Fourth South-South Cooperation Workshop on Rural Development and Poverty Reduction - Adolfo Italo Brizzi


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Fourth South-South Cooperation Workshop on Rural Development and Poverty Reduction - Adolfo Italo Brizzi

  1. 1. Market System Construction and Value Chain Development for Smallholder Agriculture Adolfo Brizzi, Director Policy & Technical Advisory Division IFAD Beijing, July 9, 2012
  2. 2. Agriculture is back with a revengeIf global food supply is threatened it will come to dominate policyand political agendas Tyranny of the short term: did we need to wait for a global crisisto realize the importance of food security ? Benign neglect hadreached its limits Re-look at structuralissues in the context ofnew integrated Ag/RDpolicies
  3. 3. Measuring the global challenge: Some facts (1) 950 35 millions 1b rural people live <$1.25/day 900 30 most are food-insecure 25 850 2b people in LDC derive income 20 % 15 from small-scale agriculture 800 10 Poor people spend 60-80% of their Population under-nourished in LDC 5 750 income on food 700 - 0 1969 1979 1990 1995 2000 2005 - - - - - 2010 Food availability may need to double to meet 2050 needs but productivity stagnates Agriculture is mostly a smallholder business Ag. growth is twice as effective to reduce poverty than other type of growth resolving smallholder agriculture is the closest proxy to reducing global poverty
  4. 4. Measuring the global challenge: Some facts (2) Food remains imperfectly tradable (shallow markets, distortions, time lag to respond, weather-dependent) Basic food consumption is inelastic to food prices and consumer income Capacity to grow is determined by – The size of the human stomach i.e. demographic growth – The possibility to trade with the biggest possible market – Substitution to higher value food Decades of low prices have created a situation where – Business is marginally profitable – Governments treated Agriculture as a public good: subsidize and protect farmers – High import tariffs, distortionary policies – Little incentive to invest in higher productivity
  5. 5. Measuring the global challenge: New paradigms (1) More liberalized sector. Global trade much easier Private sector on the move. Profit is no more a bad word. Bottom of the pyramid: the largest untapped potential for market-driven agriculture development Considerable efforts to mobilize and organize producers along value chains Ag. & Environment: friends & foes. One needs what the other one wants to protect (water, soil, forest)
  6. 6. Measuring the global challenge: New paradigms (2) Biofuels. New legislation in OCDE countries. Food, fuel, forest trade-offs. More pressure on food supply Climate Change and Ag., victim and culprit. The search for compromises and win-wins New consumption patterns towards protein-rich food will require more grains India & China: Per Capita Consumption in Kg 800 700 600 500 400 300 200 100 0 INDIA 1993 INDIA 2007 CHINA 1993 CHINA 2007
  7. 7. New Context for Agriculture Opportunities & ChallengesAre high prices the new tipping point for the revival of the agriculture sector ?
  8. 8. Agriculture is a business
  9. 9. Land (water) GrabbingMillion hectares Total area apt % exploited Irrigation % irrigated and percent for rainfed Potential agricultureLatin America 1066 19% 78 24% CaribbeanSub-Saharian 1031 22% 39 13% AfricaEast Asia 366 63% 111 68%South Asia 220 94% 142 56%Middle East & 99 87% 43 65% North Africa Source : OCDE et FAO (2009). Tableau tiré de Vindel, B. et P. Jacquet, Agriculture, développement et sécurité alimentaire, dans Jacquet, P. et J.H. Lorenzi, Les nouveaux équilibres alimentaires mondiaux, PUF-Descartes & Cie, 2011.
  10. 10. The consumer – producerdebate
  11. 11. High Prices and VolatilityA blessing and a curse. Needs careful evaluation at country levelWho wins & who looses. But not only “static” assessmentsCountry agriculture potential. Import/Export status.Rural/urbanRisks of unrestSafety netsPrice policiesRole of storageExport Bans Price Volatility 1885-2009Exchange rates Source: Roach, S. (2010), « What explains the rise in food price volatility », IMF Working Paper WP/10/129, figure 1, p. 3. Non weighted average of the prices of wheat, rice, maize, palm and soya oil. Price in dollars, deflated by the US consumption price indexes
  12. 12. Price transmission MAIZE Domestic Prices (US$/KG) RICESource : Food Security Portal (, november 2011
  13. 13. Historic opportunity to reduce poverty through market-driven agriculture development Large countries need to feed themselves The case for protection and subsidies is less compelling Import tariffs down world-wide,new chance for trade talks ? Globalization provides unleashed trade opportunities New technology push, innovation Private sector on the move entering new ag. markets and value chains Time to revisit some of the Government policies Social policies and safety nets for consumers will allow price trickle down to producers Market driven agriculture through PPP for smallholders
  14. 14. Fortune at the bottom of the pyramid (BOP)• BOP: The biggest untapped potential for market-driven agriculture Low cost, low profits, high volume• When you are poor, reaching scale is the best hope to access opportunities, become a market (consumers and producers), economy of scale, efficiency, reduced transaction costs, bargaining capacity, access to services• Organize the tail-end of the value chain• Demystifying poverty and profits• Scale will enhance private companies’ ability to access BOP markets
  15. 15. The Need for Collective Action The power of scale The supply side (both public and private) cannot be made more efficient in helping the poor unless it’s in the context of an organized demand side Transforming a large pool of poor people into a vast untapped market with much reduced transaction costs
  16. 16. Where are we coming fromPredominant Public Sector Private Sector Public Sector Disinterested Private Sector Intermediaries High transaction costs of all sorts Communities Disorganized Smallholders
  17. 17. We need a new model: PPP with a “P” for people Devise regulatory framework and incentive mechanism for PPP Public Sector Private SectorRethink public sector Attract private sector and intervention and link their business model find better ways to with development objectives deliver services along supply chians Smallholder Sector People Sector Becoming a market andDemand for governance & leveraging more accountability competition, access to banking, markets, etc. Institutions of the poor
  18. 18. Bridge the viability gapAgriculture is a business, but for the private sector to work withsmallholders it costs more. We can help bridge the viability gap. On the demand side: – create a new market. BOP, People Sector, scale, collective action. – Demonstrate creditworthiness of our clients to banks/MFIs, leverage remittances On the Supply side. If “people sector” scale is not enough (transaction costs too high), devise an incentive mechanism to attract the private sector. – Subsidizing private goods through matching grants not a solution. – Better to finance (semi) public goods as part of matching grants, but associated to the private sector business plan, along value chains. – Design matching grants competitively and look for leveraging private sector money as co-financing
  19. 19. Public Sector Development monopoly ?• Mostly supply-driven and top-down• Local innovation and home-grown solutions can be inhibited• Public sector performance in delivering services is mixed• Imbalance between supply and demand  Poor people are seen as “beneficiaries”, not clients  Dispensing favors rather than facilitating access to services by the poor  Accountability is upwards rather than downwards  Entrenched vested interests
  20. 20. Where is the private sector ?The private sector is on the fence – Crowded out by public sector, policy restrictions, red tape – Poor infrastructure – Not interested in poor, uneducated, dispersed producers – Lack of scale and quality (norms and standards) – High transaction costs, risky business and low returns – In some cases the private sector came, but no competition, easy to collude (farmers with no bargaining power)
  21. 21. THE PEOPLE SECTORStrategy: • Gaining Voice • Reaching ScaleHow: 1. The software: Organize institutions OF the poor (vs. institutions FOR the poor) 2. The hardware: Put productive assets in the hands of poor people and provide opportunities for income generation
  22. 22. The softwareSocial Mobilization and Institution Building☞ Groups organized around a strong common purpose (savings & loans, joint economic activities)☞ The nature and the quality of the initial grouping determines the graduation model☞ Strong inclusion and (self) targeting methodology – Mutual trust against risks of elite capture☞ Scale creates a market and crowds-in the private sector☞ Social agendas (disabled, HIV/AIDS, domestic violence, alcoholism, caste)☞ This is not about money
  23. 23. The hardware (assets)Access to productive assets ☞ Software first, hardware second ☞ Income generating activities, own savings and group inter-loaning to demonstrate creditworthiness and crowd-in MFI and Banks ☞ The grants vs credit debate But also groups as financial intermediation. Recycling grants into loans
  24. 24. The graduation model Franchising Community Retailing Trade Marketing enterprises Banking Commodity Savings & services Cooperatives Federation ofLoans Coops User Groups Different levels of associative and federative tiers Affinity-based Activity-based Resource-based Irrigation, Savings and Loans Assets/marketing Watershed, forestry
  25. 25. Institutions first Money second Money and Influence Banks Agri-business Control over nat. res. Microfinance Input suppliers (land, water, forest, fish) Insurance Co. Service Providers Sustainable Use/financeService Providers Insurance/warehouse Agri-business Going to Scale People Sector Institutions
  26. 26. Self-help groups federation model (Andhra Pradesh)• 2 from each sub-district Federation 200,000• Interface with markets 400,000 District• Franchising and Insurance Federation• Maintain MIS/IT systems 22• 2 from each Village Organization• Supports VO / audits VOs• Links w. Governments 4000• Link w. financial institutions 6000 Sub-District• Links w. markets and private s. Federation - 1100• 2 from each Self-Help Group• Support SHG 150• Manage credit lines/grants to SHG 200 Village• Social action/village development - Organization• Marketing/identifies jobs for youth 34850• Savings and loans• Monitoring group performance S HG s S HG s S HG s S HGs S HG s S HG s Self-Help• Micro-credit planning Group• Household investment plans 10-15 809800
  27. 27. The Power of Scale• Self-Help Groups formed in all villages of AP (saturation strategy)• ~9 M rural women, ~90% of poor rural women, ~40M people• Own funds (savings + interest earned on inter-loaning): $790M• Cumulative credit from formal institutions since 2000: > $ 2.7B• Repayment rates in excess of 95%• Revival of the rural banking business• SHG: FROM: not daring to enter a bank Cost (over 8 years): TO: having become one of the best clients. $10/beneficiary $40/woman (household) Leverage (scale-up) each $1 raised $10
  28. 28. Scale for InnovationProcurement Centers (PC) and Trade•Federations operate the retail end of the value chain, particularly backwardintegration through village procurement and service centers•Reduce transaction costs between dispersedfarmers and the market through product aggregation and collective buying•Used as franchises for agri-businesses•Developing a network of low-cost service providers and paraprofessionals i.e. jobsYouth Employment• Large pool of unemployed youth in villages• Federations as temp agency + moral guarantee• Economy of scale, low transaction for training and recruitment through one entry point• Greatest demand: security sector, retail, services, health centers, repair shops, computer data entry, construction.
  29. 29. Scale for Innovation Franchising for Life/Disability Insurance Scheme •Access BOP market through franchising and retailing insurance policies at least cost. •Federations collect premiums from members, fill forms, verify claims, maintain MIS, issue certificates of insurance, make payments, link up with Insurance Comp. for re-insurance, web-based claim transactionReaching out through ICT* Communities’ web portal. Post aggregate info onavailable products (quantity, norms, specifications) & jobseekers.* Private sector establishes business linkages directlywith federations. Increased market access andcompetition* ICT provides quantum leap away from costlyintermediation for large-volume low-cost products & jobs
  30. 30. Scale for Innovation Smart Cards for Banking and SS benefits• More efficient way to deliver public services (social security, pension/wage payments, safety nets, etc..)• Each Fed. identify the beneficiaries of Gov. SS programs, calculate the benefits, prepare payment lists, fill the forms, etc..• Commercial banks (under MOU with the Government) train the Fed. and provide the financial infrastructure (mobile phone, smart cards, card reader, printer).• Beneficiaries receive payments from banks through their branchless organization and make contributions• Shift the banking system to smart cards and branchless banking• New opportunities: mobile banking
  31. 31. Thank You