AgriBusiness Forum 2010 Insights

As the 3 month countdown towards the AgriBusiness Forum 2010 gets underway, we introduce you to AgriBusiness Forum Insights, a series of short interviews with a selection of the AgriBusiness speakers who answer 5 questions about their particular field of expertise that they will be presenting in Kampala.

We begin with Dr. Doyle Baker, Chief of Rural Infrastructure and Agro-Industries Division at the Food & Agriculture Organization (FAO) of the UN.  Meet Dr. Doyle Baker and learn about the concept of value chains in agriculture and some of FAO's success stories. Please note that Dr. Baker's answers are his personal views and not those of the organization.

2. EMRC: Within the complexity of the Value Chain in agriculture, are there weaker parts which FAO is trying to strengthen, because you think they are more important than others or need more institutional support?

DB: The weakest part of the value chain, at least as far as our Agro-Industries Division sees it, is the relationship between producers and their buyers. In general, producers are not reliable suppliers of the raw materials and quality and safety-assured fresh products that are required by agribusiness enterprises. When businesses, such as processors, cannot secure reliable procurement they cannot in turn secure and meet downstream contractual engagements. When this happens, there is a surge of imports to meet new consumer demand and a loss of export competitiveness. Businesses often are forced to avoid the problem by turning to larger scale suppliers, which then marginalizes small farmers. In brief, nothing else will really matter in value chain development - at least in the agricultural sector - unless it is possible to develop business models linking value adding agribusiness enterprises in a sustainable relationship with their suppliers of raw materials, and that this "business model" involving the producers and their buyers is able to produce distinct products (generally branded and labelled, sometimes certified), which are competitive in the market place - whether this is the domestic market or export markets.

While that paper gives a more comprehensive analysis, the "sound bite" answer is that there remains a lot of distrust among farmers and in the public sector about the motives and behaviour of the private sector. Consequently, while there is a lot of rhetoric about the desire of engaging the private sector, there is much less action. There is unfortunately legitimate reason for concern because bigger business often are run by a few wealthy families, who have little reason to be overly concerned about fairness, and other businesses are struggling for survival. Therefore steps to engage the private sector require a combination of improving the capacity of smaller and medium enterprises to compete and at the same time putting in place mechanisms to ensure fair governance in the value chains that are being developed.

FAO itself has a major initiative to engage the private sector, endorsed during the Committee of Agriculture meeting. There are several action areas but the main problem that FAO faces is in dealing with specific enterprises. There are important reputational risks that must be managed, and so FAO generally deals with federations and associations. FAO does involve specific enterprises in dialogue and consultative meetings but rarely contracts with specific firms other than through procurement contracts. This is under review and could well change in coming years.

DB: There clearly has been progress in many countries but, as indicated, much of the commitment remains on paper. It would be more accurate to say that in many parts of Africa, the private sector has engaged itself in agricultural development - in many cases in spite of a public sector that is not moving very fast to put in conducive business climates. Particularly in the last few years, some global firms and private sector associations have become active partners in providing both financial and technical assistance for development. Operating under the radar of public attention, many smaller and medium enterprises do work in a very responsible manner with the producers - often times setting up long term relationships based on agreements rather than formal contracts. The financial sector is also starting to engage a bit more in agricultural development reflecting the demonstration of business success of some agricultural sectors.

DB: This is one that I cannot answer because I am not convinced that it is possible for FAO or other agencies to be responsible for success stories at a scale that matter. What FAO could cite - as could many UN and bilateral agencies - are pilot successes in specific locations at specific points in time. This having been said, there are a lot of success stories, some of which have benefited from developmental partner assistance. Examples: growth of horticulture sector in much of East Africa, particularly Kenya; take off of smallholder dairy particularly now with the widespread introduction of cooling hub systems; cotton sector historically in West Africa, although there are complaints and were problems during deregulation; maize industry in Zimbabwe before land reform; branded and certified coffee from several countries including Ethiopia, Kenya, Uganda; rapid rise of paprika industry first in Zambia and later spreading throughout all of West Africa, etc.

These are some of the larger stories but the ones I consider to be even more interesting is the individual business success stories, with specific businesses making their way with specific products in specific countries. There are a lot of these stories but we are just starting to scratch the surface in finding.

One important point though is most of the big stories and even the specific businesses that have been successful have not necessarily sustained success over time. Most of Africa (in fact all of Africa) is a high cost environment when it comes to business - because of poor business climates, poor infrastructure, relatively high labour costs, insufficient land registration, etc. Consequently, most Africa businesses are forced to compete on the basis of product development and differentiation - except for the large enterprises with very large market shares in specific countries. What this means is that they often do not have sources of long term competitive advantages. Consequently, even if they are successful, it is quite often the case that other companies in other areas come along and introduce a comparable business model and can, depending on agro-ecological and other factors, supply at lower prices.

DB: The Agribusiness Forum does not play any role per se because it is a forum with a broader purpose, which has as its theme this year the linkage between business and food security. The role of the Forum could be enhanced if a concerted effort is made to ensure that the specific sessions and workshops do in fact continue to establish a linkage between the themes of those sessions and the bigger issue of enhancing food security. We will try to do this and hope that the other participants do so as well.