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Food Security & Food Market Transformation 2010
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Food Security & Food Market Transformation 2010

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  • 1. Linking Food Market Transformation to Improved Food Security in Asia
  • 2. • Tom Reardon• Michigan State University• Talk at ASEAN Food Security Conference: Role of the Private Sector• 17 June 2010
  • 3. 1. Food Security is a dinner table with 4 inter-dependent legsa) Leg 1 is “availability” from raising farm production/productivity.… But this leg is necessary but not sufficient – and without the other three legs the table will fall.b) Leg 2 is “access” from raising household incomes to buy food.… I will show that about 80% of the food in ASEAN countries is bought by only-consumers (households not producing food)
  • 4. c) Leg 3 is “access” to food by raising efficiency of market supply chains to deliver food to consumers.…. 50-70% of consumer’s cost of food is formed in post-farmgate segments of supply chain wholesale/logistics Processing retail For food security, raising efficiency in post- farmgate segments is at least as important as raising farm yields.
  • 5. d) Leg 4 is raising “utility” of food by raising food safety/quality/nutritiousness. If any of the legs is not strong all will fall together.
  • 6. 2. Food Security is a dinner with two important coursesa) Rice is the important base –… it is about 50% of consumer calories –… but is only about 10% of consumer spending on food,… but only 8-32% of agriculture – and that share is declining, 1961, 1980, 2007 (Timmer): … Rice/Agriculture: East Asia: 19% 8%; South Asia: 20% 15%; Southeast Asia: 40% 32% … Rice/GDP: East Asia: 6.8 1%; South Asia: 8.4% 2.7%; Southeast Asia: 14.5% 3.8% … Per capita rice consumption growth negative or trending negative (in Indonesia, negative in 4/5 quintiles in urban and zero or negative in top and next quintile in rural Indonesia; India and Bangladesh showing similar trends but earlier on path)
  • 7. b) Food-beyond-rice (vegetables, fruit, fish/shrimp, meat, edible oils, dairy, spices/condiments) is the other important base… about 50% of consumer calories in ASEAN… 90% of consumer food spending, and… 90% of their protein & vitamins… 92% of agriculture in East Asia, 85% in South Asia, and 68% in Southeast Asia.… 4 times more income/ha to farmers than rice
  • 8. (3) Thus – a holistic-integratedFood Security Investment Strategy Matrix has 5 rows + 2 columns
  • 9. Food Security Investment Strategy Matrix rice Beyond-rice1) Farm input supply2) farming Common focus of debate – necessary but not sufficient3) Wholesale/logistics4) processing5) retail
  • 10. (4) The two elephants in policy-debate room are only two wheels on the 10- wheel truck delivering food securitya) Government is important… as an investor in the soft and hard infrastructure as foundation for the 10-block food security matrix… as ONE of the policy setters for players in the food supply chains -… but government is a MINOR direct player in this game.… ASEAN governments’ procurement/marketing of food touches maybe 1% of ASEAN food economy (at most 10% direct involvement in the 10% which is rice).
  • 11. …. The private sector is the other 99%: these are the business investors in ALL the segments of the supply chain. This includes farmers!… A key role of government: create enabling conditions to promote investment by the 99% Reduce risk in investment (including policy uncertainty) Increase soft and hard infrastructure
  • 12. b) Trade is important at the MARGIN –… but is only about 5% of the food economy of ASEAN… trade is only 10-20% as important as the modernizing food market inside ASEAN urban areas... I focus next on rapid modernization of the ASEAN food economy
  • 13. 5) The ASEAN food economy haschanged ENORMOUSLY in the 40 year period Timmer discussed – from the 1973 food crisis to now:with big implications for food security investment strategies
  • 14. a) Extremely rapid urbanization… 50% in urban areas by 2010, rising fastExample: South Korea did in 2 decades (1970- 1990) what US did in 9 decades… 75% of the ASEAN food economy in urban areas… that market is growing 5-7 times faster than OECD food markets big opportunity for income growth for farmers
  • 15. b) Consumption and production have diversified very fast (income growth + urbanization + Bennett’s Law)… as noted, share and level of rice in consumption dropped… diversification into non-rice products rose very fast A huge opportunity to raise farm incomes as produce products that pay 4 times what rice pays to small farmers
  • 16. c) The post-farmgate segments of the agrifood supply chain have developed to become 50- 70% of the formation of the food price… only 30-50% of the food price is formed at the farm sector…… yet the debate focuses mainly on farm productivity productivity: this is necessary but not sufficient increases in efficiency of wholesale/logistics, processing, and retail would have as much or more impact on food security
  • 17. d) Wholesale/logistics, processing and food retail (inside ASEAN + China) have VERY quickly transformed in the past 10-20 years – the fastest in the world, in history… based mainly on massive investments by private sector (domestic and foreign)… with impacts on the ASEAN food economy 6- 10 times more important than international trade effects
  • 18. … wholesale/logistics… first stage was massive government investment in wholesale markets (China, 11,000% increase in these markets in 1990s; India, from 450 in 1950 to 5500 in 2008)… second stage (1990s/2000s) HUGE private sector investment in logistics firms, specialized wholesalers… third stage is “follow sourcing” (large processors and retailers “bring along” multinational logistics/traders
  • 19. … food processing… first stage was parastatal processing and small informal processing… second stage was HUGE investment (by domestic and foreign, following FDI liberalization) in 1990s/2000s example: Thailand’s CP creates largest shrimp farm/processing in world in Indonesia… third stage is rapid concentration & multinationalization of food processign (integration of ASEAN food economy!)
  • 20. … food retail modernization… first stage was (limited) public sector “fair price shops” and some cooperative chains… second stage (1990s/2000s) “supermarket revolution” in ASEAN & China, starting India … growing THREE times faster than GDP … example: just top 47 chains in China, 13 billion USD in 2001, 92 billion USD in 2009 … example: Philippines, leading chains, from 1 billion USD to 10 billion USD just over 2000s
  • 21. … modern retail from tiny share early 1990s to 30-60% of food retail over the past 15-20 years… third stage: concentration and multinationalization of food retail in the region
  • 22. e) Food Trade has a small share of the ASEAN food economy… but the fastest growth (and the future) is INTRA-ASIAN trade… heavily encouraged by the food industry transformation & their procurement system changes Big opportunity, but also competition… 30% of vegetables and 70% of fruit in Indonesian supermarkets from Thailand and China
  • 23. f) Consumers win from this transformation… Supermarkets in Delhi charge 15-20% less for staples (rice and wheat) and 10% less for basic vegetables than traditional retailers Modern food industry can increase efficiency in the supply chain and reduce food prices (this is international experience as well)
  • 24. g) Farmers both win and lose …… farmers selling to supermarkets tend to increase incomes because of quality differentiation and price premiums… but tends to favor medium farmers and asset- rich small farmers… so issue over time of helping asset-poor small farmers to upgrade
  • 25. … opportunity for public-private partnerships to help small farmers participate: … Malaysian program helping small farmers into supermarket supply chains … “Diamond” arrangements with supermarkets, modern wholesalers, input supply companies, farmer associations, and government (Indonesia)
  • 26. … rural business hubs, integrated platforms,and economic corridors (PPP programs withprivate sector anchor firms and hub+spokeapproach to include small farmers in area)
  • 27. 6. Harnessing the private sector’s investmenta) Crucial role of private sector in transforming the ASEAN food economyb) This raises consumer and producer food securityc) Policy could aim at reducing risk and increasing incentive for this investmentd) Governments can enter PPP where there is win-win for business, small farmers, and consumers