Diagnosis and Ways Forward. Derek Byerlee, Michigan State University - PDF document

5/19/2014 Diagnosis and Ways Forward.  Derek Byerlee, Michigan State University  Dolly Kyaw, Consultant, MDRI-CESD  U San Thein, Consultant, MDRI-CESD  L Seng Kham, MDRI-CESD 2 1

5/19/2014 Rubber Sugar Burma Cassava Cassava 2 M ha land for large farms Average > 2,000 ha Oil palm SMFs Market-oriented small and Say < 50 acre but depends on medium-size farmers enterprise SMEs Small and medium nonfarm Say < 100 employees enterprises ABCs Agribusiness companies At least 100 employees (companies—mostly vertically integrated) 4 2

5/19/2014  To provide strategic policy priorities on: How to design agribusiness models based on SMFs 1. to accelerate growth and poverty reduction? How to design large-scale agribusiness farming 2. models (if needed) to be sustainable (econ, social, env)? 5  Quick (but clean!) diagnoses of seven value chains  Sesame, maize, rubber, oil palm, sugarcane, & poultry  Review of experiences in the region  Especially Thailand but also lessons from Vietnam, Laos and Cambodia 6 3

5/19/2014  November/December  Review of available knowledge including regional experiences  Meetings and interviews with key stakeholders  Private sector, farmers , associations, CSOs, gov officials  Field visits to 5 states/regions  January/February  Draft report for comments  Initial findings discussed in seminars with policy makers, researchers and key stakeholders  Now  Finalization and dissemination eve nts 7 8 4

5/19/2014  Few economies of GDP growth from agriculture scale in farming benefits the income of the poor  Asia--Example of 2-4 times more than GDP growth Green Revolution from non-agriculture (WDR 2008) 2008)  SMF-based strategy Expenditure gains induced by 1% 8  Both efficient and Agriculture 6 GDP growth (%) equitable 4 2  High rural inequality 0 reduces agriculture’s Non- agriculture -2 effectiveness Low est 2 3 4 5 6 7 8 9 Highest Expenditure deciles 9 KEY ELEMENTS OF THAI GROWTH + POVERTY SUCCES REDUCTION  National commitment to World’s top exporter of rice, end poverty rubber, cassava. In top 3-5 for  Policy open to trade and sugar, F&V , poultry, processed markets foods  Strong agribusiness sector 80 % Rural poverty  Public investment and 70 efficient state support 60 Rural poverty (%)  Roads, irrigation, extension 50  Strong land institutions 40 30 20 10 0 1988 2000 2011 10 5

5/19/2014  Factors favoring large-scale  Close coordination with processing  Demanding market standards  Pioneering risks—new crops in new areas  Large scale can be inclusive if:  Good jobs, training, technology spillovers, social infrastructure 11 POSITIVES NEGATIVES  Strong markets  Poor investment climate  Incomes and urbanization  Infrastructure  Regional integration  Legacies of previous govs  Global exports and prices  Weak state capacity  Lack of public goods and  Good resource base (land services for SMFs and water/capita), diversity  But  Strongest asset  Open borders  Millions of small and  Spirit of reform medium scale farmers!  Many initiatives  2.3 Million > 5-50 acres 12 6

5/19/2014 AGBIZ GROWTH AND POVERTY REDUCTION AGBIZ RISKY BUSINESS  Involves and upgrades  Based on large land value chains based on concessions SMFs  Overlaps with rights of existing land users  Markets, technology, value chain financing  Creates high inequality in  Creates good jobs for a land ownership growing rural labor force  Clears forests of HCV  Economic risks too if:  Inexperienced investors  Speculation on cheap land?  Example of Cambodia 13 14 7

5/19/2014 Retailer/ Marketing Inputs Production Processing and Logistics Consumers Assets • Land SME SMF SME • Labor • Local knowledge • Entrepreneurship • Capital ABC ABC • Market access • Specialized skills Relationships ABCs-SMFs – spot markets, close but informal links, formal contracts (price and resource providing)  Not covered in previous MDRI-MSU report  Products with dynamic markets + exports  Cover a range of business models, from SMF-based to land concessions  Field visits  Caveats  Quick overview and often only for one major production zone 16 8

5/19/2014 MYANMAR WORLD’S BUT MY IS LOSING LARGEST PRODUCER COMPETITIVENESS  MY now world’s largest 1,600,000 World Exports (tons) producer and consumer 1,400,000 Myanmar  Multiple uses—oil, snack, ROW 1,200,000 exports Ethiopia 1,000,000 India 800,000  Business models  Independent SMFs in spot 600,000 markets 400,000 200,000 0 Source: FAOSTAT 17 CONSTRAINTS OPPORTUNITY  Many  Upgrade value chain for higher quality markets  Production risks--Low inputs, dryland  Contract farming incl. with supermarkets  Organization of export  Lack of varieties industry players  Branding?  Processing- small volumes, old mills  Value chain—quality control and standards 18 9

5/19/2014 GROWING PRODUCTION BUSINESS MODEL BUT MUCH POTENTIAL  Independent SMFs linked 6.00 to ABC on inputs (hybrid 5.00 seed) and output mkt  Rising area and doubling 4.00 yields (< 2 t/ha in 2000 to 4 Million tons Myanmar t/ha 2012) 3.00 Thailand  Surge in export markets to Viet Nam 2.00 over 0.5 M t  Some contract farming and 1.00 also 101 program for input financing & extension 0.00 19 CONSTRAINT OPPORTUNITY  Rapid demand growth  Low margin in relation to  Domestic feed high input costs  Big export market in China  Risky—weather and prices  Scale up adoption of zero  Extension tillage + CA practices  Irrigated maize in cool season  Soil erosion  BD 60% higher yields and production than MY 20 10

5/19/2014 BUSINESS MODELS MYANMAR SUCCESS STORY  Broilers—contract farming 160 20 18  Well tested model by ABC 140 Eggs 16  Inputs, advice, credit (no/yr) 120 Meat 14  Returns > 2 x rural wage (kg/yr) 100 12  Supply chain from feed to Meat Eggs processed meat 80 10 8 60  Layers—independent SMFs 6 40 closely linked to ABC 4 20  Inputs, advice, but not 2 contractual 0 0 1995 2000 2005 2010 2015 21 CONSTRAINTS OPPORTUNITIES  Volatility of feed prices  Rapid demand growth  Preference for chicken  Health & trans-border meat diseases  Reliable low cost protein  Competitiveness under meal through local regional trade integration sourcing  Increase scale of contract growers, or  Vertically integrate upstream into production 22 11

5/19/2014 BUSINESS MODELS LAGGING YIELDS IN MY  Asia--Rapid growth, strong 2,000 export demand 1,800 1,600  > Asian 90% world rubber & 85+% of that smallholder 1,400 Myanmar Yield (kg/ha) 1,200 Thailand  Business models MY 1,000 Viet Nam  Independent SMFs selling 800 to processors of RSS 600 400  Large plantations (> 1000 200 ac) 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011  Directly export to CH & VN 23 CONSTRAINTS OPPORTUNITIES  Low yields  Close large yield gap  R&D, extension  Regulate and upgrade  Access to finance for HY standards clones  High price volatility  Build integrated supply chains to the soon-to-be  Low quality & discounted prices privatized manufacturers  Regulation of standards,  Look at diversified agro- price incentives forestry systems  Sustainability (deforestation) 24 12

5/19/2014 1. State-led Extension, grants for HY clones, processing  cooperatives, quality standards (TH) 2. Private-sector led Long-term contract farming (2+3 model)?  Short-term contract farming—existing trees  3. Public-private partnership  Cess (e.g., 1%), Industry Board, certification of standards 25 BUSINESS MODELS CONSUMPTION >> PRODUCTION  Main focus of GoM edible 600 oils policy 500  > major source of oils Imports consumed 400 Production Thousand Tons  Vertically integrated ABCs 300  500 ha to > 100,000 ha 200  Virtually no SMFs 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 26 13

5/19/2014 CONSTRAINT OPPORTUNITY  Competitiveness?  Review vegetable oils strategy to assess  Yields, infrastructure competitiveness and sustainability  Lack of R&D, technical support, labor  Invite responsible FDI  Negligible development of  Adhere to RSPO standards on social and environ concessions (90% ABCs < sustainability 10% planted)  Design incentives to  Sustainability include outgrowers in (deforestation) concessions 27 SUGARCANE CASSAVA (TAPIOCA)  Transition from state to  Thailand and Vietnam private including JVs and  US $ 3+ billion export FDI industry  SMF based—initially via  Some successful contract contract farming farming  Myanmar  Still low value share to farmers (48% vs 70% in  Exports only via ABC TH)  Big opportunity 28 14