Smart Agriculture and the Fruit & Vegetable Industry, The New Face In Sustainable Economic Development

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A comprehensive analysis of the Barbados Fruit & Vegetable Industry. It is a thorough review of the local sector as it relates to the global industry. It provides the perspectives of the various stakeholders and reveals the hidden complexity of the industry.

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  • File has been updated on October 11, 2013. Key changes - new section on Trade & Protectionism added in; Expanded Youth Entrepreneurship section; Revised recommendations for commercial production.
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Smart Agriculture and the Fruit & Vegetable Industry, The New Face In Sustainable Economic Development

  1. 1. SMART AGRICULTURE AND THE FRUIT & VEGETABLE INDUSTRY: The New Face In Sustainable Economic Growth BARBADOS FRUIT & VEGETABLE INDUSTRY KEELEY HOLDER OCT 06, 2013
  2. 2. ACKNOWLEDGEMENTS I began writing this document at the request of Dr. Chelston Brathwaite who wanted “a few pages” on the fruit and vegetable industry to include in the White Paper on Agriculture which he was preparing for the Barbados Ministry of Agriculture. The writing flowed and next thing I knew, I ended up with a book! Since this book has not been accepted by the Ministry, I have decided to publish it as a book. This book would not have been possible without the contribution and support of many people. Firstly, I wish to extend my sincerest gratitude to Dr. Chelston Brathwaite, mentor and chairman of the National Agricultural Commission for providing me with the opportunity to make such an important contribution to my industry. My appreciation also goes to Mr. Pelekelo Mwikisa; thanks will never be sufficient for sharing your impeccable worldview. To Ms. Lorna Barrow, whose mentorship and understanding of all things business and not-for-profit is beyond compare, please accept my deepest gratitude and admiration. I wish to extend heartfelt thanks to Mr. Jethro Greene, Chief Coordinator of the Caribbean Farmers Network for providing me with tremendous opportunities to participate in agricultural fora at the regional and international level and to learn about best practices in food crop production from around the world. I would also like to thank Mr. Darwin Telemaque for sharing his knowledge of freight, logistics and international marketing. I would like to thank Mr. Jeremy Stephen for my continued education in economics. I owe particular thanks to Mr. Michael Forde whose insights and contributions have been more than invaluable. I would like to extend a warm thank you to the following farmers and tractor operators for their many contributions – Mr. Peter Waldron, Mr. Egbert Maloney, Mr. Junior Phillips and Mr. Kervin Gooding. Special thanks to Mr. Michael James from the Pathology Department, Mr. David Bynoe from the Central Agronomic Research Station, Mr. Dwayne Nurse and Mr. Robert Saul from the Agricultural Planning Unit and Mr. Adrian Trotman of the Caribbean Institute of Meteorology and Hydrology. I would also like to acknowledge Mr. George Bayley and the Ministry of Agriculture’s library staff for maintaining such a wonderful library and helping me to find some very critical documents. Finally, I wish to thank the council of the Barbados Society for Technologists in Agriculture, Mr. Julian Dottin, President of the National Union of Farmers and all those who conversed with me and helped to shape my thinking and vision for the industry.
  3. 3. ACRONYMS AMSP Accompanying Measures for Sugar Protocol AWIA Association for Women in Agriculture BADC Barbados Agricultural and Development Corporation BADMC Barbados Agricultural and Development Marketing Corporation BAMC Barbados Agricultural Management Company BANGO Barbados Association of Non-Government Organisations BARP Barbados Association for Retired Persons BARVEN Barbados Association of Vendors BAS Barbados Agricultural Society BCC Barbados Community College BHTA Barbados Hotel & Tourism Association BIDC Barbados Industrial Development Corporation BMA Barbados Manufacturer’s Association BMC Barbados Marketing Corporation BMP Best Management Practices BSTA Barbados Society for Technologists in Agriculture BYBT Barbados Youth Business Trust CAMI Caribbean Agro-Meteorology Initiative CARICOM Caribbean Community CARS Central Agronomic Research Station CBI Centre for the Promotion of Imports from Developing Countries CDB Caribbean Development Bank CHF Canadian Hunger Foundation CIDA Canadian International Development Agency CIMH Caribbean Institute for Meteorology & Hydrology CFCS Caribbean Food Crop Society CNCD Chronic Non-Communicable Diseases CRM Customer Relationship Management CRNM Caribbean Regional Negotiating Machinery CSME Caricom Single Market and Economy DFID Department for International Development ECDPM European Centre for Development Policy Management ENSO El Nino Southern-Oscillation EPA Economic Partnership Agreement ERS Economic Research Service EU European Union FAO Food and Agricultural Organization FAS Foreign Agricultural Service FAVGA Fruit and Vegetable Growers Association FSMA Food Safety Modernization Act FDA Food and Drug Administration GAP Good Agricultural Practices GIS Geographic Information System HACCP Hazard Analysis Critical Control Point HBR Harvard Business Review IATRC International Agricultural Trade Research Consortium ICT Information and Communication Technology IDB Inter-American Development Bank IICA Inter-American Institute for Cooperation in Agriculture IMF International Monetary Fund IPM Integrated Pest Management
  4. 4. MAFFAW Ministry of Agriculture, Food, Fisheries and Water Resource Management MDG Millennium Development Goals MESA Men's Educational Support Association MIF Multilateral Investment Fund MIS Market Intelligence System MoU Memorandum of Understanding NAC National Agricultural Commission NAFHCA National Agriculture Food Health & Control Agency NCC National Conservation Commission NCST National Council for Science & Technology NNC National Nutrition Centre NOW National Organisation of Women NUF National Union of Farmers NVQ National Vocational Qualification PCB Pesticide Control Board OECD Organisation for Economic Co-operation and Development OGCA Organic Growers & Consumers Association OMJ Opportunities for the Majority RBPF Royal Barbados Police Force SBRC Sustainable Barbados Recycle Centre SDFA Scotland District Farmers Association SGF-GEF Small Grants Fund of the Global Environmental Facility SGFC St. George Farmer’s Cooperative SIDS Small Island Developing States SJPP Samuel Jackman Prescod Polytechnic SKU Stock Keeping Unit SPS Sanitary and Phytosanitary STE State Trading Enterprise TVET Technical and Vocational Education and Training UCD University of California Davis UF University of Florida UK United Kingdom UNDP United Nations Development Programme USDA United States Department of Agriculture USA United States of America UWI University of the West Indies WHO World Health Organization WTO World Trade Organisation YDS Youth Development Services YES Youth Entrepreneurship Scheme YWCA Young Women Christian Association
  5. 5. TABLE OF CONTENTS 1. INTRODUCTION.............................................................................................1 2. SECTION I: OPPORTUNITIES.........................................................................1 2.1. Global Industry Outlook – Fresh Produce............................................1 2.2. Global Industry Outlook – Value Added...............................................2 2.3. Economic Resilience through Fruit & Vegetable-Related Exports ........3 2.3.1. Changing Business Models ........................................................3 2.3.2. The Weakness of the Services-Only Mindset .............................5 2.3.3. A Robust Goods Producing Sector .............................................5 2.3.4. The Importance of Logistics & Trans-shipment .........................7 2.3.5. Success Factors in Fruit & Vegetable Exports............................9 2.4. Smart Agriculture..............................................................................11 2.4.1. Soil Management.....................................................................14 2.4.2. Pollination & Beekeeping ........................................................15 2.5. The New Strategic Positioning of the Industry ..................................16 2.5.1. Criteria for Selecting Key Export Products ..............................16 2.5.2. Current Export Demand...........................................................18 2.5.3. The Industry’s New Mission & Regional Priorities ...................18 3. SECTION II: CHALLENGES ...........................................................................20 3.1. The Business of Agriculture & Economic Development ......................20 3.2. The Domestic Market.........................................................................21 3.2.1. Food Import Bill ......................................................................23 3.2.2. Trade & Protectionism.............................................................24 Trade & Tariffs......................................................................26 Weaknesses in Barbados’ Trade Policies ...................................28 3.2.3. Market Coordination................................................................29
  6. 6. 3.2.4. Export .....................................................................................30 3.3. Hawkers, Middlemen, Wholesalers....................................................32 3.4. Crop Theft .........................................................................................33 3.5. Farmers’ Capacity .............................................................................34 3.6. The Price & Business Relationship.....................................................36 3.6.1. Price Volatility.........................................................................36 3.6.2. Retail Pricing Strategies..........................................................36 Retail Pricing & Consumer Behaviour .......................................37 Retail Pricing & Gluts .............................................................38 3.6.3. Price & Quality of Produce.......................................................38 3.6.4. Price & Business Relationship .................................................39 3.6.5. Farmers’ Markets ....................................................................40 Wholesale Farmer’s Markets & Central Wholesale Facilities .........43 3.7. Support from the Ministry of Agriculture...........................................43 3.8. Pesticide Control Board .....................................................................45 3.9. Tractor Cultivation ............................................................................46 3.10. Sustainability & Growing Crops .........................................................47 3.10.1. Organic Farming.................................................................48 3.10.2. Greenhouses & Shade- and Net- Houses ............................48 3.10.3. Climate Variability & Change..............................................49 3.10.4. Food Safety ........................................................................50 3.11. Access to Resources..........................................................................51 3.11.1. Land ...................................................................................51 3.11.2. Water .................................................................................52 3.11.3. Insurance...........................................................................52 3.11.4. Financing ...........................................................................53 Financing & Information.........................................................53
  7. 7. 3.11.5. Labour & On-Farm Human Resource Development.............53 3.12. Local Value Added (Agro-Processing) ...............................................54 Value Added & the Farmer......................................................55 3.13. The BADMC, A State Trading Enterprise ............................................59 3.14. Input Suppliers .................................................................................61 3.15. Farming Organisations ......................................................................62 3.15.1. Farmer Organisations.........................................................63 3.16. Inter-Agency Partnership & Collaboration ........................................64 3.17. Non-Commercial Gardening ..............................................................65 3.17.1. Household Food and Nutrition Security ..............................65 3.17.2. Hobbyist Gardeners............................................................66 The USA Master Gardener Programme .....................................67 3.17.3. Gardening & Experiential Learning.....................................68 3.18. Image, Youth Succession ..................................................................69 3.18.1. Image ................................................................................69 3.18.2. Attracting & Retaining Youth .............................................69 3.18.3. Youth Employment, Entrepreneurship & Leadership ..........71 Skills for Young Entrepreneurs in Agriculture ............................71 Efforts to Develop The Young “Agri-Preneur” ............................75 4. SECTION III: STRATEGIC OBJECTIVES & POLICY FRAMEWORK ..................77 4.1. Strategic Objectives ..........................................................................77 4.1.1. Transforming the Sector .........................................................77 4.1.2. Specific Sector Issues .............................................................77 4.2. Strategic Policy Framework...............................................................77 4.2.1. Strategies Related to Transforming the Sector........................77 4.2.2. Strategies Related to Specific Sector Issues ...........................78 5. SECTION IV: ACTIONS & RECOMMENDATIONS............................................79
  8. 8. 5.1. Prioritising Actions............................................................................79 5.2. Recommendation: Commercial Production ........................................79 5.2.1. Aim .........................................................................................79 5.2.2. How.........................................................................................80 Develop a New Agricultural Entrepreneur ..........................81 Change Management for the Ministry of Agriculture ..........81 Market Access through Private-Public Partnerships ...........82 Food & Nutrition Security ...................................................82 Institutional Strengthening of Farmer Organisations .........82 Inter-Agency Collaboration ................................................83 Grower Productivity & Competitiveness .............................83 Incentives & Trade Policies ................................................85 Access to Finance...............................................................85 Crop Theft ..........................................................................85 5.2.3. Employment Potential .............................................................86 5.2.4. Foreign Exchange Earnings & Savings.....................................87 5.3. Recommendation: Household Food Security......................................87 5.3.1. Aim .........................................................................................87 5.3.2. How.........................................................................................87 5.3.3. Employment Potential .............................................................88 5.4. Recommendation: Value Added.........................................................88 5.4.1. Aim .........................................................................................88 5.4.2. How.........................................................................................88 5.4.3. Employment Potential .............................................................89
  9. 9. 1 1. INTRODUCTION The fruit and vegetable industry (including root crops and nuts) while at first glance seems like a very simple and straight forward industry, is a multi-dimensional industry which has often been challenging to depict even by very capable professionals. In Barbados it is characterised by two main types of farmers – commercial farmers and hobbyist gardeners. The term “hobbyist gardeners” is used to provide a clear distinction between subsistence / backyard farmers / hobbyist gardeners and commercial farmers. Hobbyist gardeners are persons engaged in gardening on small plots (generally less than ½ acre) who are motivated to produce food (1) primarily for household consumption, (2) exercise and stress relief, (3) personal enjoyment in watching crops grow and (4) socialisation. These gardeners may also sell excess produce and share with friends and family. Alternatively, commercial farmers may be full-time or part-time persons who develop repeatable processes in crop production to (1) make a profit, (2) generate optimal yields at lowest costs and (3) to sustain their livelihood. The situational analysis below specifically addresses the issues faced by commercial farmers. The Non-Commercial Gardening section (3.17) addresses the issues specific to hobbyist gardeners 2. SECTION I: OPPORTUNITIES 2.1. Global Industry Outlook – Fresh Produce According to the World Bank, trade in fruit and vegetable products has been among the most dynamic areas of international agricultural trade. For developing countries, trade in these products has been attractive in the face of highly volatile or declining long-term trends in the prices for many traditional export products. World trade in fruits and vegetables, fresh and processed, has increased by 30% since 1990 reaching $71.6 billion in 2003. In 2001 fresh produce accounted for 63% of the total trade compared to only 37% for processed fruits and vegetables. However an analysis of the structure of world trade shows that many of the largest producers (e.g. China, India) are not significant traders due to a combination of domestic demand and geographical and logistical factors. Today, fruit and vegetable exports from developing countries are now more than double exports for tropical beverages, three times exports of grains, three times exports of livestock products, five times exports of sugar, and seven times exports of textile fibres.1 At the geopolitical level, the ongoing combination of food, energy, economic and environmental crises in the last 4 years and the continued push for trade liberalisation of food products have brought agriculture, and the fruit and vegetable industry to the forefront of global talks with developed nations pledging billions of dollars in international assistance to the most vulnerable countries as these events impact food, its production, its availability and its output. Consistent with these global trends, food security has featured prominently 1 Source: Ndiame Diop & Steven Jaffee, Worldbank – Global Agricultural Trade and Developing Countries, Chp 13 (2005)
  10. 10. 2 on the national agenda because of Barbados’ vulnerability as a net food importing country and there is a strong demand for fresh fruits and vegetables in Barbados. Consequently, these and other dramatic and transformational changes such as the global economic reordering that are taking place as Brazil, China, and India surface as economic powerhouses are all culminating to create a new business environment for the industry, one that is based on competitiveness, creativity and innovation. 2.2. Global Industry Outlook – Value Added Adding value is the process of changing or transforming a product from its original state to a more valuable state. Value can be captured or created and each strategy offers specific opportunities and risks that influence the success or failure of the value added venture. Adding value to products can be accomplished in a number of different ways, but generally is done through innovation or through coordination. It is generally accepted that the largest value is usually not extracted from the beginning of the supply chain but further along the path. Nonetheless, many fresh fruits and vegetables have intrinsic value in their original state. One typical example is the use of cassava as feed for livestock. Because of the advances in technology and consumer-centric marketing, today’s fresh fruits and vegetables are no longer being perceived as just primary products. In this modern era, fresh fruits and vegetables are now themselves, processed goods undergoing sophisticated operations in collection, quality control, packaging, storage, refrigeration and transport. A number of forces in the developing and developed countries are driving changes in global food consumption patterns, with income growth being one of the most important. Research indicates that the growing demand for fruits and vegetables is also being fuelled by the health and wellness mega-trend that is making waves all across the globe with pleasurable ‘high quality’ eating experiences expected to be the most significant long-term trend in fresh produce retailing.2 Internationally, these market forces have led to greater opportunities for product differentiation and added value because of (1) increased consumer demands regarding health, nutrition and convenience; (2) efforts by food processors to improve their productivity; and (3) technological advances that enable farmers to produce what consumers and processors desire.3 What’s more, consumers are redefining value so that it is no longer functional and implicit but rather purposeful and emotional. While value is still a function of price, quality and quantity, consumers are now more concerned about wastage, necessity and the gastronomical experience. In recent times, consumers are experiencing a newfound sense of wanting to avoid wasteful living and needless consumption because they feel strongly about having things go to waste and purchasing things that will not be used in their entirety.4 2 Source: Roberta Cook, UCD – Consumer Trends and Fresh Produce Consumer Profiles (2010) 3 Source: J. Royer – Potential for Cooperative Involvement in Vertical Coordination and Value-Added Activities. Agribusiness 11(5) (1995) 4 Source: Hartman Group – Redefinition Of Value: The Framework for Understanding Sustainability (2010)
  11. 11. 3 In the UK, 83% of consumers say added value is the biggest decision making factor, not price and in the USA, freshness is the single biggest driver of sales in fresh produce with the fresh cut industry valued at US $5.4 Billion.5 Both in Europe and the USA, semi-prepared and packed fresh produce, including pre-assembled salads, vegetable dips, and sliced or mixed fruit products, is one of the fastest- growing food product segments.6 Mixes of fresh produce that has been trimmed, peeled, washed, cut and packaged allow single consumers or small households to buy a large variety of produce without worrying about waste or spoilage. In Europe, frozen produce has also become the new premium. The nutritional content in fresh produce declines once picked, hence, produce that was frozen within a few hours of harvesting has a higher nutritional content than fresh produce that is several days or weeks old. These trends also extend to the Caribbean where in 2010, Jamaican sales to the EU for processed vegetables and processed fruits were up 49% and 36% respectively, while sales for fresh fruit were down 23% and sales for peppers and citrus were down 17% each.7 2.3. Economic Resilience through Fruit & Vegetable-Related Exports Over the last 2-3 decades, traditional economic models for Small Island Developing States (SIDS) such as Barbados have generally not emphasised the goods producing sector (agriculture, agro-processing and manufacturing) as engines for economic growth. The competitiveness of these industries has been challenged because (a) land and natural resources are limited, and (b) the domestic market size is small and (c) economies of scale are much harder to achieve. The United Nations Conference on Trade and Development (UNCTAD) revealed that since 1990, the share of services in the gross domestic product (GDP) in developed countries grew from 64% to 72%. By contrast, in developing countries, the share of services in GDP grew from 46% to 50%, with services accounting for 37% of formal employment.8 Thus, many economic policy analysts hold that the services sector was the key to economic development in SIDS because (i) these figures suggest a large untapped potential for the service sectors to advance development and (ii) SIDS were not able to compete with large countries in the mass production of agricultural and manufacturing goods. 2.3.1. Changing Business Models Nonetheless, while this model was being adopted by SIDS such as Barbados, the way in which business was being done in the commercial centres of the world was changing. Mass 5 Source: Jane Milton – AgroFood Industry: EU Market – Consumer Trends & Buyer Purchase Considerations (2010); Roberta Cook, UCD – The US Fresh Produce Supply Chain (2009) 6 Source: Ndiame Diop & Steven M. Jaffee, Worldbank – Global Agricultural Trade and Developing Countries, Chp 13 (2005) 7 Source: Lincoln Price, CRNM (2010) in Andre Gordon – Agro Food Industry Quality Infrastructure Requirements & Food Safety Across Value Chains (2011) 8 Source: S. Panitchpakdi, Secretary-General of UNCTAD – Services Policy Review, Lesotho (2013) “The fresh cut industry is one of the fastest growing market segments in the USA & Europe.”
  12. 12. 4 production went out of vogue as market segmentation, niche marketing and mass customisation became mega-trends simply because consumer interests were changing. These modern business trends are about giving consumers a unique end product when, where and how they want it. During the last 15 years, choice has become an important ingredient of consumer purchasing decisions. For example, within this timeframe the selection of soft drinks increased from 20 to 90. Today, the US market alone offers consumers 3,000 brands of beer, 50 brands of bottled water, and 340 kinds of breakfast cereals.9 Mass customisation has become the new frontier in business competition for both goods and service industries. Mass customisation actually seeks to fragment the market through economies of scope. This is in contrast to a mass producer who seeks to consolidate and reduce choice through economies of scale. At its core is a tremendous increase in variety and customisation without a corresponding increase in costs. At its best, it provides strategic advantage and economic value.10 Consequently, a mass customisation strategy involves developing a system that rewards attention to detail and stresses the importance of ‘zero mistakes’.11 Furthermore unlike mass production, there are no size constraints to doing business in these modern markets. Bigger companies can use economies of scale in terms of raw material procurement and operations facility whereas smaller companies can use their multi-tasking ability and flexibility of workforce to ensure faster delivery of goods for higher valued segments and niches. This has created a new economic reality for SIDS such as Barbados because:  Low costs and high quality are now being achieved through economies of scope instead of economies of scale; where economies of scope are realised by the application of a single process to produce a greater variety of products and services more cheaply and more quickly.12  Smaller companies can differentiate themselves from mass-producing competitors and gain a differential advantage.  Companies get to know their customers better and nimble companies can therefore adapt to market environment changes more swiftly.  Customer relationships can be built in a sustainable manner. Companies are sharing information about their processes and their people which in turn is cultivating strong customer loyalty, change behavior and drive messages.  They have greater opportunities through market segmentation and niche marketing to practice price discrimination and enhanced opportunities for growth, profit and increased retention of customers.13  Shopping has become an experience. Customers are emotionally tied to their self- created products and can identify with them better. This has led to the phenomenon of shopper advocacy where the customer has a deeply-rooted personal involvement 9 Source: A. Bhatai & R. Asai, WIPRO – Mass Customization in Apparel and Footwear Industry: Today’s Strategy, Future’s Necessity (2007) 10 Source: B. J. Pine II – Mass Customization: The New Frontier in Business Competition (1993) 11 Source: S. Kotha, European Management Journal – From Mass Production to Mass Customization: The Case of the National Industrial Bicycle Company of Japan (1996) 12 Source: B. J. Pine II – Mass Customization: The New Frontier in Business Competition (1993) 13 Source: Jim Riley, Tutor4U – Marketing: Consumer Segmentation (2012) “Mass customisation has become the frontier in business competition.”
  13. 13. 5 with a brand that elicits an active and emotional customer loyalty that they can now share with others through social networks and mobile technology.14 Additionally, shopper advocates together with shifters (consumers seeking new relationships) are the two most valuable consumer segments that together comprise more than half of the total retail consumers.15 In essence, SIDS such as Barbados now have a powerful value proposition for competing in the export market because “small is beautiful”. 2.3.2. The Weakness of the Services-Only Mindset Sadly, SIDS that have relentlessly pursued service-based economies with a singular mindset at the expense of its goods producing sectors (agriculture and manufacturing) have found themselves with a higher level of economic vulnerability because of large negative macroeconomic externalities:  They are now net importing countries, and particularly of food;16  Freight costs on imported goods are now higher because the costs of returning the empty containers are added in. Once a container has been unloaded, another transport leg must be found as moving an empty container is almost as costly as moving a full container and the longer the delay in repositioning the container, the higher the cost.17 This has resulted in trickle effect of (1) a higher custom duty (2) a higher inflation rate18 (3) a higher cost of living and (4) a higher cost of doing business.  Recoveries from economic downturns are longer because services unlike products cannot be inventoried nor, for the most part, exported; they are only delivered when domestic demand exists. So service providers usually wait until the customer is present, for only then can they produce. For example, a restaurant will not produce a meal before you are at the table.19  The imbalance of trade has had a negative impact on their balance of payments. 2.3.3. A Robust Goods Producing Sector It is true that no country can prosper today without an efficient service infrastructure. And it is also true that having access to services is a pre-requisite for economic performance of many fruits & vegetables and their agro-processed products. What is imperative however for decision makers to focus on is that: 1. The goods-producing sector and the services sector are inseparable and complementary. There is a deeply symbiotic, interdependent relationship between the health of a nation’s good-producing sector and services sector: the health of one sector greatly shapes the health of the other. 14 Source: Christopher Hollins, American Express – Retail Advocacy Report (2007) 15 Source: IBM Institute for Business Value – Shopper Advocacy, Building Consumer Trust In The New Economy (2008) 16 Source: World Trade Organisation (2013) 17 Source: Jean.-Paul Rodriguez – The Geography of Transport Systems [Chapter 5: The Repositioning of Empty Containers] (2013) 18 Inflation is the rise in the general level of prices of goods and services in an economy over a period of time. 19 Source: M. Olney & A. Pacitti, University of California Berkeley BEHL Working Paper Series – More Services Means Longer Recoveries (2013)
  14. 14. 6 2. The inter-sectoral relationship between goods and services generally show asymmetrical dependence. Namely most service activities tend to depend on the goods producing sector as a source of inputs to a far greater extent than vice versa e.g. wholesale and retail, tourism, real estate, health and communications. In effect, the capability of the service sector to generate and sustain a high level of employment critically hinges upon its vital linkages with the goods producing sector.20 3. The goods-producing sector has a greater multiplier effect than services. For example, each dollar of US agricultural exports stimulated another $1.31 in business activity21 and each dollar’s worth of manufactured goods (including agro-processed goods) creates another $1.48 of activity in other sectors. This is twice the $0.58 multiplier for business and professional services.22 4. Exporting goods earns foreign exchange and has a positive impact on the balance of payments. Foreign reserves are needed to help maintain the fixed currency rate of a country and prevent a balance of payments crisis. Increasing the export of goods reduces the current account deficit and can help to mitigate against a devaluation of the currency. 5. Export of goods lead to greater employment growth and support high- paying jobs. For example, within an industry, a 10% increase in sales due to the export of goods leads to a 7% increase in employment, while a 10% increase in domestic demand leads to just a 3.5% increase in employment.23 6. Exporting reduces the cost of inputs and makes export products more competitive. Exporting large volumes of a single fruit/vegetable-related product, creates economies of scale for local input companies so that they are able to import large volumes of inputs and raw materials at bulk buying prices. It also results in these companies moving stock faster which together leads to lower input prices for the producers, and hence increased competitiveness. 7. Exporting builds trust and cooperation. A key driving force behind the lack of trust between actors in the agribusiness sector is the fact that producers are all competing in a small domestic market. Exporting to markets with massive demand allow businesses to work together towards a common goal and in so doing build economies of scale and scope. 8. The goods producing sector helps countries recover from economic downturns faster. Goods producing businesses are not dependent on domestic demand to increase production as the economy comes out of a recession. They can produce in anticipation of increasing demand or in response to increased external demand, hence making the economy more robust and resilient.24 9. Exporting goods reduces the cost of living. Exporting goods instead of empty containers means that the exporter pays for the cost of the returning container instead of the importer. Once a container arrives in port and has been unloaded, another transport leg must be found as moving an empty container is almost as costly as moving a full container and the longer the delay in repositioning the 20 Source: Se-Hark Park, ASEAN Economic Bulletin Vol. 10, No. 3 – Inter-sectoral Linkages between Manufacturing and Services, New Evidence from Selected Pacific Basin Countries 21 Source: Gerden Meijerink & Pim Roza, Wageningen University – Markets, Chains and Sustainable Development Strategy & Policy Papers: The Role of Agriculture in Economic Development (2007) 22 Source: US Bureau of Economic Analysis in National Association of Manufacturing – Facts About Manufacturing (2012) 23 Source: Lori Kletzer, University of California, Santa Cruz – Imports, Exports, and Jobs: What Does Trade Mean for Employment and Job Loss? (2002) 24 Source: Martha Olney & Aaron Pacitti, University of California Berkeley BEHL Working Paper Series – More Services Means Longer Recoveries (2013)
  15. 15. 7 container, the higher the cost.25 This has resulted in trickle effect listed above of (1) a higher custom duty (2) a higher inflation rate (3) a higher cost of living and (4) a higher cost of doing business. Thus, by having goods ready to export, the importer’s freight is less which reduces the customs duty applied to imported goods, which in turn reduces the cost of goods in the domestic market and hence the cost of living. 10. Global trade is based on goods, not services. A country cannot trade services for most of its goods. According to the World Trade Organization (WTO), 80% of world trade among regions is merchandise trade – that is, only 20% of world trade is in services. If in the extreme case an economy was composed only of services, then it would be very poor, because it would be very difficult to trade for goods.26 Ultimately, without a robust goods producing sector, it is simply impossible for almost any nation, unless it is endowed with oil or other natural resources, to balance its trade – and Barbados is no exception. This is the supreme time for Barbados to move beyond its “either/or” approach to goods and services and recognise that the health of the economy is critically dependent on the health of the goods producing sector and specifically the fruit & vegetable and agro- processing industry. 2.3.4. The Importance of Logistics & Trans-shipment The geography of maritime transport shown in the diagram on the right reveals that the shortest path to circum-navigate the globe is the “circum-equatorial route” using the Panama Canal (red arrow), the Strait of Gibraltar and the Suez Canal (yellow arrows) and the Strait of Malacca (pink arrow). For the northern hemisphere where the bulk of economic activity takes place, this involves the main connector route or middle ring of circum-hemispheric circulation which links the Eurasia and North American continents via the Atlantic and Pacific Oceans. In this age of globalisation, this simple pattern remains a fundamental element shaping global maritime routes and consequently, global trade. This is why the circum-equatorial route can be perceived as a conveyor belt where high capacity and high frequency containerships are assigned and interfaces with the middle ring (main connector) at specific high throughput trans-shipment hubs. 25 Source: Jean-Paul Rodriguez – The Geography of Transport Systems [Chapter 5: The Repositioning of Empty Containers] (2013) 26 Source: Stephen Ezell & Robert Atkinson, The Information, Technology & Innovation Foundation – The Case for a National Manufacturing Strategy (2011)
  16. 16. 8 Thus, it is no coincidence that the 2 most economically resilient SIDS – Singapore and Malta which also boasts high income per capita27 , are trans-shipment hubs, being both located on this circum-equatorial global shipping highway. Being trans-shipment hubs have allowed Singapore and Malta to develop strong and robust agro-processing and manufacturing sectors because they are receptacles for raw materials originating from various countries. These 2 small countries have incredible opportunities to process these materials into high value manufactured goods and put them back onto ships without the ships having to leave the global highway. Naturally the time and cost savings realised from not having to move goods off the shipping highway helps businesses to maintain their competitive edge. Of course it also helps that both of these countries are geographically proximate to major commercial centres in Europe and Asia. As intermediaries in the main global shipping routes, Barbados and the Caribbean also have the potential to benefit like Singapore and Malta from being trans-shipment hubs. The geographical positioning of Caribbean countries at the crossroads of the main global north- south and east-west shipping routes allow the region to benefit from the “spill-over” effects of these routes. Additionally, Barbados and other CARICOM countries are signatories to a number of international trade agreements such as the Caribbean Basin Initiative (CBI), Caribbean-Canada Trade Agreement (CARIBCAN) and the Economic Partnership Agreement (EPA) which makes their strategic positioning an even greater asset. However, only Jamaica, Trinidad, Bahamas and the Dominican Republic have recognised this opportunity to develop robust good-producing sectors by becoming trans-shipment hubs. Sadly, most of CARICOM have spent so much time focussed on Jamaica and Trinidad’s natural resources and comparatively greater land mass that they have failed to notice that trans-shipment has been a key driver of these nations’ export thrust and the costs of their goods and services. Without knowledge of maritime transport, it is difficult to imagine why Freeport in the Bahamas should be such an important trans-shipment hub. However, deeper research reveals that Freeport, as the only foreign port close to the USA, is the entrance from where 27 Source: UNDP – The Growing Vulnerability of Small Island Developing States (2002) “Being a trans- shipment hub increases economic resilience.”
  17. 17. 9 cargo can easily be distributed to and from the US on non US-flagged vessels without the restrictions imposed by the USA’s Jones Act.28 Thus, Freeport as a major trans-shipment hub teaches us that the relationships of maritime transport are NOT linear, but are just as complex if not more so than those of air and land transport. There are many other spinoff benefits from being a trans-shipment hub. Having regular shipping traffic results in the time and costs saving for SIDS that: 1. It increases access to and cost of raw materials needed to produce agro-processed goods. 2. It reduces transport and freight costs as a percentage of exports which makes exports more competitive. 3. It reduces the need and costs of having large stocks, which allows wholesalers and retailers to decrease mark-ups and still be competitive. This in turn reduces the cost of living, the cost of doing business and the rate of inflation. 4. More port traffic reduces the uncertainty of supply by reducing the incidence and costs of transporting last minute goods more expensively by air which reduces wholesalers and retailer costs and hence reduces the cost of living, the cost of doing business and the rate of inflation. 5. It increases the efficiency of ports and in so doing reduces the turnaround time which reduces the cost of doing business and the cost of living. 6. It increases growth in the economy which reduces transit times exponentially, which reduces the uncertainty of supply. 7. It reduces the need for high import duties to be levied by customs by becoming a high-valued goods producer which reduces the cost of living and the cost of doing business. 8. It reduces the cost associated with repositioning empty containers which reduces the cost of freight, the amount of custom charges, the cost of doing business and the cost of living. (Currently Barbados’ percentage of freight and insurance charges of product value are the second highest of the CARICOM islands.29 ) 9. By having direct connectivity to the global shipping liner network, it reduces the time and cost of inter-regional trade. 10. It increases innovation and research and development because proximity of industry speeds the interchange of know-how which increases the output of skills professionals. 2.3.5. Success Factors in Fruit & Vegetable Exports30 Many countries have experienced short-term spurts in fruit and vegetable exports; few have been able to consolidate their early gains. Those that have done so invested in research and adopted international technologies; expanded and upgraded logistical facilities, strengthened vertical supply chains, developed industry organisations for collective action, and built credible systems for quality assurance and food safety management. Industry expansion induced the development of associated industries, such as packaging, equipment supply, and technical consulting, which in turn contributed to the underlying 28 Source: R. J. Sanchez & G. Wilmsmeier, ECLAC - Maritime Sector and Ports in the Caribbean, the Case of CARICOM Countries (2009) 29 Source: ECLAC (2005) in ECLAC – Maritime Sector and Ports in the Caribbean, the case of CARICOM Countries (2009) 30 Source: Ndiame Diop & Steven Jaffee, Worldbank – Global Agricultural Trade and Developing Countries, Chp 13 (2005)
  18. 18. 10 competitiveness of the industries. Further investments were made in the industries’ underlying assets, for example, through irrigation development and worker and management training. Synergies have generally developed between export of fresh produce and complementary industries such as domestic catering and tourism. With certain historical exceptions, in most of the long- standing industries the private sector dominates the commercial dimensions of the business, while governments play a substantial and multi-dimensional facilitative role. In the early stages of industry development, the public sector has been critical in improving transportation and port/airport infrastructure, investing in research and farm advisory services, facilitating access by investors and farmers to suitable land, helping to transfer technologies and skills, and advancing the broad array of policies that make for a conducive investment climate. Over time, other important functions for government have emerged, notably sanitary and phytosanitary control, promotion of competition within the industry and in critical support services, negotiation of favourable international market access, and resolution of trade disputes. With regard to explaining inter-country differences in export performances, there are three common factors for explaining success in both fresh and processed export markets: 1. Literacy and managerial capabilities exert a strong, robust, and statistically significant impact on export of fresh and processed fruits and vegetables. 2. Remoteness (that is, being landlocked) has a significant adverse effect on fruit and vegetable exports, corroborating the literature on geography and trade e.g. countries that are landlocked or remote from major markets tend to trade less than those that are not. 3. Domestic market size comes out with a negative sign in almost all estimations (although at a statistically insignificant level), apparently contradicting the usual argument that exporting fruits and vegetables should be engaged in after having developed the local market and having had experience in brand name merchandising. At the business level, successful exporting businesses understand the processes involved in the export road map as illustrated below, and make sure they have completed all steps before they develop their export plan: “Literacy and managerial capabilities exert a strong, robust, and statistically significant impact on exporting.”
  19. 19. 11 Export road map31 2.4. Smart Agriculture The strides made in the use of technology in agriculture have changed traditional agriculture from a natural resource-based system to a science-based system called smart agriculture. This smart agriculture is not what is known globally as climate-smart agriculture, rather this is business-smart agriculture. This author defines smart agriculture as: “The new generation of agriculture that is heavily dependent on information and communication technologies (ICTs), knowledge management, mechanisation and skilled professionals.” Smart agriculture applies to both the national level and the farmer level, recognising that they cannot exist in isolation from each other. In this modern agriculture, the application of knowledge throughout the agricultural sector is no longer an option, but rather, it is now a necessity. 31 Source: Hans Verhulst, CBI Ministry of Foreign Affairs – The Role of BSO’s In Facilitating Exports of Fresh Produce to EU Markets (2013) Export Audit Best Market Selection Market Entry Strategy Matchmaking
  20. 20. 12 At the farm level, smart agriculture in open field production (also considered as precision agriculture) and postharvest handling has made significant gains in the last decade or so and there are tremendous scientific- and technologically- based best practices that farmers worldwide are utilising to predict and manage their production risks. With research into crop life cycle analysis, it has been revealed that crop yields are dependent on an estimated 43 variables (as seen below), almost all of which can either be profitably managed or controlled. (grey areas can be controlled, white are uncontrollable, but can be predicted) Materials like plastic and fabric mulch and row covers are creating open field microclimates (similar to greenhouses) that increase yield and influence earliness. In vessel composting reduces the composting time and greenhouse seedling production guarantee uniformity and high quality of seedlings. In addition GPS tracking in tractors and precision implements for tractors such as bed shapers, vacuum and belt seeders, transplanters, mulch layers with drip and fertilizer applicators, and mulch lifters are together responsible for generating field uniformity, while reducing costs and dependence on unskilled labour. The use of climate and weather data in decision making, automated irrigation systems, water storage tanks and agricultural tile drainage minimise and eliminate the incidence of PollinationPollination
  21. 21. 13 agricultural drought and flooding. Similarly mechanical harvesters and field aids reduce harvesting times. Integrated pest management (IPM) programmes that involve a balanced plant nutrition programme, regular scouting, selection of appropriate pesticides at the right times, selection of correct nozzles to reduce drift, selection of correct spraying equipment and application by trained professionals are all part of the modern open field production and risk management systems as shown below. These are all proven technologies that not only substantially reduce cost but can also increase yields. For example, the use of mulch reduces incidence of specific diseases, reduces fertilizer runoff, reduces evaporation of water, reduces weeding costs by as much InVessel Compost Seedling Production Row Mulcher Base Fertilizer Bed Shaping Mulch Laying Transplanting Row Covers Scouting Pesticide Application Mechanical Weeding Pollination Field Harvesting Mechanical Harvesting Bed Mowing Mulch Retrieval
  22. 22. 14 as 75%, increases earliness by as much as 14 days and increases yields of several crops by at least 3 times as much.32,33 With the exception of irrigation, the vast majority of Barbadian farmers do not use these tools, technologies and techniques. With regard to postharvest handling, pre-cooling techniques such as forced air cooling, vacuum cooling, hydro cooling and package icing can reduce field heat swiftly and extend shelf life but are generally not practiced by farmers. A rule of thumb is that: “A one hour delay in cooling reduces a product’s shelf-life by one day”34 This is not true for all crops, but is true especially for very highly perishable crops during hot weather. Additionally, determining produce load compatibility along with controlled atmosphere storage, ethylene carbon dioxide and oxygen scrubbing, temperature and humidity control all maximise storage life of fresh produce and increase competitiveness. 2.4.1. Soil Management Fruit and vegetable production relies on healthy soils to produce quality crops. Soil must be physically, nutritionally and biologically balanced be productive and stable. Soil structure decline, soil acidification and soil erosion are common soil health issues with the potential to severely restrict agricultural productivity on susceptible soil types, while erosion may also contribute to downstream sedimentation and turbidity within water storages. In tropical soils, organic matter decomposition rates are generally faster than in temperate soils because decay of the more stable humic fraction is generally faster. Barbados soils are thin with an average depth between 0.5 to 0.75 metres. Being thin, these soils are unable to store large quantities of water and therefore dry out quite rapidly in dry weather.35 Most Barbadian soils are self-mulching, high pH, heavy clay soils which can be very difficult to work with if not managed properly.36 Five years of intense fruit and vegetable cultivation on Barbadian soils without soil amendments significantly reduces soil fertility.37 Presently, average yields for fruit and vegetable production are declining in current production systems. Regular addition of organic matter is the most practical and cost-effective way to maintain the fertility and quality of Barbadian soils. Organic matter is a natural form of fertilizer that not only supports soil life but also soil structure (pore system), plant metabolism and crop production. It is the basis of soil productivity. Legumes such as peas are also instrumental in maintaining soil fertility and soil quality especially in the tropical climate. Used as a crop cover or green manure, they add organic matter to the soil and replenish nutrients in the soil. For example, in Canada field peas can produce 80% of its nitrogen fertilizer needs which is the equivalent of 178lbs of nitrogen per acre.38 32 Source: Michael Forde, Island Farms – Personal Communication (2011) 33 Source: Douglas Sanders, North Carolina State University – Using Plastic Mulches and Drip Irrigation for Vegetable Production (2001) 34 Source: Hugh Fraser, Ontario Ministry of Agriculture, Food & Rural Affairs –Tunnel Forced-Air Coolers For Fresh Fruits & Vegetables (1998) 35 Source: Coleridge Pilgrim, CFCS – Agriculture & The Government Agricultural Development Program (1982) 36 Source: Nazeer Ahmad – Soils in the Caribbean (2011) 37 Source: Atlee Brathwaite – Personal Communication (2011) 38 Source: Canada-Saskatchewan Agreement on Soil Conservation – Soil Improvements With Legumes (2005)
  23. 23. 15 The Sustainable Barbados Recycle Centre (SBRC) receives over 800 tons of organic matter weekly.39 This organic matter includes sheared tree parts from de-bushing activities, coconut fibre from shells and manure from the poultry and equine industry. Of this, approximately 515 tons are available weekly for farm use as follows:  Green waste – 400 tons  Coconut fibre – 85 tons  Chicken/Horse manure – 30 tons Additionally, the sugar factories generate large volumes of bagasse and filter press mud which can be used as organic matter on farms. Currently, much of this organic material is not being utilised and instead is being dumped. These abundant sources of organic matter provide a great opportunity for a reconceived fruit and vegetable industry to be able to amend their soils with organic matter at least every 1-2 years. 2.4.2. Pollination & Beekeeping Pollination by bees is an area in fruit and vegetable production that is frequently ignored, but presents tremendous opportunities for enterprising individuals. It has been universally recognised that a number of crops including cucumbers, pumpkins, butternut squash, melons, eggplant, zucchini and tomato require insects for pollination. Of utmost importance in watermelon pollination is the fact that at least 1000 grains of pollen must be evenly deposited on the tree lobes of the stigma if a uniform melon is to result. The number of bee visitors (8 or more) and time of bee visits (6am to 10 am) influence the fruit set and by extension watermelon yield. Of more than passing interest is the fact that most honey bees visit melon fields in the morning when the highest percentage of fruit set is expected.40 Most pesticides are at least somewhat toxic to honey bees. However, the degree of toxicity varies considerably from product to product. Insecticides are generally the most likely to cause a bee kill while herbicides, fungicides, and defoliants present minor danger to bees if used according to label directions. Nevertheless, pesticide poisoning of honey bees can usually be kept to a minimum if the pesticide applicators and the beekeepers take the necessary precautions. Of course, while beekeeping does have its share of challenges such as pests (e.g. varrao mite, tracheal mite and wax moth) and diseases (e.g. chalkbrood), in general is it is a profitable industry because the natural spin off from keeping bees is the production of bee products such as honey, royal jelly, beeswax, bee pollen. In other Caribbean countries such as Grenada and Trinidad beekeeping is a thriving industry with strong export potential. 39 Source: Sustainable Barbados Recycling Centre (2012) 40 Source: S. McGregor, USDA Ag. Handbook Num. 496 – Insect Pollination of Cultivated Crop Plants (1976)
  24. 24. 16 2.5. The New Strategic Positioning of the Industry Competitiveness cannot be created out of thin air; it must be based on what you have and who you are. The face of the Barbadian fruit and vegetable industry is fast changing, from a sector that is often perceived as if its’ role was just that of providing a social safety net for the poor; and emerging in its’ wake is a reconceived industry that is well positioned strategically to be an export industry and a driver of economic growth because of the following competitive advantages: 1. Barbadian thin coralline soils dry out quickly and enhance the flavour of fresh produce thereby providing a uniqueness which strong brands can be built on; 2. A climate that is favourable for year round production; 3. While Barbados, has not been endowed with expansive land resources to be competitive in the international ‘low-valued’ commodity crop markets (corn, wheat, soybean etc) it does have ample and accessible land resources for ‘higher-valued’ products like fruit and vegetable production such that increased production can easily outstrip domestic demand; 4. A long and illustrious legacy of excellence in large scale food production (thanks to the Barbados sugar industry); 5. Demonstrated capability to manage harmful pests and diseases; 6. Sufficiently close proximity to the major buyers of fresh produce, namely USA, Canada & Europe; 7. Well developed regular air and marine transport network to major markets; 8. Free trade agreements within CARICOM – Caribbean Single Market and Economy (CSME), Europe – Economic Partnership Agreement (EPA), Costa Rica and soon to be Canada (Carib-CAN); 9. A superior tourism reputation, a world renown culinary tourism product with greater linkages to tourism forming through the soon to be developed tourism host programme; 10. Strong linkages and good access to international research and development centres in the region and extra-regionally; 11. Excellent relationships with international developmental agencies; 12. Ability under international trading arrangements, to capitalise on Special and Differential Treatment provisions, such as technical assistance from developed countries, for the modernisation of the sector; 13. Significant successes in attracting foreign direct investment; 14. A powerful entrepreneurship push in Barbados in recent years that is starting to generate a skilful class of knowledge-driven entrepreneurs; 15. Highly developed mobile and cable infrastructure in an industry that is being rapidly reshaped by the exponential growth in technology, and specifically information and communication technologies (ICTs) into “smart agriculture”. 2.5.1. Criteria for Selecting Key Export Products As an unknown entrant into the modern export market, it will take time to build relationships with buyers and so crops with long shelf lives are more ideal to withstanding any fallout with buyers in the short-term. Based on past exporting experience and the new demands of the modern consumer, crops for the international market should score high based on the following criteria: “Competitiveness cannot be created out of thin air. It must be based on what you have and who you are.”
  25. 25. 17 i. Strong demand with good growth rates in the international market. ii. Products that are not too delicate, have a long shelf life and excellent storage ability so that the quality is still outstanding on reaching the buyer. iii. Low incidence of pest and disease problems, or ability to solve them relatively easily, so that reliability can be assured. iv. Products that are not taxonomically from the same plant families and can be grown together in a crop rotation suitable for short-term fruits and vegetables. With no winter season to break plant pest and pathogen cycles, crop rotation is critical in the Barbadian climate if soils are to remain healthy and pest levels kept low.41 v. Must be able to complete a crop cycle in 12-16 weeks to ensure optimal rotational land use. vi. Suitability for optimal all year round production to ensure that excellent yields can be attained at each harvest. vii. Reasonable production costs and potential for field mechanisation so as to ensure uniformity in planting, consistency of product, timeliness of operations and reduced field costs. viii. High potential for primary value addition (freezing, drying, fresh cut etc) so that processed products can be developed once the quality, yields and production costs of these vegetables reach the appropriate threshold. Sweet potato, butternut squash and herbs (thyme & marjoram especially) are all crops that meet these criteria. Additionally, because sweet potato and butternut squash are good sources of complex carbohydrates, vitamins and minerals, in the event of a natural disaster they would significantly contribute to the food and nutrition security of the nation as a readily available and abundant source of food. 41 An example of a good crop rotation: [legumes  crucifers or bulbs  cucurbits  root crops]
  26. 26. 18 2.5.2. Current Export Demand 2.5.3. The Industry’s New Mission & Regional Priorities With this new strategic positioning, the new mission for the Barbados fruit & vegetable industry will be: “To be a prominent economic contributor to the Barbadian economy by using a smart agriculture approach.” From a CARICOM perspective, the repositioned fruit and vegetable industry will embody the vision for agriculture in the region as presented under the Jagdeo Initiative in 2003:  To make substantial contributions to economic development and economic, social and environmental sustainability;  To have a transparent regulatory framework at national and regional levels, that promotes, attracts and facilitates capital and investments;  To have significantly transformed its processes and products and stimulates innovation and entrepreneurship;  To enable the region to achieve an acceptable and stable level of food security.42 Already one member state, Jamaica has implemented in 2009 a comprehensive initiative to realise the vision for regional agriculture through the launch of the Agro Investment Corporation (Agro-Invest). Agro-Invest is the agribusiness facilitation arm of government 42 Source: Centre for Technical Agriculture (CTA) & ECDPM – Strengthening Agricultural Trade Strategies: Towards A Caribbean Agenda (2008) Just over a year ago, a number of key buyers in Europe and North America approached Caribbean farmers about supplying them with fruits and vegetables. These included a UK wholesaler who supplies a major UK supermarket. This firm approached Caribbean growers indicating that they need 12,000 tons (667 20-ft containers) of sweet potatoes annually and 4000-6000 tons (200-300 20-ft containers) of butternut squash. Another firm, a white potato processing company in Canada has also approached growers in the Caribbean with a demand for 8.6 million lbs (239 20-ft containers) of sweet potatoes annually. This is because white potato consumption has declined in the major markets and demand for processed products is slowing down because the markets are mature. Consequently, there is no real opportunity for significant volume growth in processed white potato products. This is why three of the top four frozen French fries companies in the world – McCain Foods (Canada), Cavendish Farms (Canada) and Aviko (Netherlands) are all launching or have launched new lines of sweet potato fries. A few months prior to this, a USA based agency that manages OPIC funds issued a challenge to regional producers for an initial supply of 10 tons of dried herbs.
  27. 27. 19 and it covers the investment chain from the identification of opportunities through feasibility studies, due diligence and business planning to fundraising, project management, market development, long-term business performance monitoring and technical support. Agro-Invest has five (5) strategic objectives: 1. To achieve a positive return on investment in the Agro-Invest. 2. To enhance the utilisation of government owned agricultural assets. 3. To attract and retain new investors in the agricultural sector. 4. To increase the attractiveness of the sector to younger, skilled and trained entrepreneurs. 5. To strengthen identified competitive and relevant agro-industries and sub-sectors. 43 Agro-Invest is a facilitatory agency that seeks to operate as a one-stop shop, except for the credit component so that a prospective grower (investor) can walk into Agro Invest and get a ready-made package. According to the CEO, Hershell Brown: "Any investor who is willing to get into production, recognising it as a regular business investment, we are willing to work with them, once it makes economic sense. Once the investors approach and they meet the criteria, we assist them with all the other processes, that is, to identify their market, put together their business plan and provide a sort of hand- holding activity from project identification through to project implementation." The Corporation has already created five of nine agro-industrial parks (agro parks)44 through funding in part by the European Union under the Accompanying Measures for Sugar Protocol (AMSP), where they put together packages with good arable lands, provide technical support and then invite investors to invest in specific production on these properties. This has been touted as one of the early successes of the Corporation. In addition, Agro-Invest provides infrastructure such as post-harvest facilities. Agro-Invest also operate the “Young Farmers Project” which identifies graduates of tertiary institutions, provide them with arable lands and assist them with technical support through entities, such as the Rural Agricultural Development Authority (RADA).45 43 Source: Agro-Investment Corporation, Ministry of Agriculture Jamaica – About Us (2010) 44 Source: Jamaica Gleaner – Agro Investment To Ease Start-Up Burden (2010) 45 Source: Jamaica Information Service – $1.1 Billion Expected from Agro Parks This Financial Year (2013)
  28. 28. 20 3. SECTION II: Challenges 3.1. The Business of Agriculture & Economic Development Agriculture and by extension crop production has a multi-dimensional role in economic development which becomes increasingly evident as a country develops. In the early developmental stages, agriculture provides the basis for subsistence of the population. In fact agriculture is a critical component in the successful attainment of the Millennium Development Goals (MDGs), particularly MDG-1: “Eradicate extreme poverty and hunger”. Agriculture contributes to MDG 1 and to food and nutrition security because it can deliver more immediate and sustained gains by helping the poor grow their own food, and in so doing meet their basic dietary needs and make a livelihood from selling the excess produce. As a country develops, agriculture must increase its outputs and productivity to meet the requirements of the ever increasing population, and agriculture as a business is achieved by division of work and specialisation. Today only part of the production process takes place on the farm, as agriculture uses industrial products like fertilizer, pesticides, machinery and equipment; the services of the tertiary sector like banking, insurance etc. and hands its products over to other sectors for packing, processing, and distribution. This means that agriculture becomes deeply interwoven with other sectors of the economy. It cannot produce anymore without their inputs and services, and acts itself as a customer to these other sectors, thus providing work and income outside of agriculture. In effect, agriculture then plays a major role in economic development through its backward and forward linkages. Over 30 years ago, Nobel laureates Theodore Schultz and Sir Arthur Lewis showed that not only was agriculture capable of productivity growth and responsive to technological change (on which the “green revolution” was based), but also that the agricultural sector could have significant growth multiplier effects and consequently growth in the agricultural sector could be spread to other sectors in the economy. Indeed, empirical studies have found that generally the growth multipliers from agriculture exceed those from non-agriculture. This is backed up with evidence from countries around the world including Malaysia and India which showed multiplier effects greater than 1.8. Moreover, in 2009, the United States Department of Agriculture (USDA) estimated that each dollar of US agricultural exports stimulated another $1.31 in business activity.46 These changes in agriculture have consequences for the population because many people from rural areas migrate to the city and fill the ranks of workers in the secondary and tertiary sectors. For the remaining farmers, agriculture must then change from a way of life to a profession in which technical know-how plays an ever increasing role. Frequently, the structure and organisation of the farm changes with new forms like part-time farming being more prevalent, fewer people become farmers and the average age of the farmer is above 46 Source: Gerdien Meijerink & Pim Roza, Wageningen University – Markets, Chains and Sustainable Development Strategy & Policy Papers: The Role of Agriculture in Economic Development (2007) “Business is a repeatable process that makes money, everything else is a hobby.”
  29. 29. 21 50 years. Particularly under such conditions, agriculture must also adopt the role for the preservation of nature.47 At the societal level, agriculture in Barbados is practiced by people from all walks of life as a subsistence activity, as a hobby and as a business, and as a result it is treated like a public good. With the government having not delineated subsistence agriculture / backyard farming / hobbyist gardening from commercial farming activities, this has stretched meagre government resources, and has also hindered society’s acceptance of the business of agriculture as repeatable process that generates wealth. Agriculture is therefore still regarded as a necessity-based activity that people with limited choices engage in. What’s more, with a Barbadian society that psychologically still has deep seated identity issues more than 45 years after independence, agricultural evolution is inextricably tied to history which cloud the issues, intensify the problems and retard development of the sector. For many Barbadians, agriculture is a strong reminder of poverty and colonialism that is “best forgotten or ignored”. Hence, the business of agriculture has become a victim of the country’s development and has suffered greatly because this evolution has not been managed correctly. Consequently, while there has often been short-term gains made in the sector, by and large these have only been precursors to long-term pain. In fact, agricultural business in Barbados with the exception of the poultry sub-sector, has generally been declining for the last three decades. The overall profitability of the sector has been eroded due to a number of inter-related issues including globalisation and international trade policy, lack of technology transfer and adoption, insufficient research and development, adverse weather, climate variability, reliable market access and weak interactions within the sector. 3.2. The Domestic Market In Barbados, the primary source of fresh fruits and vegetables for consumers are supermarkets. 71% of Barbadian consumers purchase fresh fruits and vegetables from the supermarkets while 37% of consumers purchase these items from wayside vendors.48 In the tourism sector (hotels and restaurants), the primary source of fresh fruits and vegetables for tourism are the wholesalers. However, the tourism sector is not a major recipient of fresh fruits and vegetables since the estimated daily population of tourists in Barbados is equivalent to approximately 5% of the population.49 Barbadian fruit and vegetable farmers grow produce almost exclusively for the domestic market with a limited quantity grown for cruise tourism exports. However, competition from imports is stiff accounting for BBD $50 million in 2011, a 21% increase over 2010. Fruits account for 49.7% of this figure, vegetables 46.7%, nuts 3.5% and root crops 0.2%.50 Of this, an estimated BBD $24.2 million can be suitably substituted locally, with 95% of these 47 Source: Frithjof Kuhnen, University of Göttingen – The Role of Agriculture in Modern Society (1978) 48 Source: Barbados Food Consumption and Anthropometric Survey (2000) 49 Sources: Caribbean Tourism Organisation Annual Report (2010) & Barbados Statistical Service Latest Socio- Economic Indicators (2010) 50 Source: Ministry of Agriculture Planning Unit – Barbados Food Import Bill 2010 & 2011
  30. 30. 22 crops being fruits and vegetables. Further analysed, the top 4 vegetables51 (broccoli, onions, carrots, cabbage) account for 62% by value, while the top 4 fruits (oranges, bananas, plantains, watermelons) account for 69% by value. Nonetheless, while the dollar value from these crops is significant, the acreage required to produce these items is only a small portion of the available arable land: Box 1: Some Examples of Import Substitution Acreage Requirements Vegetables  Broccoli – 62 acres, harvested, 4 times per year  Onions – 49 acres, harvested, 2 times per year  Carrots – 33 acres, harvested, 3 times per year  Cabbage – 11 acres, harvested, 3 times per year Fruits  Oranges – 160 acres52  Bananas – 146 acres per year  Plantains – 94 acres per year  Watermelons – 23 acres, harvested 3 times per year Consequently, a steady growth of agricultural production of fruits and vegetable crops soon results in flooding of the domestic market. The minimal use of postharvest facilities means that farmers have a small window in which to get their product sold before it spoils. Ultimately, these gluts create a dysfunctional cycle of business that: 1. Attracts initiatives to increase production. (Boom) 2. Drives farmers of out of business, or cause them to reduce their production; (Oversupply) 3. Reduces the market supply leading to shortages; (Decline) 4. Encourages greater production; (Recovery) 5. Start cycle all over again (Boom) Thus, the underlying issue behind the fluctuation of supply and the frequent occurrence of gluts and shortages is the limited size of the local market. This precariousness of supply is further compounded by farmers not having timely knowledge of weekly, monthly and annual demand for fresh produce and no knowledge of the total value of the market annually. This forces them to speculate, often inaccurately, which can lead to gluts during which time farmers have to dispose of produce that cannot be sold; and shortages which pushes up the prices causing buyers and consumers to 51 Lettuce is actually ranked no. 4 by value and cabbage no. 5 with a difference in value between the two of 0.6%. The lettuce category includes several types of lettuce which makes it difficult to generate an estimate for the acreage requirement and so it was no used in the top 4 listing. 52 The acreage was calculated based on an average expected yield per acre after the 4th year of planting.
  31. 31. 23 complain. In comparison, imports are predictable and reliable making them very attractive to retail and food businesses.53 3.2.1. Food Import Bill Barbados has always been a high import country with reports indicating that it “imported most staples and necessities” in the 1930s and “from 1947 onwards imports out-ran exports”.54 Indeed, Blades reports that in 1970, the nominal value55 of Barbados food imports was EC $49.196 million (BBD $36.441 million) and when followed by a decade of high inflation, the nominal value of food imports moved to EC $212.11 million (BBD $157.119 million) in 1980, and accounted for 11% of CARICOM’s total food imports.56 To compare these figures to the BBD $629.264 million food import bill of 2011, these values must be adjusted for inflation57 to reflect their true value in today’s economy. Thus, in real prices, the food import bills of 1970 and 1980 when adjusted for inflation are BBD $513.506 million and BBD $588.516 million respectively. Furthermore when population size is considered, food imports per capita was BBD $2167.69 in 1970, BBD $2381.41 in 1980 and BBD $2215.72 in 2011. Undeniably, these figures corroborate previous reports that Barbados’ food imports are relatively stable. The stability of food imports was proposed by Blades’ much earlier analysis of the composition of the regional food trade, in which he surmised that “given the high proportion of food imports in regional consumption, the inference is one of a relatively stable regional food consumption pattern.” With regard specifically to fruits and vegetable imports regionally, they ranged from 8.43% - 10.97% between 1970 and 1978. In comparison, using the same classification, 2011 fruits and vegetables percentages accounted for 11.43% of food imports, reaffirming the consistency of the structure of food imports. This stability in food imports naturally begs the following questions:  Does local food production show a similar stability?  And if so, what are the real drivers behind this chronic relationship between food imports and local food production?  Are food imports really the culprits behind low local food productivity? Nevertheless, there is undoubtedly a greater range of food items available in Barbados today, especially processed foods and it is apparent to the long-standing citizens of Barbados that it is importing more food than it did 30 or 40 years ago, albeit for the same value. How is this possible? Productivity growth in agriculture allows farm commodities to be grown and harvested more cheaply by generating more output from the same amount of 53 Retail and food businesses refer to supermarkets, wayside vendors, hotels, restaurants, institutions and informal food service businesses 54 Source: Delisle Worrell, Barbados Central Bank – The Barbados Economy Since the 1930s (1995) 55 Nominal value is simply the value of the food imports for that specific year. To compare it to today’s prices, this value must be adjusted for inflation and this adjusted price is known as the real value. 56 Source: Hayden Blades, CFCS – Trade and Production of Food Commodities in Caricom Countries with Special Reference to Fruits and Vegetables (1982) 57 Adjustment for inflation were calculated using Consumer Price Indices from Index Mundi (2012) “In the 1930s and “from 1947 onwards Barbados imports out-ran exports.”
  32. 32. 24 inputs, thereby reducing the average cost of production. This benefits not only farmers but also food and textile manufacturers and consumers because most of these cost reductions are passed on to the ‘non-farm’ economy as lower commodity prices. Productivity growth through agricultural research and development as well as strides in food technology have been responsible for the dramatic increase in average yields by improving machinery and equipment and increasing technological efficiencies, such as the use of new fertilizers, feeds, seed varieties, automated irrigation management, life cycle analysis and postharvest management.58 For example, in the year 2000 each farmer in the USA produced on average 12 times as much farm output per hour worked as a farmer did in 1950. Between 1950 and 2000, the average amount of milk produced per cow increased from 5,314 pounds to 18,201 pounds per year, while the average yield of corn rose almost 4-fold from 39 bushels to 153 bushels per acre.59 Economies of scale built on these gains in productivity have been responsible for the significant decline in the real prices of global commodities and raw materials used by agro- processors and consumers over the last 3 or 4 decades. Thus, while the food import bill is not rising in real prices per capita, local perception is that the range and quantities of food items imported have increased significantly even though the population has only increased by an estimated 16.6% in the last 4 decades.60 3.2.2. Trade & Protectionism The civilisation that can produce just enough of everything it and its people need to survive is rare indeed. This is why trade is vital to the success of civilisation and why trade policies can make or break an industry. Through globalisation, trade has evolved into a very complex activity and countries with large economies have more experience in understanding this complexity and therefore implementing effective trade policies. Without a doubt, the global fruit and vegetable trade patterns are heavily influenced by a range of trade-distorting policies.61 An example of this is the USA-Brazilian orange juice trade dispute as detailed below in box 2. Box 2: The USA-Brazilian Trade Dispute Over Orange Juice The world market for orange juice is basically a duopolistic market structure, with only two players, the United States (mainly Florida) and Brazil, supplying roughly 85% of the world market. Over 95% of Brazil’s production is exported, whereas more than 95% of US orange juice is consumed domestically. Of the USA imports of concentrated orange juice, some 90% comes from Brazil. Imported orange juice is mixed with US 58 Sources: Martin Painter, Journal of International Farm Management, Vol.3. No.1 – A Comparison of Farm Incomes and Wealth in Canada (2005); Dr. Bruce Gardner, University of Maryland - Commodity Support, Investment, and Productivity (2002) 59 Source: Keith Fuglie et. al., USDA ERS – Productivity Growth in US Agriculture (2007) 60 Source: Barbados Statistical Service Population Census 1970 & Latest Socio-Economic Indicators (2010) 61 Source: Jason Donovan & Barry Krissoff, USDA ERS – Trade Issues Facing US Horticulture in the WTO Negotiations (2001)
  33. 33. 25 juice to improve its colour and make up for seasonal supply shortfall. This trade pattern reflects Brazil’s production cost advantages, which in turn mirror lower labour costs in Brazil, reinforced in recent years by the devaluation of the Brazilian dollar, the real. The United States levies a tariff of 7.85 cents per litre on Brazilian orange juice. In addition, an anti-dumping order remains in effect, with dumping duties ranging from 2% to 27% on imports of the Brazilian product. Furthermore, Brazilian exporters pay a “Florida equalizing excise tax” on frozen orange juice concentrate, from which domestic producers in Arizona, California, and Texas whose juice is also blended with Florida orange juice are exempt. The proceeds of the tax are allocated by statute to the exclusive promotion of Florida-grown citrus products. According to one estimate, the combined tax and duty accounts for nearly 50% of the cost of a ton of Brazilian concentrate. Interestingly, the private sector has already taken pragmatic actions to deal with these problems, through joint investments and joint production. In an increasingly common tariff jumping tactic, the Brazilian producers in the early 1990s began to invest directly in the Florida industry. It is estimated that foreign, mainly Brazilian, companies own as much as 40% of the Florida processing industry. On the other hand, the USA presence in Brazil’s citrus industry started much earlier in the 1960s, when winter freezes prompted USA growers to seek out Brazil for planting. With governments recognising how critical trade is to development, a multilateral agreement called the General Agreement on Tariffs and Trade (GATT) was signed since 1947, to regulate international trade and aide in the economic recovery following World War II. Its main objective was to reduce the barriers of international trade through the reduction of non-tariff barriers, tariffs, quotas and subsidies. It was replaced in 1994 by the WTO. At the Uruguay Round of trade negotiations in 1986, the Agreement on Agriculture was signed to reform trade in the sector and to make policies more market-oriented. This has been the most substantial trade liberalisation agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to (1) improve market access for agricultural products, (2) reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, (3) eliminate export subsidies on agricultural products over time and (4) harmonise to the extent possible sanitary and phyto-sanitary (SPS) measures between member countries. Specifically, it was agreed all countries would reduce key protectionism measures by (a) converting non-tariff barriers into tariff barriers and (b) reduce tariffs on agricultural products by 2004, with developed countries reducing by 36% and developing countries such as Barbados reducing them by 24%. While countries have successfully converted to a tarrification system, they have yet to follow through on reducing tariffs on agricultural products as agreed.
  34. 34. 26 Trade & Subsidies Globally, government interventions for fruits and vegetables are significantly lower than in other agricultural sectors. With regard to export subsidies, the WTO reports that unlike many other agricultural sectors, the use of export subsidies is not pervasive in fruits and vegetables. The export subsidy expenditures notified to the WTO in 2000 were generally below those reported for other agricultural categories and were less than 2.5% of total fruit and vegetable exports for all member countries with the exception of Switzerland.62 Consistently, domestic subsidies to farmers are relatively low in Organisation for Economic Co-operation and Development (OECD) countries. Of the major developed regions, only the European Union (EU) reports a collective measure of support related specifically to several fruits and vegetables, while Japan and Canada indicate moderate levels of collective support for a few commodities. Indeed, while corn, soyabean, wheat, rice, cotton, peanuts, dairy and feed producers have all demanded subsidies in the USA; from as far back as 1990 the fruit and vegetable farmers have refused agricultural subsidies, citing their desire to be fiercely independent and competitive in world markets.63 The WTO considers domestic support subsidies tied to production quantities as amber box or trade-distorting domestic support and are subject to reduction commitments. For members of developing countries, they must keep these subsidies within 10% of the value of the country’s production for non-product specific support and a maximum of 10% of the value of production for a specific crop. Hence, in today’s trade environment, it may be difficult to directly tie subsidies to productivity without violating WTO rules.64 In comparison, domestic support measures with minimal impact on trade are called green box subsidies and can be used freely. They include government services such as research, disease control, infrastructure, natural disaster relief, marketing and promotion, inspection, extension services and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes. As cited in the Success Factors in Fruit & Vegetable Exports section (2.3.5), it is government support through such green box subsidies that has allowed exporting countries to consolidate their early gains and expand their industry. Consequently, while the green box measures in themselves do not directly impact trade, they do improve the productivity and competitiveness of the industry which leads to reduced prices and hence impacts on trade. Trade & Tariffs The EU, Japan and the United States use to varying degrees, a similar set of tariff protection tools: low but highly dispersed ad valorem (meaning according to the value) tariffs, specific 62 Source: Ndiame Diop & Steven Jaffee, Worldbank – Global Agricultural Trade and Developing Countries, Chp 13 (2005) 63 Sources: Food Safety News – Why Fruits & Vegetables are Excluded from Farm Subsidies (2011); Farm Commons - Grow Vegetables and You’ll Pay: Why Some Federal Farm Programs Prohibit Vegetable & Fruit Production (2011) 64 Source: WTO – Domestic Support: Amber, Blue and Green Boxes (2004) “From as far back as 1990, USA fruit & vegetable farmers have refused subsidies.”
  35. 35. 27 duties, seasonal tariffs, tariff escalation, and preferential access along with tariff-rate quotas. Tariffs for a specific range of products depend on numerous factors, including the date of entry (seasonality factor), the degree of processing (escalation phenomenon), and the relationships with exporting countries (preferential agreements and regional and bilateral free trade agreements (FTAs)). For example, the EU uses a complex tarrification system called the “minimum entry price” system to apply tariffs to protect growers of 15 types of fruits and vegetables from imports.65 Under the system, the EU calculates an entry price for each of the commodities covered by the programme. The tariffs levied for each item depend on its import price compared with the calculated price66 . Fruits and vegetables imported at prices equal to or greater than the established entry price are only charged an ad valorem duty of up to 20%. Produce valued below the entry price are charged a specific tariff in addition to the ad valorem duty. In the latter case, two situations are distinguished: if the import price is more than 8% below the entry price, a large specific tariff (called the maximum tariff equivalent) is levied against the shipment, most likely prohibiting its importation. If the entry price stands between 92% and 100% of the entry price, an additional specific duty is levied. Through this system, applied tariffs are actually linked to the delivered price and the season. For instance, fresh tomatoes imported between June 1 and October 30 and priced 8% below the reference price of €52.6 per 100kg face tariffs amounting to 57% of the import price.67 The entry prices are generally highest during the EU production season and lowest during the offseason, and the difference can be very large. The entry price for zucchinis, for instance, increases from a base level of €450 a metric ton to €730 a metric ton in April and May. The EU in-season rate for oranges, which runs from December 1 to March 31, exceeds the out-of-season rate by nearly 11 fold. Hence, this system strongly restricts an exporter’s ability to increase market shares in the EU based on lower prices and efficiency, especially during the European production season while still encouraging farmer competitiveness.68 The protection structure just described does not apply equally to all exporting countries. Regarding Barbados, the EU maintains a complex system of preferential access to the African, Caribbean and Pacific (ACP) countries, through a FTA called the Economic Partnership Agreement (EPA). The EPA is a key element in the Cotonou Agreement (which replaced the Lomé Convention) and is designed to provide privileged partners with favourable entry without undermining the protection of domestic producers. In comparison, Barbados protectionism measures have been less versatile. Prior to 2000, the Barbadian government protected local farmers by using measures that were designed to 65 Source: Linde Goetz & Harald Grethe, University of Goettingen, Germany – The EU Entry Price System For Fresh Fruits And Vegetables – Paper Tiger Or Powerful Market Barrier? (2008) 66 An importer can choose one of the three following methods to calculate entry price: the standard import value (SIV), calculated daily by product and by origin and published in EU’s Official Journal; the f.o.b. price of the product in the country of origin; the effective resale value of the shipment concerned. 67 Source: Hilde Brans, USDA FAS GAIN Report #E21058 – European Union Agricultural Situation, EU Fruit and Vegetables Regime (2001) 68 Source: Ndiame Diop & Steven Jaffee, Worldbank – Global Agricultural Trade and Developing Countries, Chp 13 (2005) “Trade policies can make or break an industry.”
  36. 36. 28 reduce the flow of imports (non-tariff barriers). Some examples of these measures are (a) the setting of import quota limits, (b) changing the rate of import duties, (c) only importing through State Trading Enterprises (e.g. BADMC) and (d) discretionary import licensing i.e. not issuing licenses when there was an abundance of local produce. However, to keep in line with WTO obligations, in 2000 all non-tariff barriers were converted to ad valorem taxes designed to raise the prices of imported good (tariffs barriers) and maximum tariff levels called bound rates were set for each item imported. The non-tariff measures were converted in such a way that they provided more-or-less equivalent levels of protection i.e. if the previous policy meant farmer prices were 75% higher than world prices, then the new tariff could be around 75%.69 Additionally, Barbados is one of only 39 World Trade Organisation (WTO) member countries and the only CARICOM country that can invoke a special safeguard (SSG) provision on sensitive items. The Barbados SSG is a price trigger mechanism that allows Barbados to apply a minimum price to an imported item when there is a fall in the import price below a specified reference price. This reference/trigger was determined on the basis of 1986–1988 average import prices (as per the rule). Since 2002 the SSG has been applied and remains in effect for a total of 37 products including 18 vegetables (tomato, onions, shallots, cabbages, cauliflower, lettuce, carrots, beets, cucumbers, pigeon peas, string beans, eggplant, okra, pumpkin, sweet corn, sweet peppers, hot pepper, sweet potato) and 2 fruits (melons, papaya).70,71 Weaknesses in Barbados’ Trade Policies Unfortunately, neither banning of imports nor the indirect subsiding of the sector through such one-dimensional tariffs and special safeguards has served to increase the farmers’ market share in Barbados. Rather, they have been perverse incentives for unscrupulous importers to circumvent customs duties and border control in creative ways all in an effort to make an exceptional profit and to get cheaper imported produce to their customers. Furthermore, high prices for imported agricultural produce have also been perverse incentive for farmers because while it encourages increased production, it does not encourage increased productivity.72 Because this indirect subsidising using trade protection measures has not been directly linked to increased productivity, farmers have not significantly improved their price competitiveness. Sadly, neither the WTO nor the Barbados government considered that if local farmers’ productivity was not increasing on par with exporting countries productivity, then the price difference for each item would grow bigger than the tariff bound rate. For example, while a 75% tax in 2000 would have made imported prices equivalent to local prices, in 2010 imported prices with a 75% tax may now be lower than local prices because of that country’s increased productivity for that product. When this is added to the fact that the SSG mechanism is based on a static set of average import prices derived from 1986-1988, it is no wonder why this remedy has not been adequate in checking the surge in imports. 69 Source: WTO – The Agriculture Agreement: New Rules & Commitments (2004) 70 Source: Ramesh Sharma – Effective Special Safeguard Mechanisms in J. R. Deep Ford et. al., FAO – Agricultural Trade Policy And Food Security In The Caribbean, Structural Issues, Multilateral Negotiations & Competitiveness, Chapter 6 (2007) 71 Source: Ministry of Agriculture Planning Unit – List of Special Safeguards (2013) 72 Source: Agricultural Planning Unit/UNDP-FAO Project Bar 73/005 – Structural Constraints of Being A Small Island (1977)
  37. 37. 29 What's more, this price difference gap also increases when there are fluctuations in exchange rates such as when countries devalue their currencies (e.g. Jamaica, Trinidad, Guyana) or regulate them to maximise trade opportunities (e.g. China). Because the real value of a static/nominal price is eroded over time through inflation, then where domestic price levels have generally risen year on year as is the case for Barbados, this value becomes lower each year until eventually resulting in it being low enough that even when the SSG duties are applied, the imported item remains cheaper in the local market. For example, the trigger price of $0.50 is applied to an item and the resulting price in the domestic market is $2.00 which is still lower than the local item which is priced at $4.00. Alternatively, global inflation would cause world prices to also increase over time, so even as imported items are much cheaper than the corresponding local item, the SSG would not trigger because the item is now priced above the trigger. For example the trigger price for an item is $0.50, however, the imported price is always $1.00 so the price does not trigger and normal duties are applied resulting in the price being $3.00 on the local market, while the locally grown item costs $5.00. Furthermore, even as WTO negotiations have stalled and Barbados’ high tariff regime remains in effect, FTAs with CARICOM, Europe (EPA), Costa Rica and soon to be Canada (Carib-CAN) has resulted in Barbados agreeing to allow certain products from these countries to enter Barbados at lower tariff rates. Finally, the simple-mindedness and single-mindedness of using price competitiveness as the key determinant in trading when price is but only one component in consumers’ determination of the value of fresh produce, means that even with products that are equally priced, imported products can still have a greater value in consumers’ minds. This is because these products may have other value propositions such as high quality, consistency of supply, uniform sizing, convenient and attractive packaging, strong brand characteristics, food safety certification and aesthetic appeal. Michael Porter has long been established that a competitive advantage not based on strategic positioning is almost always short-lived because rivals can increase productivity and quickly copy any operational advantage.73 Certainly, if farmers are to experience long term success, they cannot rely on the solitary static intervention of an ad valorem tarrification system that is not linked to local competitiveness. 3.2.3. Market Coordination While there are some gains to be made from coordinating the production of local crops for the local market, there will always be a margin of unpredictability due to the nature of crop production, the market forces, the price and business relationship and the weather, which creates production overlaps and gaps during seasonal shoulders.74 The small market size means that there is also a high chance that the costs of market coordination may outweigh the benefits. 73 Source: Michael Porter, HBR – What is Strategy? (1996) 74 Source: Roberta Cook, UCD – Volatility and Fresh Fruits and Vegetables (2010) “A competitive advantage not based on strategic positioning is almost always short-lived.”

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