2013 GAP Report® – [1] Comprehensive Value Chain Programs

In developing countries, well-designed value chain programs must incorporate science- and information-based technologies, expand private-sector participation and be market driven, allowing program investments to take hold and continue to grow, as illustrated in the following case studies.

POULTRY VALUE CHAIN QUADRUPLES PRODUCTION IN MOZAMBIQUE

Developing a local supply of more nutritious, safe food requires participation and improvements along many points of the agricultural value chain. TechnoServe, a non-profit organization that develops business solutions to poverty, implemented a four-year USDA Food for Progress program in Mozambique that provided incentives to each participant in the poultry value chain, resulting in poultry market growth of 20 percent and quadrupling domestic production.38 In 2005, before the project began, 20 percent of the poultry broilers consumed in the country were produced domestically and 80 percent were imported. By 2012, the situation was reversed and 80 percent were domestically produced.

One of the first steps in the program was to bring the eight local producers together and create a national poultry industry association, known as A.M.A., which gave the domestic industry a unified voice. TechnoServe worked with A.M.A. to recommend internationally recognized food safety standards that would protect the health and safety of Mozambicans, including curtailing imports of frozen broilers that were past the safe use-by date. After careful review, the Mozambican government implemented the proposals.

A.M.A. also launched a popular advertising campaign — featuring an animated local chicken — that promoted the benefits of buying domestic poultry. These measures helped local producers capture a greater share of the Mozambican market.

TechnoServe worked with companies to upgrade their processing machinery, expand production capacity and improve chicken quality. The companies were connected to smallholder farmers through a credit system that provides each farmer 1,500 to 2,000 one-day-old chicks upfront, as well as the feed and veterinary services needed to produce full-grown broilers. The costs of the chicks, feed and services are deducted when the farmers sell the full-grown chickens to the processors 35 days later. In partnership with Cargill, the University of Minnesota and Safe Supply of Affordable Food Everywhere (SSAFE), TechnoServe also helped strengthen public veterinary service, contributing to improved animal health and a safer food supply.

Due to the development of the poultry industry, demand for soybeans and corn — key feed ingredients — increased. While corn is a traditional crop in the country, soybeans are not. Conditions for soybean production are favorable in the central and northern regions and production has started to take off, doubling from 15,000 metric tons in 2011 to 30,000 metric tons in 2012. Thousands of small-scale corn and soy farmers are growing more crops to supply the expanded market.

All of these measures helped grow the Mozambican poultry industry from $25 million in 2005 to $160 million in 2009. The industry has created more than 90,000 jobs, including tens of thousands of small-scale farmers. Hundreds of thousands of Mozambicans are living better lives thanks to the industry’s growth — eating healthier, accessing better health care and the ability to send children to school.

PUBLIC-PRIVATE PARTNERSHIP INCREASES INCOMES AND DAIRY PRODUCTS IN SRI LANKA

After 26 years of ethnic conflict and the 2004 Indian Ocean earthquake and tsunami, Sri Lanka’s Eastern Province was devastated, leaving many farmers without resources to rebuild or to market their milk to dairy processors. To help communities recover, Land O’Lakes International Development39 launched the three-year Dairy Enhancement in Eastern Province (DEEP) program in 2009. Supported by $3.75 million from the U.S. Agency for International Development (USAID) and $4.5 million from CIC Agri Businesses, a Sri Lankan company, the project expanded the Eastern Province dairy industry, introduced improved technologies and linked smallholder farmers to commercial markets, increasing their incomes by 75 percent. Demand for protein-rich foods such as dairy is likely to increase as Sri Lanka’s economy grows.

Figure 19: Estimated and projected size of milk markets in world’s regions (2005-07, 2030-50, and 2050)

FAO Milk Trends

From 2009-2012, DEEP applied a three-prong approach to strengthen the dairy value chain and help 4,100 farmers regain profitability by increasing the quantity and quality of raw milk. DEEP provided targeted training and technical assistance, set up milk-chilling center cooperatives that were linked to a network of milk-producer groups and established modern dairy processing facilities. To restore livelihoods and improve the living conditions of widowed women and their families, the program ensured strong female participation across all activities.

DEEP introduced hands-on training in animal nutrition, care and disease management and strengthened the farmers’ connections to governmental veterinary services. To improve dairy cattle breeds, Land O’Lakes demonstrated how artificial insemination (AI) increases productivity and provided 3,500 small grants for farmers to invest in AI and other productive assets.

In order to create a functioning value chain, farmers needed to move beyond irregular informal sales to middlemen by developing a market driven link to a private-sector processor willing to provide a higher farm-gate price. Land O’Lakes partnered with CIC Agri Businesses and its 18 affiliates to create a sustainable market and generate higher prices for farmer’s milk. Relying solely on milk production from the Eastern Province, CIC is now selling 50,000 cups of yogurt a day around the country, as well as 15,000 small packets of milk for children.

This increase in dairy production contributes to curbing the sharp disparity between domestic supply and demand. Sri Lankans consume around 750 million liters per year; however, local production only covers 25-30 percent of that need.40 Before 1977 — when the country adopted economic reforms — milk production and processing was state-run, providing 80 percent of Sri Lanka’s dairy supply.41

The success of the public-private partnership between CIC, Land O’Lakes and USAID also built connections between ethnic groups. The majority of CIC’s employees are Sinhalese and do not speak Tamil, the predominant language spoken by farmers in Eastern Province. CIC’s general manager, Mr. Uditha Dissanayake, plans to hire more Tamil-speaking agents. He said, “We need to go beyond this and recruit more Tamils to really succeed. We have an important role to play in partnerships where Sinhalese, Tamils and Muslims can work together.”

BUILDING AGRICULTURAL CAPACITY TO MEET MARKET DEMAND

In Ghana, rice production has not kept pace with increases in demand triggered by population growth, rapid urbanization and increasing incomes. The essential components of a competitive industry are missing, and as a result, more than half of the rice consumed is imported. A comprehensive value chain analysis by ACDI/VOCA42 found that in the rice-growing northern regions, small farmers lack access to improved technologies, financing, extension services, infrastructure and relationships necessary to meet market demand successfully.

To build the competitiveness of small farmers, improve food security and transform the agricultural sector in northern Ghana, ACDI/VOCA is implementing an Agricultural Development and Value Chain Enhancement (ADVANCE) Project from 2009 through 2014, funded by USAID-Ghana. ADVANCE organized the rice value chain participants and created a functional, market-driven system that is already supplying more rice for consumers; increasing incomes for producers; expanding the agricultural loan portfolios of local banks; creating more business for equipment, seed and fertilizer dealers; and strengthening the rural economy overall.

ADVANCE trained several local organizations and lead farmers to provide extension and other services to small farmers to increase the productivity of irrigated rice through effective plant, soil, water and nutrient management. Information and communication technologies, such as SMS messaging, have also been a particularly effective medium for farmer outreach.

Working in concert with trained extension agents and dealers who provided fertilizer, seed and herbicide, ADVANCE set up demonstration plots to show how improved varieties and best practices, such as proper timing and application of fertilizer and water, land preparation and post-harvest handling, increase production. More than 4,000 farmers adopted the new technologies and practices and doubled their yields. Gross profit margins were high, more than offsetting the costs for improved inputs.

Medium-to-large scale rice producers with successful production and marketing operations agreed to be “nucleus farmers,” serving as a hub to provide inputs to small producers (“outgrowers”), and then aggregating production to sell to millers. Both nucleus farmers and farmer-based organizations provide seed and fertilizer to smallholders at the beginning of the planting season and defer payment until the farmers sell the rice. They also buy farm equipment and lend it to smallholders to improve cultivation and reduce the labor of hand plowing.

To cover their upfront costs for supplying inputs and to buy farm equipment, nucleus farmers and farmer-based organizations need bank loans. Before ADVANCE, such loans were difficult to obtain. Most local banks were not comfortable with agricultural lending because it is not typically collateralized and is subject to many risks, such as weather and pests. ADVANCE integrated bankers into the learning process along with agro-dealers and farmers, showing how a record of good yields and management practices, as well as market demand for the final product, can be used as a basis for providing loans. In some cases, a guarantee from a nucleus farmer can also be used to secure a farmer-based organization’s equipment loan.

In addition to rice, ACDI/VOCA is developing the soybean and maize value chains in northern Ghana. For all three crops, ADVANCE has reached 127 nucleus farmers, a network of 23,883 farmer outgrowers and 287 farmer-based organizations that represent 9,983 farmer-members. With the program’s interventions, these farms collectively achieved more than $7.6 million in incremental sales of rice, maize and soybeans during the 2011 and 2012 growing seasons. As a result, families can invest more in their own livelihoods, as well as in critical household and family needs, such as health and education. The economic benefits, many financial relationships and connections among commercial participants incentivize value chain continuation and expansion well beyond the life of the project.

BETTER FOOD FOR BETTER LIVES

Supported by a U.S Department of Agriculture (USDA) Food for Progress grant, the Better Food for Better Lives program advanced private sector food processing and marketing to make low-cost, fortified foods available to improve the nutrition of low-income households and school children.

The three-year program was developed and conducted by International Relief & Development (IRD)43 in Cambodia, one of the poorest countries in the world. Through training and the installation of better equipment, local flour milling increased by 35 percent. For the first time in Cambodia, wheat flour fortified with minerals and vitamins was available on the market.

Substantial improvements were also made in the food handling and hygiene practices at small-scale bakeries, contributing to a 20 percent increase in bread production.

With assistance from U.S. Wheat Associates, IRD helped bakers and noodle manufacturers incorporate fortified flour into their products. This partnership helped create 110 full-time jobs for female factory workers who were previously unemployed or only worked on a part-time or itinerant basis.

Food manufacturing improvements made it possible to incorporate fortified snack noodles and breads into school lunch programs. Targeting schools in Cambodia is especially important for addressing the country’s nutritional needs.

Noodles are consumed on a daily basis by many low-income Cambodians, but the market has been dominated by products from Vietnam and Thailand. Once fortified instant noodles were marketed to low-income consumers through existing private-sector distribution channels, they became very popular and in high demand. Consumer surveys indicated that the Better Food for Better Lives program helped build confidence in locally produced noodles. When the program ended in 2009, the Cambodian flour mill Men Sarun continued the nutritional fortification process and opened a noodle production factory based on experience gained through the program.

In 2011, IRD collaborated with the National Soybean Research Laboratory (USA) and the University of Illinois on a pilot project that marketed noodles enriched with soy protein, vitamins and minerals as a low-cost, nutritious product. The product is called Mee Prachnha (Smart Noodles), and it is being marketed in an urban area of Cambodia. In 2008, UNICEF found that acute malnutrition among children in this area exceeded the humanitarian emergency threshold of 15.6 percent. Consumer research will be conducted to determine the penetration and use of the Smart Noodles product by low-income households.

Clearly, the programmatic seeds that were planted by Better Food for Better Lives have taken hold in Cambodia, demonstrating that value chain enhancements can work to improve the nutritional content of food and market it to low-income consumers.


TABLE OF CONTENTS

Executive Summary

The Global Agricultural Imperative

Producing More With Less

The GAP IndexTM

Spotlight on Sub-Saharan Africa: The Productivity Gap

Sources of Growth in Agricultural Output: Variation by Income

The Brazil-China Agricultural Connection

A Policy Voice

The Agricultural Value Chain

Policies in Action: Productivity Along the Value Chain

[1] Comprehensive Value Chain Programs

[2] Investments in Research, Science and Technology

[3] Building Local Capacity and Mobilizing the Private Sector in Developing Countries

Endnotes