Principal results and key messages from recent research on food systems transformations in Africa and Asia. Prof. Tom Reardon, Agricultural economist, Michigan State University (MSU), USA.

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

2. 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

3. 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

4. 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%)

5. > 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%)

6. 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!

7. 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”

8. 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.

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

10. 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

11. 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)

12. 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

13. 6. Rapid change in Midstream
(Processing, Wholesale)

14. 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

15. 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)

16. 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

17. 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%

18. 7. Asia Upstream: Farming & Input
Supply

19. 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)

20. 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

21. 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

22. 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

23. 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