Quiet Revolution in Agrifood Value
Chains:
Asia with comparisons to Africa
Thomas Reardon
Michigan State University

1. Focus on rapid transformation of
VCs: Key points of talk
a) VCs important to farms & food security:
… post-farm gate segments (downstream +
midstream) = 50-70% of food price cost formation
b) domestic VCs are rapidly transforming in all three
off-farm segments:
… downstream (retail),
… midstream (processing & wholesale),
… upstream (rural factor markets)
c) Pulled by
… rapid urbanization
… diet change

2. Driver #1: Urbanization
Rural to Urban VCs dominate the food economy
a) Asia is urbanizing fast & urban market already majority
of food market
… urban share of population: 18% in 1950, 44% in 2010, projected
56% by 2030
… Urban food markets: 65-75% of Asian food expenditures by urban
consumers
.. compare with 5% share of exports in output…
 rural-urban food VCs are the majority of food in the countries
 extreme importance of these VCs for national food security … and
for farmer incomes

b) ESA Africa: urban shares in food economy
(red is share in purchased market, green overall):
> ESA Urban population share 30% (like India)
> Waf share is 45-50% (like Southeast Asia)
> ESA Urban has 46% of purchased + produced,
61% of just purchased cereals
… rural has 54% (39%)
> Urban has 43% (56%) of pulses
… rural has 57% (44%)
> Urban has 31% (49%) of roots/tubers market
… rural has 69% (51%)

> ESA African Urban has 52% of purchased +
produced,
63% of just purchased fruits/veg
… rural has 48% (37%)
> Urban has 58% (63%) of meat/fish
… rural has 42% (37%)

3. Driver #2: Diet Change
a) Rapid diversification of food across product
categories (Bennett’s Law)
a.1) ... Cereals are 25-30% of food expenditure in
Asia
… rapid rise of fruit/vegetables, fish/meat,
eggs/dairy, edible oils/fats
b) Africa Share of staples (cereals, roots/tubers,
pulses)
Total staples = 38% of purchased expenditure, 56%
of purchased + produced expenditure
So “diversification foods” already 62% of
purchased market … a majority of expenditure!

b.1) Processed foods HUGE in consumption
rising rapidly in Asia:
… in urban Asia, overall 73% of food expenditure
is processed, with “low processed” 58% of the
total processed and 42% “high processed”
… in rural Asia, overall 59% of food expenditure
is processed, with “low processed” 69% of the
total processed and 31% “high processed”

b.2) Rapid rise of processed food consumption
as share of diet in Africa
… Rural “low processed” share (outside maize)
= 21% of food expenditure
… Urban “low processed” share (outside maize)
= 25% of food expenditure
… Rural “high processed” share: 18% of expen.
… Urban “high processed” share: 28% of expen.

Outside of maize expenditure,
Share of all processed in total rural expenditure
= 39% !
Share of all processed in total urban
expenditure = 53% !

4. Double Revolution in the value chains – focus on
Asia
a) … a MODERN revolution (rise of
supermarkets, large processors)
&
b) … a QUIET revolution (grass-roots
investments by 10’s of 1000s of small/medium
enterprises along the supply chains
… findings based on our “stacked surveys” of
9000 farms/firms in segments along value
chains in past 8 years in Bangladesh, India,
China, Indonesia, Philippines, Vietnam

c) But the transformation is NOT evenly
distributed: we find there are 2 rural Asia’s:
… dynamic/commercializing zones (7-8 hours
from Tier 1&2 cities – for example, perhaps half
of Indian food economy)
… less in hinterland areas (but still transforming,
e.g., cold storages rise in Bihar)

5. Rapid change in Downstream
Segments
a) Supermarket Revolution
… overall in Asia: 2-4x faster than GDP growth
… India:(49% sales growth per annum  5x rate of
GDP growth)
…. Penetration of rice (7% in Delhi, 50% in Beijing,
starting in Dhaka)
… penetration of fresh produce (5% in Delhi, 20% in
Beijing)  but early by international standards
b) Food security effects: cheaper staples in Delhi in
supermarkets compared with traditional retail

6. Rapid change in Midstream
(Processing, Wholesale)

6.1. Rapid change in Midstream
segments
6.1.1. Modern Sector Midstream
a) Processing: Rapid growth, concentration, and
capital/labor increase, India case
b) Rise of modern wholesale/logistics companies
c) Big retail and big processing growing in
symbiosis: Beijing supermarkets buy direct from
large-scale rice mill companies
d) A little bit of early direct sourcing (collection
centers) and contract farming: pays farmers well

6.1.2. Quiet Revolution in “traditional”
midstream
a) Dis-intermediation in wholesale (massive
decline of rural broker/village trader role
with shortening of chain, direct sale by
farmers to mills and city wholesale markets)
Example:
… cut out role of village trader (VT) in rice
(Bangladesh, 7% to VT, China, 29% to VT, India,
18% to VT)
… farmers sell direct to mills: 63% in China, 60%
in Bangladesh; little in India (APMC act
constrains shift)

b) Rapid development of cold stores for potato in India
and Bangladesh, raising farm prices and reducing
seasonality for consumers
… in Bangladesh, 22% of farm sales from Cold Store
… in India, 73% from cold storage in 2009 (40% start of
2000s, 5% in 1990)
… India case: displacing (regardless of APMC
regulation…) the mandis (as venue for intermediation)
… India case: providing credit to farmers

c) Disappearance of tied credit-output markets of
wholesalers with farmers, freeing farmers to choose
best buyer
… in UP and MP surveys, only 2-5% of crop market
transactions linked to credit from traders
(advances)
… found this pattern ALL OVER ASIA
d) Waste in supply chain much lower than typically
stated in public debates: instead of “40%”, around
5-7%

7. Asia Upstream: Farming & Input
Supply

7.1. Farm Sector Transformation
a) Farming intensification, examples:
… Quality differentiation and hybrid diffusion in
rice
… horticulture boom (golden potato-triangle)
… rapid uptake of pesticides and herbicide
(linked with nonfarm employment and
opportunity cost of time)

b) Farm sector commercialization – selling into
the supply chains…
… in Asia, farmers sell 60-90% of their rice crop
… 80-90% of their fruit/veg crop

7.2. Input Markets Development
a) Rapid development: Farmers linking to input
markets
… Land rental markets
… farm machine rental and service-outsourcing
… farm chemical markets
… Water markets
… Cold storage market

b) Rapid development of “outsourcing” service
sector to farmers
… rice harvesting clusters/companies going
cross-province in China
… “sprayer-traders” in Philippines and Indonesia
mango sector
… Economies of scale for and of farmers

8. Conclusions
a) Rapid change and ferment/churning
b) Modern sector AND transforming traditional
chain
c) Importance of off-farm segments of supply
chain: SANDWICH (transformation upstream
and downstream from farmer)
d) Opportunities & challenges for small farmers
e) But nagging constraints in public goods and
regulations