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1 of 39 © FAO January 2008 Trends in Agrifood Systems Drivers, Changes, Impacts and Overall Assessment About the FAO Policy Learning Programme This programme aims at equipping high level officials from developing countries with cutting-edge knowledge and strengthening their capacity to base their decisions on sound consideration and analysis of policies and strategies both at home and in the context of strategic international developments. Related resources See all material prepared for the FAO Policy Learning Programme See the FAO Policy Learning Website: http://www.fao.org/tc/policy-learning/en/

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Page 1: Trends in Agrifood Systems - Food and Agriculture ...€¦ · Trends in Agrifood Systems Drivers, ... changed market organization: 12 of 39 ... relation to commodities in 1970 to

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© FAO January 2008

Trends in Agrifood SystemsDrivers, Changes, Impacts and Overall Assessment

About the FAO Policy Learning Programme

This programme aims at equipping high level officials from developing countries withcutting-edge knowledge and strengthening their capacity to base their decisions onsound consideration and analysis of policies and strategies both at home and in thecontext of strategic international developments.

Related resources

• See all material prepared for the FAO Policy Learning Programme

• See the FAO Policy Learning Website: http://www.fao.org/tc/policy-learning/en/

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© FAO January 2008

By

of the

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Trends in Agrifood SystemsDrivers, Changes, Impacts and Overall Assessment

Doyle Baker, Chief, and Carlos da Silva, Agribusiness EconomistAgricultural Management, Marketing and Finance Service, Rural

Infrastructure and Agro-Industries Division, FAO, Rome, Italy

About EASYPol

The EASYPol home page is available at: www.fao.org/easypol

This presentation belongs to a set of modules which are part of the EASYPol Resource package: FAO Policy Learning Programme : Specific Policy Issues: Agrifood

EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO. The site is maintained by FAO’s Policy Assistance Support Service, Policy and Programme Development Support Division, FAO.

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© FAO January 2008

Objectives

Users will:

know which are the main drivers of recent changes in agrifood systems worldwide

understand the nature of such changes

be informed about their impacts on agrifood systems organization and performance

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© FAO January 2008

Introduction

The changing agrifood system

Drivers

Most important changes

What have been the impacts?

Constraints still faced

Overall assessment

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Dramatic changes

Modernization of agriculture

Coordination, concentration, globalization

The new consumer

Quality, safety, ready to eat

What are the drivers of such changes?

What are the most important changes?

What are the impacts of the changes?

The changing agrifood system

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Income growth

Population growth and urbanisation

Trade liberalization and capital flows

Changes in transport and logistics

Technology

Information and communication

Packaging and processing

What are the drivers?

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-3

-2

-1

0

1

2

3

4

5

6

7

DevelopingCountries

East Asiaand Pacific

Europe andCentral Asia

LatinAmerica andCaribbean

Middle Eastand N.Africa

South Asia Sub-Saharan

Africa

real

GDP

per

cap

ita, a

nnua

l ave

rage

per

cent

cha

nge

198019902001-20052006-20015

Income growth

GDP – Annual Percentage Change

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Income growth [cont’d]

World Bank forecasts growth in income per capita in all regions of the world

Region 2005 2006 2006-15

East Asia and Pacific 6.2 5.7 5.3

Europe and Central Asia 5.6 5 3.5

Latin America and Caribbean 2.3 2.3 2.4

Middle East and North Africa 2.8 2.5 2.6

South Asia 4.7 4.4 4.1

Sub-Saharan Africa 1.6 1.7 1.6

Source: The World Bank – Global Economic Prospects 2005

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0

200

400

600

800

1,000

1,200

1,400

Asia Africa LatinAmerica &Caribbean

Near East EasternEurope

Urb

an P

opul

atio

n (m

illi

ons)

1970198019902000

Urbanization trends

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Urbanization trends [cont’d]

Urbanisation in developing countries will accelerate over the next 30 years

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

billi

on p

eopl

e

Rural Urban

projected

projected

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Trade liberalization and capital flows

Globalization

Freer flow of goods, services, capital & technology

Integration of global agrifood markets via trade

Enlarged markets = more competition

Capital flowsFDI major driver of globalization in agri-foodTransnationality index increased from 59 to 79% between 1990 and 1999

Business models reproduced via FDI -changed market organization

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Changes in transportation and logistics

Technological advances

Containerization and reefers

Inter-modalism

Vessel sizes and speeds

Better fuel efficiency

Satellite navigation

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Progress in information technology

More power, more speed, lower costs1965: 1 transistor cost one dollar; 1st processor had 2200 transistorsToday: more than 1 billion transistors with a cost of less than 1/10000th of a cent per unit !

Enabler of data collection, storage, retrieval and inter-organizational exchange

Information and fund transfersTracking and tracing AutomatedMobile phones

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Advances in production and processing technologies

Technology has driven progress

agricultural production and processing

Green revolution

Post-harvest packaging, drying

Biotechnology is seen as new step forward

Estimated area with GM crops in 2004 was

81 million hectares

Grown by 8.25 million farmers in 17

countries, most of which in the developing

world

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Consumer and market trends and requirements

Organizational and institutional changes

Changing nature of international trade

What are the most important changes?

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Consumer and market trends

Diets include more fish, meat and dairy products, as well as fruits

and vegetables

Rise in importance of ready to eat,

frozen and convenience foods

Growing demand in high income countries for exotics, organic products, off-season fruits and vegetables

Increased concern with health and food safety; rising demand for

high quality and safe foods

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Price squeeze on producers of bulk or anonymous quality commodities

Consumer and market trends [cont’d]

Declining commodity prices

Farm-gate prices of many commodities are now lower than they were 20 years ago

Widening spreads around prices

Increasing distinctions (price and rules of game) between bulk and speciality markets

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Prospects for food manufacturing greater than for primary commodities

Tremendous regional disparity in formal sector agro-industry value addition

Widespread interest in diversification of non-traditional fruits and vegetables

Consumer and market trends [cont’d]

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Compliance, monitoring and certification costs are high and have economies of scale; constitute significant entry barriers

Consumer and market requirements

Rapid rise of private sector standards

Supermarket chains and food processors increasingly are setting standards for the food they buy and such standards are not uniform

Beginning to be growth of process based standards; not clear how far this will go

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Organizational and institutional changes

Profound changes in the structure of production and wholesale

marketing in developing countries

Growing concentration at all levels, particularly in retail and

processing

Enterprises are getting larger as firms seek economies of scale

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Increasingly, exchange is arranged through contracts

More specialized procurement channels and dedicated wholesalers

Changes in the retail sectors of developing regions have been particularly notable

Organizational and institutional changes [cont’d]

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Change in composition

Share of processed products in agricultural trade grew from 25% in relation to commodities in 1970 to over 58% by the end of the 1990’s

Relative share of traditional export commodities - such as cocoa, coffee and sugar – fell

Trade in fruits, vegetables and dairy products – increased

Changing nature of international trade

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Global sourcing programmes

Trend towards sourcing from few reliable supply markets

Product differentiation and branding have become key competitiveness factors

Phasing out of special programmes and non-tariff measures designed to protect trade

Food miles are growing

In USA: 1500 to 2500 miles between farm and plate: 25% more than 1980

In Europe: 3000 km on average

Changing nature of international trade [cont’d]

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Efficiency and growth benefits

Risks for small farmers, traders, processors, retailers

Constraints still faced by farmers and agribusiness

What have been the impacts?

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Efficiency and growth benefits

Agro-processing enterprises are increasing demand for farmers’ products

Exporters and agro-processing enterprises are furnishing crucial inputs and services

Agro-industries are stimulating market induced innovation

Domestic and export systems are becoming more mutually supportive

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Efficiency and growth benefits [cont’d]

Specialty markets for coffee, cocoa, tea, and cotton (organic, gourmet, fair trade) offer an alternative higher priced market

Diversification into horticulture, livestock, and other high value crops offers considerable potential for employment generation and productivity growth

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Strengthening farm-to-market linkages has improved the livelihoods, incomes and food securities of rural and urban households

Recent studies of contract farmers show that they have higher incomes than other farmers

Efficiency and growth benefits [cont’d]

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Small farmers have difficulties meeting agro-industry standards and contractual requirements

Risks for small farmers, traders, processors, retailers

Following structural adjustment, the private sector emerged only slowly and partially mainly serving commercial farmersbut leaving many smallholders exposed to extensive market failures, high transaction costs, and service gaps

About half the agricultural area in remote regions has good agricultural potential but lacks institutions and infrastructure to integrate into the wider economy

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Some studies find that smaller

processing firms are left out of

the supply chain, with medium-

sized and large processors

preferred for long-term contracts

Risks for small farmers, traders, processors, retailers [cont’d]

Traders and marketers in

local markets are being

squeezed by specialized

procurement practices and

certified products

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Inadequate access to technology

Limited information on prices and buyers

Limited negotiating and bargaining skills

Delayed receipt of payments

Lack of access to financial services

Insufficient farm business support services

Limited availability of inputs; high cost of

inputs

Constraints still faced by farmers

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High cost and unreliability of raw material supply

Farmers’ inability to supply the volumes required

Insufficient market information; high cost market research

Lack of public institutions and infrastructure for monitoring compliance with standards

Constraints still faced by agribusiness

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High cost of utilities and other overhead costs

Lack of access to finance; high cost of finance

Lack of transportation and communication infrastructure

Inconsistent and not transparent business regulations

Constraints still faced by agribusiness [cont’d]

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© FAO January 2008

FAO Policy Learning ProgrammeModule 2: Specific Policy Issues

Session 1: Agrifood

Overall Assessment

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© FAO January 2008

Potential of new agrifood systems

With globalization, institutional innovations,

new biological and information technologies,

and changing agro-ecological conditions,

opportunities present themselves for a new

agriculture, with new challenges

Agriculture can be the engine of growth and

poverty reduction in agriculture-based

countries

Elsewhere, agriculture has growth

opportunities and poverty-reducing potential

in sub-sectors with a comparative advantage

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But, food vulnerability continues

So far, not ensuring abundant supply of food for all;

slow progress in reducing food insecurity

Unstable supply and high price variability

Increased vulnerability of local food systems

to externally driven events

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Entire countries risk being left behind

Declining interest in countries

with poorly performing supply

channels

Increased global capital flows

are heavily concentrated in

relatively few countries

As product specifications

advance rapidly, poorer

countries are unable to keep

up and benefit from their

lower labour costs

Substantial “adding up”

problem; several countries

increasing exports simulta-

neously leads to price

collapses

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Growth of competitive agro-enterprises and

domestic markets in which remunerative

prices permit innovations and new skills

development

Policy goals for agrifood systems development

Ensure processes and products meet

consumer demands and market requirements

within the context of sustainable farming

practices

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Ensure constraints in one part of the agrifood system do not constrain progress in other parts

Policy goals for agrifood systems development [cont’d]

Increase farmers' income by producing the right products, taking advantage of their comparative advantage

Expand employment throughout the agrifood system

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Further readings

Da Silva, C.A., 2005. The Growing Role of Contract Farming in Agrifood Systems Development: Drivers, Theory and Practice. AGSF Working Paper 9, FAO, Rome, Italy.