Improving Export-Oriented Value Chains in Developing Countries


When policy analysts consider the need to increase food production to feed a global population of over 9 billion people in 2050, change is usually thought of in terms of large-scale agriculture.  According to a recent report by a group of international organizations including the UN, the World Bank and WTO, Sustainable Agricultural Productivity Growth and Bridging the Gap for Small Family Farms, “Half a billion small family farms produce most of the food consumed in developing countries and farm over 80% of the land in Asia and Africa, but their productivity is generally lagging.”  The world’s population won’t be well fed in 2050 without a substantial transformation of agriculture on those farms.

Half way through the 89 page report in a section on market integration and increasing competitiveness, the authors make a critical observation, “This requires the development of markets and agricultural value chains so that farmers can participate competitively, obtain fair prices for their products, and invest on-farm.”  Whether these farmers are feeding people in a village 50 miles away or a mega-city 500 miles away, they will need to be part of a competitively priced supply chain that provides them a fair return for their efforts so they can continue to invest in their farms to further increase output.  Trade in agricultural products and farm inputs will play an important role in making that happen.

The authors note that sanitary and phytosanitary (SPS) regulations exert an ‘overarching influence’ on agricultural trade development.  The final product has to be viewed by consumers as safe and nutritious or the value chain has failed to produce something of value.  Science-based regulations have been shown to be the most effective and least market distorting.  The use of ‘best practice’ based on private voluntary standards and government compulsory regulations in national practices should lead to harmonization towards best international standards.  The WTO SPS agreement provides a framework for these new supply chains.

Protection of intellectual property rights (IPR) is a critical component in creating innovations that increase productivity to meet the growing demand for food, while also increasing farm profitability.  Supply chains will move technological innovations across borders.  The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides protection for most property rights.  One exception is plant varieties which may be protected under the convention of the International Union for the Protection of New Varieties of Plants.  Seeds have played a key role in increasing productivity in recent decades and have attracted increased private investments in seeds for further productivity gains.

Related to this, land tenure systems must also be strengthened.  One-to-two billion people live on and use commonly held land to which they have no legal title, which limits their access to credit and insurance and prevents them from investing in environmental management.  Secure tenure can double investments on a per acre basis, and well developed rental markets can increase productivity by 60 percent.

Many developing countries have had a history of taxing agriculture and using the money to support urban industrial policies, but that began to change in the 1990s.

That is critical because farmers are the main source of private investment in primary agriculture.  Internally generated capital and effective lending programs will reduce problems associated with outside investors, private and government, developing agricultural production systems with little or no local support or control.

These new supply chains will accomplish little without market access in developed and developing countries.  Urban population centers, over half of the world’s population is now classified as urban, and mega-cities with populations of 5 million or more are natural markets for these new supplies.  For food supplies to flow from food surplus areas to deficit areas, market price signals have to match up the needs of consumers with the production capabilities of producers.

Despite their commitment to a market driven agriculture, the authors believe the most vulnerable developing countries should have flexibilities in their policies to deal with circumstances that threaten their agriculture.  This would mean that these countries would not have incentives to make needed changes and would not be part of the new groups of suppliers that focus on profitability.  Change would be constrained, not encouraged.

The authors also call for reductions in domestic supports in develop countries, less use of export subsidies, strengthening disciplines on export restrictions and expansion of official development assistance.  Supply chains in developing countries need to move ahead, not wait for others to reform policies that have been delayed for years.  With most national governments in developed countries short on money to fund such efforts, government programs are not a viable alternative to privately financed supply chains relying on market signals from consumers and production mostly self-financed by local farmers.

An overview like this would not be complete without comments about the vexing problems of transportation and storage on the farm and off-farm.   In some land-locked countries in Africa, transportation can be 75 percent of the value of exports.  Better transportation is needed to connect small farmers to supply chains and provide incentives to increase productivity.  A third of the food produced globally for human consumption each year is wasted or lost some way and 40 percent of the losses in developing countries occur at the post-harvest and processing levels.  Reducing these losses should be among the first targets of the new supply chains.

The report makes clear that high-value and market-oriented supply chains are emerging in developing countries.  That is good news for consumers and the millions of small farmers who want to increase output to gain better incomes.  Some farmers with the least amount of resources and living the furthest from transportation will not survive.  The remaining ones will adapt to the changing markets and earn greater incomes.  The ultimate questions are who will organize and finance these new supply chains and how big a role will small farmers have in financing and decision making about what to grow and how to grow it.

Ross Korves is an Economic Policy Analyst for Truth About Trade and Technology 

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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