The Role of Public Sector in Promoting Value Chain in Agriculture Senior Expert on Environmental...

The Role of Public Sector in Promoting Value Chain

in Agriculture

The Role of Public Sector in Promoting Value Chain

in Agriculture

Senior Expert on Environmental PlanningSurachai KoomsinSurachai Koomsin

National Economic and Social Development Board

8 December 20118 December 2011Mekong Institute, Khon Kaen

Presentation Outline

2The Role of Public Sector in Promoting Value Chain in Agriculture

Direction to Promote Agricultural Value Chain4

Value Chain in Agriculture in Thailand1

National Policy on Value Chain in Agriculture2

Case Study: Organic Agricultural Development3

Value Chain in Agriculture in Thailand1

3

Thai Economy

Domestic demand: in Q3-2011 a slowdown from both private consumption and total investment with an expansion rate of 2.4% and 3.3% respectively, compared to 2.7% and 4.1% in Q2

External demand: net export of goods and services rose by 9.9% in Q3 compared to 1.9% in Q2.

GDP has decreased due to domestic demand reduction

Agricultural sector dropped by 0.9% in Q3 compared to an increase of 6.7% in Q2. Contraction was mainly from a fall of second paddy production (the government commenced a campaign for planting area reduction, esp. 2nd round planting) along with impact from an inundation

Importance of Agriculture in Thailand

5Value Chain in Agriculture in Thailand

Cultivated area: 40 percent of total land area Farm household: 6.9 million households (20.3 mil in total) Agricultural value: >300,000 mil. Baht / 8.3% of GDP

Agriculture – the significant production base of Thailand

13.0

29.5

57.6

9.3

33.7

56.9

10.0

36.8

53.3

8.8

40.2

51.0

8.3

43.0

48.7

0

10

20

30

40

50

60

Agriculture Industry Service

%

Source: NESDB, 2011

GDP by Sector



Value added of agriculture has been prominent

Agro-business sector: 8.6% of GDP in 2010

Share of Agro-business GDP in 2010 by typeShare of Agro-business GDP in 2010 by type

GDP Structure, 2005-2010GDP Structure, 2005-2010

Source: NESDB, 2011



Major exporter in the world food market, mostly in primary products

IndiaIndia

PakistanPakistan

USAUSA

VietnamVietnam

ThailandThailand

IndonesiaIndonesia

VietnamVietnam

ThailandThailand

MalaysiaMalaysia

IndonesiaIndonesia

VietnamVietnam

ThailandThailand

ThailandThailand

USAUSA

EUEU

BrazilBrazil

IndiaIndia

ChinaChina

IndonesiaIndonesia

ThailandThailand

%

Source: OAE and National Food Institute, 2009

Importance of Creative Economy


Cultural and natural heritage creates 300,000 mil Baht in 2010

Creative industry has been creating greater value for Thailand

662,696 685,297 741,015

792,585 848,166 889,192 935,122 912,378

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Cultural Heritage Arts Media Functional Creation Total

Unit : Million

baht

Source: NESDB, 2011

Value of Thai creative industries, 2002-2009Value of Thai creative industries, 2002-2009

Cultural Heritage group includes…1) Handicraft 2) Traditional Thai Medicines 3) Thai Food 4) Cultural/Biodiversity Tourism


Market Trend

Creative

ConvenientHealthy

Less environmental

impact

Kimono produced from Thai silk Organic Cotton



Examples of Thai Agricultural Creative Products

Dried Som Tum “Thai Smile”– vacuumed and dried food – keeps the freshness of vegetables for Som Tum. Cooked in microwave oven for a few minutes, you can enjoy the authentic Thai Som Tum in terms of taste, sweetness, as well as preserved nutrition

‘Kessara Bakery Shop’ has an idea to bring Pla Shaon, local fish in Singburi, as an important ingredient for cake and ice cream

‘Proud’ is the Thai sweet brand name. Its selling point is to package Thai traditional sweets and dried fruits in nice-looking forms. It is suited for gifts in every occasion.



High logistics cost – due mainly to transportation cost

ใส่�เลขรวมด้�านบน ส่�เข�ยว ข�ด้เส่�นใต้�จ๊�ะ19.6 18.

117.7

17.3

18.3

19.0

18.6

18.8

16.8

17.9

Thailand Logistics cost comprises of Transportation Cost: 47 - 49%

Inventory Holding Cost: 42- 46% Administration Cost: 9%

•Thailand has relatively high logistics cost, which is approximately17-19 % to GDP.

•The logistics cost per GDP at nominal value has been decreasing from 19% in 2006 to 18.8% in 2007, 18.6% in 2008, and 16.8% in 2009.

•The drastic decline of the ratio in 2009 was partly due to the economic decline from the subprime crisis in the US lowering consumption, export, production, then transportation and logistics activities. National Accounts data shows the negative inventory flow in 2009. Also, partly is the outcome of improvement in logistics management.

Proportion of Logistics Costs to GDP at Current Prices, 2000-2010Proportion of Logistics Costs to GDP at Current Prices, 2000-2010

Thailand Agricultural Value Chain


In Logistics Development in Thailand

Problems and Constraints

• Facilitation of Logistics Management - Lacking sufficient facilities that help to reduce transportation and warehousing

costs such as Distribution Centers (DCs) and well developed ICT system. - Complexity in Rules and Regulations relating to import and export procedures.

• Institutional Problems- Lacking of strong and capable agency to drive the strategic plan to operation

effectively.- Lacking of holistic coordination among related agencies in implementing the plan

to prevent duplication of operation or to fill up the necessary but missing operation.

- Unclear roles of transportation and logistics agencies as to policy maker, regulator and operator such as Department of Land Transport acting as regulator and

operator or Department of Customs who is regulator on import-export activities also acts as facilitator on NSW.

- SOEs that provide transport services still have financial and managerial problems, due to high cost of investment.

• Logistics Personnel- Insufficient skilled personnel in both operational and management level.- Skill development programs at operation level have yet to be improved.



Traditional VS Modern Supply Chain

Some agricultural products has changed from the traditional supply chain towards the modern supply chain, namely, chicken, organic vegetables and rice, sugar cane and sugar, milk and to a lesser extent cultured shrimp, while most products remain under the traditional system.




Traditional Supply ChainTraditional Supply Chain Modern Supply ChainModern Supply Chain

Spot market transaction with neither long-term contracts nor information exchange

The farmers’ dependence on informal credit from the agricultural traders has been almost entirely substituted by the credit from BAAC

The farmers and the retailers (and consumers) do not have any direct contractual relations

The relationship between traders are linear

the farmers in the modern supply chain have access to the modern retail markets and export markets through the contracts with either the agri-business exporters, or to a lesser extent the supermarkets

Flows of goods, information and capital in the modern supply chain are circular flow directly linking the farmers with the retailers/exporters


Direction to Promote Agricultural Value Chain

Productivity Improvement and Cost Reduction

TraditionalTraditional ModernModern

Public and private investment, public investment in agricultural research and extension.

..Millions of farm families benefit from the high yield varieties and new varieties that are disease resistant, drought tolerant, heat resistant, etc.

New agricultural technology and modern

farm management (ex. private standards,

central procurement of the supermarkets.)

Contractual arrangements.. Some agri-business firms also help invest in local public goods

(such as monitoring of pollution), local infrastructure (e.g., collection

centers) and logistical improvements in the handling and

transportation.

Modern Supply Chain

Direction to Promote Agricultural Value Chain

Productivity Improvement and Cost Reduction

Farm-gate prices of organic rice and vegetables are 10-20% higher than the regular products.

Agribusiness firms are able to sell the safety products a 125-130% of the prices of regular products.

Thai consumers are willing to pay additional price premium of at least 42%.

Farmers under the contract farming arrangements have higher net income in return for more dedicated work.

Source: NESDB, 2011

17

National Policy on Value Chain in Agriculture2

11th National Economic and Social Development Plan (2012 – 2016)

18National Policy on Value Chain in Agriculture

Assessment of Country’s Potential

• Use Strength to Create Opportunity by connecting with emerging economic super powers & neighbors on trade & investment.

• Use Opportunity to Reduce Weakness by cooperating with other countries in creating value for goods & services, using Climate Change trends to create Green Economy & using democracy & human rights concepts to urge further reform in society

• Use Strength to Create Resiliency by using Agriculture, Services & Creative Economy to create strong production base, strengthening financial sector & using Sufficiency Economy to ensure balanced development

• Reduce Weakness & Avoid Threats by improving education, expanding investment in R&D, reforming rules & regulation, reducing public debt, strengthening capital of natural resources & environment

Mission: “Prosperity with Justice,

Equitability and Resiliency”

Key Objectives• Balanced, Strong, Self-reliant

Economy • Improved Competitiveness• Social Safety Net Available for All• Peaceful Society under Good

Governance

Development Strategy •Promote just society•Promote lifelong learning society•Strengthen agricultural sector, food and energy security•Restructure the economy towards quality growth and sustainability•Create regional connectivity for social and economic stability•Manage natural resources and environment towards sustainability

External Changes

- Recovery of the World Economy

- New Global Rules

- Multi-polar economic power and Asia Century

- Ageing Society

- Global warming

- Food and fuel security

- Advance in technology

Monetary Stability, Budget Deficit, High Cost in Agriculture, Limited Land & Labor, Import-dependent industry, Opportunities in Services & Tourism

Increasingly Individualistic Society, Globalized Culture, Improved Health & Education, but IQ, EQ, Labor Productivity & Care for elderly still inadequate.

Degradation of natural resources & environment, Climate Change Effects on Agriculture, Poverty, Migration, Forest Encroachment, Import-dependence on Energy

Internal Changes


Value Chain Development StrategiesStrengthen agricultural sector, food and energy security

Increase the role of private sector, community organizations and agriculturalinstitutions in commodity and food management system in order to improvethe efficiency of logistics management in agricultural sector

Encourage the future markets and central markets of agricultural commodities gathering

Develop quality and standards of food and farm products including their production systems to meet the international standardization

Encourage collaboration between local educational institutions and privatesectors on value creation, including supporting farmers and entrepreneurs to apply knowledge, innovations and technology related to an environmental friendly method to create values

Promote local production and services which create high values to farm produce including food products and energy

Create value added to agricultural commoditiesthrough the supply chains


Value Chain Development StrategiesRestructure the economy towards quality growth and sustainability

Develop an efficient and international-standard transport and logisticsservices, improvement of relevant rules and regulation on transportation of goods and people, human resources development in transport and logistics businesses, economic connectivity along the border areas/economic zones, as well as connectivity with the domestic production base

Increase productivity in agriculture sector and elevating its value-added through the utilization of appropriate technology and environmentally-friendly production process

Utilize science, technology, innovation and creativity as important drivers of restructuring the economy

towards quality growth and sustainability

Create regional connectivity for social and economic stability

Develop connectivity in transport and logistics system under relevant regional cooperation frameworks


Logistics Development Plan of Thailand (2007-2011)

Capacity

Building

To have a world-class logistics system to support being a center of business and trade in the Indochina Region

To have a world-class logistics system to support being a center of business and trade in the Indochina RegionVisionVision

ObjectivesObjectives

Strategic Agendas

Strategic Agendas

1.To enhance trade facilitation with an aim to increase cost efficiency, customers’ responsiveness and reliability and security

2.To create value-added for the logistics and other supporting industries

1.To enhance trade facilitation with an aim to increase cost efficiency, customers’ responsiveness and reliability and security

2.To create value-added for the logistics and other supporting industries

55

Business

Logistics

Improvement

Transport and

Logistics

Network

Optimization

Logistics

Service Internationali-zation

Trade Facilitat

ion Enhance

ment

(Approved by the Cabinet on 27 February 2007)

ระดั�บเป้าหมาย - ม��งยกระดั�บการบร�หารจั�ดัการโลจั�สติ�กส�ไป้ส��ระดั�บ World Class Logistics Management ระดั�บย�ทธศาสติร� - ม�จั�ดัเน้!น้ไป้ท�"การยกระดั�บขี�ดัความสามารถใน้การแขี�งขี�น้ขีองอ�ติสาหกรรมเป้าหมายหล�กขีองป้ระเทศ ระดั�บป้ฏิ�บ�ติ� - การป้ร�บเป้ล�"ยน้ใน้ระดั�บป้ฏิ�บ�ติ� (Change Management) ติ!องย+ดัความติ!องการขีองผู้�!ใช้!บร�การเป้.น้ท�"ติ�/ง

ระดั�บเป้าหมาย - ม��งยกระดั�บการบร�หารจั�ดัการโลจั�สติ�กส�ไป้ส��ระดั�บ World Class Logistics Management ระดั�บย�ทธศาสติร� - ม�จั�ดัเน้!น้ไป้ท�"การยกระดั�บขี�ดัความสามารถใน้การแขี�งขี�น้ขีองอ�ติสาหกรรมเป้าหมายหล�กขีองป้ระเทศ ระดั�บป้ฏิ�บ�ติ� - การป้ร�บเป้ล�"ยน้ใน้ระดั�บป้ฏิ�บ�ติ� (Change Management) ติ!องย+ดัความติ!องการขีองผู้�!ใช้!บร�การเป้.น้ท�"ติ�/ง

หล�กการขี�บเคล0 "อน้ย�ทธศา

สติร�

หล�กการขี�บเคล0 "อน้ย�ทธศา

สติร�

4411 22 33


Driving Mechanism of the National Logistics Development

Business Logistics Improve

ment

Transport and

Logistics Network

Optimization

Logistics Service

Internationalizatio

n

Trade Facilitati

on Enhance

ment

Capacity

Building

National Logistics Development CommitteeNational Logistics Development Plan 2007 - 2011

MOI/ MOAC

Industrial

Logistics

Sub-committ

ee

MOT MOE/ M.Labor/ NESDB

MOC MOF

Data Harmonization

and Data Integration for Imports, Exports and

Logistics Sub-

committee

AgricultAgricultural ural

Logistics Logistics

SubSub--committcommitt

eeee

ResponsibleAgencies

Sub-committees

Operational Level

Policy Level

Working Committee

Infrastructure Development on Western Economic

Region Connectivity

Sub-committee

National Logistics Development Plan 2012 – 2016 Working Committee

4321 5

23

Case Study: Organic Agricultural Development3

24Case Study: Organic Agricultural Development

Background: Why organic?

Organic Agricultural Development

Good cooperation and networking between entrepreneur and farmer4

The organic export of Thailand valued US$ 100 mil. in 2009(rice, fruit, vegetable) growing market for OA1

Thailand has broad variety of indigenous plantssuitable environment.2

Thailand has intensive local wisdom and knowledge in agriculture:OA involved with self-sufficiency and local content3

OA – less environmental impactConsistent with climate change concern and healthy/safety food5


Driving Mechanism


The Cabinet approved the proposal by MoST to establish the National Committee

on Organic Agricultural Development (NCOAD)

16 Oct.0716 Oct.07

The Cabinet approved Action Planon National Organic Agriculture

Strategies6 May 086 May 08

The Cabinet approved Thailand’s Organic Agriculture

Strategies 2008-2011 Upgrade quality of life of both farmers and consumers and bring about food security

22 Jan.0822 Jan.08


National Committee



SWOT Analysis


StrengthsStrengths Suitable environment/ broad

variety of indigenous plants Knowledge creation and

knowledge management, farmer networking

Involvement of local wisdom: self-sufficiency

Good cooperation and networking between entrepreneur and farmer

WeaknessesWeaknesses Little knowledge, R&D,

innovation, and supporting data Limited organic raw material Small domestic market Little specialized staffs on OA Low quality of product

– CB, AB : international standard

OpportunitiesOpportunities Sustainable agricultural policy,

food safety, consumer health - promoting OA

Growing market for OA and fair-trade

Growing concern of healthy food Supporting climate change

concern Increased chemical fertilizer’s

price

ThreatsThreats Higher competition on the market,

FTA Customers lack of knowledge on

organic Rise of fuel prices


Strategy and Policy Framework

Development of National Organic Agriculture 2008-2011Development of National Organic Agriculture 2008-2011

ObjectiveObjective: Aim to..Upgrade the quality of life of both farmers and consumers

Bring about food security

Increase competitiveness

Reduce poverty

Sustainable development

Focus onFocus on.. People-centered

approach

Sufficiency Economy philosophy: advocated by His Majesty the King

Public participation

29

4 Main Strategies

Development of National Organic Agriculture 2008-2011Development of National Organic Agriculture 2008-2011

Support R&D/Innovation

Initiative publicawareness campaigns to stimulate demand and promoteconsumption

Establish national organicinformation database

Support R&D/Innovation

Initiative publicawareness campaigns to stimulate demand and promoteconsumption

Establish national organicinformation database

Support localnetworksstrength

Extend localmarkets

Develop marketingknowledge

Support localnetworksstrength

Extend localmarkets

Develop marketingknowledge

Supportsupply chainnetworking

Develop OAstandard

New OA exportmarkets

Supportsupply chainnetworking

Develop OAstandard

New OA exportmarkets

Form effective OAdevelopmentmechanism

Form effective OAdevelopmentmechanism

Case Study: Organic Agricultural Development

Thailand’s Organic Agricultural Development


Strategic Issues

Thailand’s Organic Agricultural Development


Strategic Issues (con.)

32

Direction to Promote Agricultural Value Chain4

From Upstream to Downstream Stages


Problems of Thailand Supply Chain

Mid-stream DownstreamUpstream

•Water shortage scarcity/flooding

•Shortage of labor (young people leaving farms) larger farm size

•Degradation of natural resources

•Higher risk of plant-hopper outbreaks due to intensive farming with no crop diversification

•Limited successful farmer groups accessing in new agricultural markets

•High labor cost of handling

•Transportation being too dependable on truck transport

•Inefficient rail-road system

•No standards for paddy bought and sold in the market difficult to create value added

•Food exports are subject to Sanitary and Phytosanitary Measures (SPS) / Trade protection

•Delay in the issuance of safety documents (for SME)

• Inadequate cooling facilities for the export of fresh fruits, vegetable at the airport

•Lack of hedging facilities for SME to hedge against price risks (i.e., futures market) and currency risks

To promote the development of value chain


5 Major Strategies

1. Linking the small holders and traders with the high valued agricultural product markets.

Improvement and development of modern wholesale agricultural market in selected provinces which will allow farmers to have access to the modern marketing channels.

Establishment of agricultural hubs or parks, and agricultural collection stations in the rural community.

Investment in local infrastructure and logistics that will allow farmers to produce and market high valued and fresh agricultural products.

New ways of agricultural extension for farmers with the cooperation of the agri-business and local government.

Investment in the collective prevention of natural hazards, such as the establishment of early warning system, and critical institutions that will enable farmers and firms to efficiently manage risk.



5 Major Strategies

2. Promotion of farmer groups

The innovative ways of organizing cooperatives and farmer groups are needed, e.g., they must be for-profit groups so that they are able to survive the competitive pressure.

The membership should be restricted and the profit sharing may be based on stock ownership or business volume of each members.

Creating the brand name for the products.

The farmer groups should be encouraged to build capability in the investment of social assets for the group, such as the extension services, capability to monitor and tackle local pollution problems.



5 Major Strategies

4

The safe domestic kitchen: Since a large percentage of agricultural products are consumed domestically, there is a need to ensure that the domestic foods are safe. This requires more effort and more budget for the Food and Drug Administration and the consumer protection organization.

3

5

Stepping up research, development and marketing research to increase the share of domestic and international trade of high valued agricultural products.

One stop service promotion of the value chain for high valued agricultural products. The measures include the performance-base incentive/privileges for the investors, the establishment of the high-level promotion committee and the need for the data and information on supply chain for policy formulation and promotional purposes.

www.nesdb.go.thwww.nesdb.go.th

The Role of Public Sector in Promoting Value Chain in Agriculture Senior Expert on Environmental...

Documents

Transcript of The Role of Public Sector in Promoting Value Chain in Agriculture Senior Expert on Environmental...