manilad GulatiReardon

Transformation of High-Value Food Markets in Asia:Implications for small producers and policies: 

Transformation of High-Value Food Markets in Asia: Implications for small producers and policies Ashok Gulati, IFPRI Director in Asia, Thomas Reardon, Prof. at the Michigan State University Co-directors of IFPRI/MSU joint program on “Markets in Asia” August 9, 2007 IFPRI-ADB “Policy Forum”, Manila, Philippines.

Three key messages…: 

Three key messages… Changing Asian platter towards high value agriculture (HVA such as fruits and vegetables, dairy, meat and fish); Rapid transformation and scaling up of wholesale markets, processors, and organized retailers (Consolidating top) while farms are still fragmenting opportunity for small holders if they can connect to new markets, else a major challenge to remain afloat.

Changing Asian Platter: Diversification and “westernization” of diets Average Annual Growth in per capita consumption (1991-2005) in Selected 8 Countries in South and South East Asia: 

Changing Asian Platter: Diversification and “westernization” of diets Average Annual Growth in per capita consumption (1991-2005) in Selected 8 Countries in South and South East Asia Notes: Grains include cereals and pulses, Consumption measured as grams/capita/day, the 8 countries include Bangladesh, China, India, Indonesia, Pakistan, Philippines, Thailand and Viet Nam. Source: FAOSTAT, © FAO Statistics Division 2007, 30 July 2007

counterpart: High-value PRODUCTION growing fast, already important; : 

counterpart: High-value PRODUCTION growing fast, already important; …. Share of HVA in total agriculture production growing, surpassing the staples group (e.g., in India, share of HVA during 1981-83 was 32%, which increased to 48% in 2002-05; Similar changes in Indonesia, China, etc...)

Trade is still a tiny part of the story…: 

Trade is still a tiny part of the story… Trade of HVA is only at the margin (less than 3% of consumption or output). Change is driven largely by domestic demand.

Next 10 years….: 

Next 10 years…. Although staples are important from food security point of view, future sources of growth and prosperity in agriculture will come increasingly from high value products, driven by domestic demand, production & markets; But being perishable in nature, it needs a fast moving infrastructure and institutions that can compress the value chains and reduce risk

That domestic market is transforming: wholesale segment: 

That domestic market is transforming: wholesale segment From truck-market to public wholesale markets (WM) in big cities: 1970s-80s Expansion of WMs in big cities and spread to smaller cities: 1990s-2000s Crisis of interface of growing hort/meat demand – and capacity and performance of WMs: 2000s Restructuring of WMs: 2000s … major debate and programs: india, china, indonesia … rise of “new-generation” wholesalers – specialized and dedicated to modern segments (Indonesia case) … rise of large-scale capitalized wholesalers displacing traditional small brokers (Indonesia and China cases)

That domestic market is transforming: processing segment: 

That domestic market is transforming: processing segment Rapid increase in processed product consumption …Rapid increase in average scale of processing firms in high-value products (hence consolidation) … India example Rapid technological change in packaging and thus radius of shipment and shelf life … example of massive growth of Tetrapak in China

That domestic market is transforming: retail segment: 

That domestic market is transforming: retail segment Rapid spread of supermarkets in Asia in three waves … First wave: East Asia outside Japan and China; early 1990s take-off, … Second wave: Much of Southeast Asia such as Indonesia, … Third wave: China and recently India and Vietnam, shares change.. … incipient fourth wave… Bangladesh, Pakistan, etc.

Supermarket Revolution: Average Annual Growth Rate in Grocery Sales of Top 10 Retailers in Selected 6 Countries in South and South East Asia (2000-06): 

Supermarket Revolution: Average Annual Growth Rate in Grocery Sales of Top 10 Retailers in Selected 6 Countries in South and South East Asia (2000-06)

… change is spectacular: 

… change is spectacular Already moving beyond middle class to food markets of the poor especially in the first and second wave countries but starting in third First penetrates in processed products (today, supermarkets have 80% of urban china processed food retail), then in semi-processed (dairy, meats, now 50% in china cities), then fresh (only 20% of veg retail, 39% of fruit retail) China case spectacular India case incredible … these two: fastest supermarket growth in history

Modern food industry has mixed sourcing strategy: 

Modern food industry has mixed sourcing strategy Large processors and supers still rely a lot on WMs to bulk from millions small farmers … thus efficiency of WMs affects how benefits of processing/retail modernization will affect food economies in Asia

Dynamics of an emerging value chain: expanding top and fragmenting bottom challenge to small holders: 

Dynamics of an emerging value chain: expanding top and fragmenting bottom challenge to small holders A Vision of dynamic complete Agri-System, where farms are fragmenting while all other segments are scaling up fast

Indian farm reality: fragmenting farms and swelling bottom Challenge of linking small holders to supermarkets: 

Indian farm reality: fragmenting farms and swelling bottom Challenge of linking small holders to supermarkets Avg Size 2.3 1.82 1.55 1.41 1.37 Source: Agricultural Census Division, India

What ensures production & price risk coverage for the small farmers?: 

What ensures production & price risk coverage for the small farmers?

How do we judge: which way to go??Solving the “Rubik cube” puzzle: 

How do we judge: which way to go?? Solving the “Rubik cube” puzzle Innovative Institutions and Organizations Linking smallholders to Modern Value Chains Mapping and Designing Institutions for ICSS I-Inclusiveness C-Competitiveness S-Sustainability S-Scalability