Engaging the Private

Sector

Agricultural
Sector
Perspectives
Challenges of Agribusiness and
Agro-industries Development

COMMITTEE ON AGRICULTURE

Twentieth Session
Brings to the attention of COAG a number
of pertinent issues relating to agribusiness
and agro-industry trends for consideration
and comment

Seeks guidance on the priority that FAO

should give to agribusiness and agro-
industry development
Developing Country Consumer and
Market Trends
„ Diets include more fish, meat and dairy
products, as well as fruits and vegetables
„ Export diversification into non-traditional
fruits and vegetables
„ Long-term decline in agricultural
commodity prices likely has not ended
„ Prospects for food manufacturing greater
than for primary commodities
„ Tremendous regional disparity in formal
sector agro-industry value addition
 Organizational and Institutional
Changes
„ Growing concentration at all levels,
particularly in retail and processing
„ Enterprises are getting larger as firms
seek economies of scale
„ Private sector standards for food quality
and safety
 Organizational and Institutional
Changes
„ Increasingly, exchange is arranged
through contracts
„ More specialized procurement channels
and dedicated wholesalers
„ Changes in the retail sectors of developing
regions have been particularly notable
 Efficiency and Growth Benefits
„ Agro-processing enterprises are increasing
demand for farmers’ products
„ Exporters and agro-processing enterprises
are furnishing crucial inputs and services
„ Agro-industries are stimulating market
induced innovation
„ Domestic and export systems are
becoming more mutually supportive
 Risks for Small Farmers, Traders,
Processors, Retailers
„ Small farmers have difficulties meeting
agro-industry standards and contractual
requirements
„ Traders and marketers in local markets
are being squeezed by specialized
procurement practices and certified
products
Action Areas
Enabling
Environments
Agro-industry
and Value
Chain
Industry
Programmes
Standards and
Requirements
 Enabling
Environments
 Identifies five top priorities,
including -
„ Strengthen public sector cooperation with
the private sector
„ Strengthen and support the development
of commodity, location, industry and/or
profession based associations
Agro-industry and
Value Chain
Programmes
 Specific strategies, programmes and
interventions should be undertaken by
the public sector to support the
creation, improved coordination and
upgrading of specific agro-industries
and agricultural value chains
Why Governments are Supporting
Value Chain Development
„ Help ensure that progress being made in
one part of the value chain is not negated
by poor performance in other parts of the
chain
„ Absorb some of the high transaction and
information costs as well as risks that
often discourage potential lead firms from
developing value chains
„ Help ensure fair governance in value
chains
Why Governments are Supporting
Value Chain Development
„ Improve the performance of value chains
targeted to domestic markets that might
not alone attract private investment
„ Ensure that the management
competencies and technical expertise of
private sector firms are directed at
benefiting small farmers and processors
 Millennium Development Goal 8 -
global partnership for development

Help ensure that agro-industries are

rule-based and non-discriminatory,
and include a commitment to good
governance, development and poverty
reduction
 Actions to Help Smallholders in
Value Chain Development
„ Strengthen the capacities of farmers to
understand and meet the timing, quality
and safety requirements of processors,
exporters, importers and retailers
„ Facilitate and support farmer organizations
and producer alliances
„ Reinforce business services to small
farmers and processors
 Actions to Help Smallholders in
Value Chain Development
„ Build the capacities of chain participants to
innovate, diversify or exit as markets
change
„ Provide advisory support on contracts
negotiation and compliance
Industry Standards
and Requirements
 Optimize impacts and improve
fairness of industry requirements
„ Public sector dialogue with the private
sector about standards
„ Investments in physical facilities,
laboratories, equipment, and other kinds
of infrastructure
„ Reinforcement of institutions charged with
responsibility for food safety, control of
frauds, animal health, and plant health
World Development Report
2008:

Agriculture for Development

 Strategic
Assessments
With globalization, institutional innovations,
new biological and information technologies,
and changing agro-ecological conditions,
opportunities present themselves for a new
agriculture, with new challenges

Agriculture can be the engine of growth

and poverty reduction in agriculture-
based countries
 Elsewhere agriculture has growth
opportunities and poverty-reducing potential
in sub-sectors with a comparative advantage

Capitalizing on the best that tradition and

modernity have to offer in constructing
agrarian institutions for a market-driven
agriculture is a promising road ahead for
smallholder competitiveness
 Findings Relevant
to Work on
Linkages and Value
Chains
„ Following structural adjustment, the
private sector emerged only slowly and
partially mainly serving commercial
farmers but leaving many smallholders
exposed to extensive market failures, high
transaction costs, and service gaps
„ Strengthening farm-to-market linkages
has improved the livelihoods, incomes and
food securities of rural and urban
households
„ About half the agricultural area in remote
regions has good agricultural potential but
lacks institutions and infrastructure to
integrate into the wider economy
„ Specialty markets for coffee, cocoa, tea,
and cotton (organic, gourmet, fair trade)
offer an alternative higher priced market,
but they account for a small share of the
global market
„ Diversification into horticulture, livestock,
and other high value crops offers
considerable potential for employment
generation and productivity growth
„ Balancing flexibility in hiring for employers
and basic protections for laborers has
been elusive
„ Supply chain development is profoundly
changing the structure of production and
wholesale marketing in developing
countries
„ Analysis of the impact of modern
procurement systems on small farmers is
limited; the available evidence provides a
mixed picture
„ Recent studies of contract farmers show
that they have significantly higher incomes
than other farmers
„ Both anecdotal cases and broader
research lend evidence to support the
“standards as barriers” perspective
„ Some studies find that smaller processing
firms are left out of the supply chain, with
medium-sized and large processors
preferred for long-term contracts
„ The costs of agricultural trade policies are
now as high from restrictions to South-
South trade as they are from restrictions
to South-North trade
„ Just a handful of countries such as Brazil,
Chile, China, Guatemala, and Mexico
dominate nontraditional agricultural export
markets
„ A large share of public spending has
provided private goods (input and output
subsidies) and services at high cost
„ Great scope remains for improving the
efficiency of public resources to increase
investments on high-priority public goods
 Statements
Relating to Public–
Private Sector
Cooperation
„ Chapter 5 Bringing agriculture to the
market
„ Chapter 6 Supporting smallholder
competitiveness through institutional
innovations
„ Chapter 7 Innovating through science
and technology
„ Chapter 9 Using labor markets as
pathways out of rural poverty
„ Chapter 11 Strengthening governance,
from local to global
Bringing agriculture
to the market
 The government and the private sector
can help farmers expand and upgrade
their range of assets to meet the new
requirements of supermarkets and other
coordinated supply chains
„ Commodity exchanges offer a fast and
low-cost mechanism for discovering
prices, for trading, and for resolving
contractual disputes
„ Public-private efforts to promote collective
action and build the technical capacity of
farmers to meet the new standards
„ Joint extension by supermarket field staff
and government extension officers –
technical assistance to improve product
quality and safety and accredit and assess
the supply potential of small producers
„ Addressing the export challenges of
sanitary and phytosanitary standards
requires joint public and private efforts in
policy, research, and management
„ Specialty markets - there will be a need
for agreement on a common standard and
improved coordination among the
organizations promoting these standards
Institutional
innovations
Many newly developed innovations have the
character of a public good, because
innovations by one lender may be quickly
adopted by another

This justifies public support for promising

start-ups and pilot experiments to enable
them to reach scale and become financially
viable within reasonable time periods
 Financial services
„ Mobile phones – m-banking, pay for
purchases transfer funds; reduces
transaction costs
„ Branchless banking—stores, gas stations,
and input providers to reach rural
customers at low cost
„ Rural leasing - providers need to run
profitable enterprises but they benefit
from access to government and donor
funds to jumpstart their operations
 Financial services
„ Value chain finance - financial
intermediation through interlinked agents
(input suppliers or output processors)
„ Credit ladders - the key is a mechanism
for credit and saving histories and credibly
signaling them to the next level of the
financial market
 Insurance
„ Several approaches being tried to adapt
index insurance to diverse conditions
„ In some cases targeted subsidies may be
warranted for variable costs and prove
less costly than ex post assistance
„ Assemble information that can be
employed in index-based insurance -
public good that can improve the
efficiency of markets and reduce costs
 Input markets
„ Because public interventions in seed and
fertilizer markets have so often failed,
attention is turning to new approaches to
establish sustainable private-sector-led
input distribution systems
 Input markets
„ Vouchers - redeemable with local agro-
dealers strengthened effective demand for
inputs and increased sales—and profits—
of private distributors
„ Seed supply - partnerships between public
plant breeding programs and private seed
producers
Innovating through
science and
technology
Given the global role of the private
sector in R&D and in value chain
development, public-private
partnerships (PPPs) offer much
potential and are proliferating
„ A dynamic system of innovation comprises
private business, farmers, processors,
regulatory bodies, and public R&D
organizations operating in partnerships,
networks, or consortia
„ Networks of researchers, input suppliers,
chemical companies, and farmers – for
participatory research to adapt
technologies to local conditions
„ Negotiate reduced restrictions on private
sector imports of technologies and high
regulatory barriers to the release of new
technologies
„ Make public funding for R&D contestable,
and open to private firms to implement
the research, usually with private co-
financing
„ Establish a “purchase fund” or prize to
reward developers of specific technologies
„ Competitive funds - co-finance both R&D
and the pilot testing of innovations,
usually in partnership with private actors,
whether farmers, processors, or other
agri-businesses
„ Coordinating bodies or consortia – to
facilitate coordination along value chains
„ Mixed public-private systems involving
farmer organizations and
nongovernmental organizations and public
agencies contracting-out extension
services
Labor markets
 Labor intensity of high value
agriculture can generate employment
through public-private partnership
programs
„ Labor contracting schemes - reduce the
volatility of employment for agricultural
workers
„ Localized agro-based clusters - producers
interact regionally to better compete;
create linkages with local services and
industries and enhance the demand for
labor beyond farming
Strengthening
governance
 The government and the private sector
can help farmers expand and upgrade
their range of assets to meet the new
requirements of supermarkets and other
coordinated supply chains
 Public Sector Actions
„ Coordination - when farmers or processors
are working in an isolated or disconnected
way, or when complementary investments
are not made by others at different stages
in the supply chain
 Public Sector Actions
„ Contracting out - suitable for functions
that require public finance but not
necessarily public provision
 Public Sector Actions
„ Public-private partnerships - go beyond
outsourcing, creating joint responsibilities
for financing and providing agricultural
services and infrastructure
Thank you