkage in FVC in creating out added value along consumers’ requirement.

• It is not specific who should take initiatives in the development of FVC about the way of creating out and contents of added values.

Some Suggestions in Addressing the Challenges

• It should be definite what is the added values in FVC requested by consumers, taking suggestions from consultant into account.

• It should be considered how the existing system and institutions in food supply chain should be modified and renovated to strengthen the sectors’ linkage in FVC, like setting up contract based relation between sectors of production and distribution.

• The relation between main activities and support activities should be

strengthened by public and private partnership.

• Foreign investment should be progressively received to develop main activities across FVC.

• International cooperation will be vital to support the FVC activities.

Toward Development of FVC by link of

Public and Private

Foreign Firm Joins to Main Activities with Local Firm

【kinds of Foreign Firm】 【Types of Foreign Firm】 ・Supplier of food and agri. input ・Merge ＆ Acquirement ・Producer at Farm ・Establishment of local firm ・Manufacturer of processed food ・Technological cooperation ・Distributor of food and agri. products ・Capital participation ・Retailer of food and agri. products ・Contract with production and contribution

●The line of main activities is often integrated vertically within one firm.

●Market is various such as local and foreign market. ●The way of management of finance and personnel at firm is

largely depended on the difference of culture and practices on business in each country.

Making use of International Cooperation as Strategy of FVC Development

Through the activities of international Cooperation ☞ To fulfill an infrastructure as a base of food industry. ☛ To fulfill a distribution system(logistics). ☞ To lend capital funds at the lower interest. ☛ To develop and extend a technology making out the added value. ☞ Capacity building of human resources in relation to FVC. ☛ To make efficient use of Information and Communication

Technology (ICT). ☞ To strengthen the FVC System and linkage in sectors of FVC. ➢ Policy dialogue with the recipient country.

Economic Effectiveness of GFVC

・Increased business opportunities and expanded the market outward. ・Accelerated the launch of foreign investment as a premise of the improvement of infrastructure in the recipient country. ・Technology transfer, capital supply and capacity building of human resources for firms in the recipient country. ・Transmitted information and knowledge on ‘Food Industry’ ‘Food Culture’ and ‘Food business’ in Japan to the recipient country. ・Contribution to the increased employment and income in the recipient country. ・Built up Food Value Chain as a system in the recipient country.

Conclusions

• FVC is vital to create out the employment opportunity and generate the income.

• FVC consists of main activities and support activities. This activities work with together so that FVC could be developed progressively.

• Added value along FVC will be produced from each sector and close linkage between sectors.

• GFVC will contribute to the development of FVC in developing countries.

• Firms in Japan and the recipient country will benefit from GFVC all together.

References

• Bertazzoli A., and Others 2009, Food chains and value system: the case of potato, fruit, and cheese, Paper prepared for presentation at the 113th EAAE Seminar “A resilient European food industry and food chain in a challenging world”.

• Deloitte Touche Tomatsu Limited 2013, The Food Value

Chain: A Challenge for the next century( in translation)

• MAFF Japan 2014, Global Food Value Chain (in Japanese)

• Michael Eugene Porter 1985, Competitive advantage: creating and sustaining superior performance, Free Press.