Agri value chains exploit primary producers

A typical agri value chain

Courtesy: gramworkx.medium.com 

* Banana is the cheapest fruit available. It also happens to be the most eaten fruit in Europe and North America. Largely being traded, most banana imports come into Europe from Ecuador, Colombia, Costa Rica and Dominican Republic. Looking at the so-called efficiency of the value chains that operate, all that the growers earn is anything between 5 to 9 per cent of the end consumer price.

* Coffee is the world’s largest traded commodity providing livelihood to at least 60 million people in more than a dozen countries. But every time you drink a cup of coffee, don’t forget the coffee bean grower gets only a few pence of the price you paid. In India, for the Rs 250 you pay for a cup of coffee in any of the trendy kiosks, farmer gets only Rs 1. 

Strange, isn’t it? For agricultural commodities that are traded globally, and result in massive profits for every player in the agri or food value chain, it is invariably the primary producer – a farmer – who gets to bear the brunt. With a meager share in the end consumer price, they are left with little or no money to sustain their families. Eventually, most farmers end up either committing suicide or abandon farming to move to the cities looking for a menial job. 

This is happening at a time when food value chains are expected to increase competitive performance, and in turn make it profitable for all the collaborators down the line. Makes sense, isn’t it? But then how come while each of the participants in the value chain, and that includes transporter, processor, retailers to name a few ends up raking huge profits from the business enterprise, it is invariably the primary producer who is left pauperized? 

To begin with, let’s first try to know what a food value chain means. According to the website of the Ministry of Agriculture, Food and Rural Affairs of the province of Ontario in Canada, ‘a value chain can be defined as a strategic partnership among inter-dependent businesses that collaborate to progressively create value for the final consumer resulting in a collective competitive advantage’. By linking production, processing and marketing activities, the value chains end up ensuring that each of the participant gains economically. 

I am no expert in value chains, more specifically the food value chains. My interest in the role value chains play to link the primary producer with market demands actually arose from curiosity. Every time farm gate prices came down, take the example of wheat price, it is hailed as a sign of efficiency. But every time the price of value added product from wheat goes up, bread is an example, no one would like to call it a sign of inefficiency. It is taken as a natural progression, an outcome of an economic design that thrives essentially on increasing demand, and thereby consumption, to achieve economic growth. 

The wheat example I gave above needs a bit of explanation. Sometimes back I read an interesting analysis by a Canadian author and critic Darrin Qualman. Interestingly, he explains that while the price of wheat in Canada (adjusted for inflation) has come down drastically over a period of150 years, from $ 30 per bushel in 1867 to $ 5 per bushel in 2017, the retail price of 60 loaves that are produced from a bushel of grain actually increased by $ 50 in past four decades, between 1975 and 2015. The question he asks is something to really ponder over. Why is efficiency measured only in terms of reducing the price of wheat for the farmers? 

Take another example of the banana value chain. A study by BASIC and the Make Fruit Fair campaign of Banana Link tells us that hypermarkets and supermarkets are the two dominant players in the value chain, walking away with 35 per cent and 33 per cent of the food sale in Europe. But if we look at the various stages of production and distribution, the most strenuous role is played by the banana growers who toil hard for about 9 months in a year. And yet, in the end, the growers get a price that is not even enough to cover the cost of production. If that is the way we measure efficiency of a value chain, isn’t it time for disruption? 

I can go on and on with examples that illustrate how farmers have been ruthlessly exploited over the period by the so-called efficient food value chains. With concentration of power in the hands of big agribusiness companies, the little margins that farmers were earlier getting is being further squeezed by the big players. Regretting the trend, the US National Farmers Union states that four largest meatpackers control 55 per cent of poultry, 66 per cent of pork, and 85 per cent of beef processing. “These corporations dominate what is grown and how it’s produced, all while paying farmers as little as possible.” 

The US Department of Agriculture’s food dollar series makes it explicitly clear. In 2016, the Economic Research Service of USDA showed that farmer’s share in the end consumer price, measured in terms of a dollar worth of food purchase, averages 14 cents. This was the lowest since 1993 when the series began. With such low incomes, it is quite obvious that farming becomes economically unviable, forcing farmers to quit in large numbers. That is exactly what happened in America, and that’s the trend that is being followed globally. Nevertheless, what becomes abundantly clear is that at the very foundation of the agrarian crisis that prevails in America, and also for that matter what has brought tens of thousands of farmers protesting at the borders of New Delhi for over ten months now, is the devastation wrought by the exploitative food value chains. 

There is nothing sacrosanct about the way agri value chains are designed. Business and management schools, nationally and internationally, must acknowledge that food vale chains need an overhaul. It calls for disruptions on a big scale. Let us not shirk away from that responsibility. The value chains need to be made more responsible towards the primary producer, the very foundation on which the chains operate. That is why the demand for a guaranteed farm price is so crucial to sustain farm livelihoods. The food value chains should be left to adjust accordingly. #

Source: Agri vale chains need an overhaul to rescue farmers. Bizz Buzz. Oct 1, 2021. https://www.bizzbuzz.news/opinion/agri-value-chain-needs-an-overhaul-to-rescue-farmers-1031915

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No transition to sustainable food systems possible without a living income for farmers

Pic courtesy: Indian Express

In the run-up to the UN Food Systems Summit aimed at achieving more sustainable, equitable and resilient food systems, the UN Secretary General, Antonio Guterres, said: “A well-functioning food system can help prevent conflict, protect the environment and provide health and livelihoods for all.”  

“In food, there is hope.” 

Laudable words, indeed. As the world faces a growing risk of food shortages due to climate change, with several studies warning of the dismal scenario ahead when production of staple crops is expected to contract by almost a third by 2050 in case temperature rise continues unabated, transforming the global food systems to meet the future needs of the people, so as to attain health and nutritional security for one and all, is certainly a timely initiative. More so at a time when increasing desertification, loss of biodiversity, air and water pollution and the devastation intensive farming practices have wrought to soil health and environment had set the alarm bells ringing for long. 

Coming at a time when growing corporate control over agriculture has pushed small farmers to the margins, with monocultures leading to destruction of natural resources, only time will tell whether partnerships between different stake-holders and the commitments from national governments really help to radically transform the existing highly unsustainable food systems. This becomes more difficult to achieve given that high levels of income insecurity is either leading indebted farmers to take the fatal route or abandon agriculture to move to the cities, and those who are left on the farm seem to be somehow surviving against all odds. 

While there is no denying that food provides hope, as the UN Chief said, but unfortunately the people who produce food do not see any hope. 

“Every genuine farmer is now struck unfairly on a treadmill with accumulating debts to meet unless he goes bankrupt, commits suicide or finds another source of income,” a British farmer had summed up the plight of the agrarian community. A banner put up recently by dairy farmers in Northern Ireland loudly announcing -- We can’t afford to feed you anymore – is a telling sign of the crisis that dairy farming are faced with. With prices remaining more or less static for eight years in a row, dairy farmers are unable to recover the cost of production. 

For the same reason, 93 per cent of the dairy farms have closed down since the 1970s in America. Not only dairy farmers, small farmers have also quit agriculture in large numbers. With median incomes in the negative for almost a decade now, and saddled with a huge bankruptcy, farmers have been forced out, hastening the decline of rural America. Mary Rieckmanns is one such farmer, whose family has been raising cows in Wisconsin for generations. “I sometimes feel they are trying to wipe us off the map,” she told the TIME magazine. 

In early March this year, French farmers had hung suicide dolls on trees outside Parliament drawing attention to the economic hardship they were faced with. In neighbouring Germany, farmers too have been protesting, expressing their anger by driving tractors to the cities. In most other European countries, farmers have time and again demonstrated against the sliding farm gate prices, which have rendered farming unprofitable. “What is point to being in debt all the time, and toiling for no reason? We are sacrificed, so the consumer is always happy with low prices,” Dominique Metenier, a French farmer had lamented. 

Concentration of power in the hands of a few multinational companies has resulted in unfair trade practices hitting livelihoods of millions of small farmers and workers in Latin American and African countries. Take the case of chocolate, which is a dominant player in the $210 billion global confectionary industry. While the industry rakes in huge profits, hundreds of thousands of cocoa producers in Africa live on meagre incomes. With child labour rampant in the cocoa plantations, a study has shown that the average income for a large percentage of small cocoa farmers is less than the retail price of a chocolate bar. 

In case of banana, the most eaten fruit in Europe and North America, for growers in Ecuador, Colombia, Costa Rica and Dominican Republic, from where the fruit is largely imported, their earning is anything between 5 to 9 per cent of the end consumer price. The situation is no better for coffee growers, where a majority of the growers live on less than the extreme international poverty line of $1.9 per day. 

To draw attention to the deplorable economic conditions that growers were living with, the World Coffee Growers Forum had roped in the well-known economist Jeffrey Sachs who has proposed a global fund of $ 10 billion a year to help pull out growers from the clutches of extreme poverty. 

In India, which has the largest population engaged in agriculture globally, for almost ten months now tens of thousands of farmers have been protesting at the borders of New Delhi. While the protesting farmers are calling for a repeal of the three farm laws that the government had brought in September last year, which facilitate the entry of free markets in agriculture, farmers are also demanding a law that provides a guaranteed price. Meanwhile, the latest report of the Situational Assessment Survey of Agricultural Households 2018-19, an extensive and elaborate nation-wide survey, shows that the farm incomes have been steadily on a decline. Increasingly, non-farm income occupies a bigger share of the average farm incomes, with earning from crop cultivation alone dropping to a paltry Rs 27 (US$ 0.37) a day. 

What emerges clear is that farming is no longer a viable livelihood. While farmers grow food for the world, they themselves live in hunger. To expect the same beleaguered global farming community, already reeling under indebtedness, suicides and exploited ruthlessly by the markets, to be the strong pillar buttressing the proposed transition towards a sustainable food system will remain a dream. The entire global focus therefore must be to first come up with structural transformation required to provide farmers with an assured and guaranteed income. 

Or else, we’ll continue hoping against hope. #

Source: No sustainable world without a living income for farmers. Sept 22, 2021. Fairfood.nl https://fairfood.nl/en/resources/un-food-systems-summit-no-sustainable-world-without-a-living-income-for-farmers/?fbclid=IwAR0G-iOvRueKOUCx8Gc_vbXDTG1tohRvXsHhci3EFC_rEkrLZkBTLlSbsmE

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The demand for minimum assured price has global implications

A minimum assured  price is the determining factor. 

Addressing the Oxford Real Farming Conference last week, I said that the iconic farmers’ movement in India will have tremendous global implications. If the Indian farmers succeed in making Minimum Support Price (MSP) a legal right, it will cause major disruptions in international trade with focus shifting from trade competitiveness to first ensuring that livelihoods of farmers – the primary producer – everywhere in the world become economically viable and sustainable.  

At the same time, instead of leaving farmers to face the vagaries of markets, which has pushed farmers globally in a debt trap, the demand for ensuring that no trading takes place below the MSP not only provides farmers with a safety net but will gradually become an economic design for the rest of the world to emulate. Across the globe, farmers continue to suffer the consequences of keeping farm gate prices artificially low so as to keep the economic reforms viable. An economically worked out minimum assured price is what would make farming a viable proposition. 

At a time when the world is increasingly looking towards ‘growth without economic growth’ the time has come to make farmers an equal partner in growth. This can only happen when a price assurance is given to farmers. 

Take the case of coffee. While the global coffee market was estimated at $ 102.5 billion in 2019, growers have only received a small fraction of the price – not more than 1 per cent – of the end price a consumer pays. While coffee roasters and retailers rake in huge profits, a majority of the 12.5 million coffee growers somehow survive below the extreme poverty line of $1.90 a day. Although there are several proposals for responsible marketing initiatives, including setting up of a Global Coffee Fund, probably the best way forward would be to provide an MSP to coffee growers.

Given the fact that even the multinational giant Nestle has expressed helplessness, providing an assured price to coffee growers in an otherwise exploitative global value chain is actually what should constitute responsible marketing. This holds true for other agricultural commodities as well. The implications of the Indian farmers protest therefore are far reaching. 

Writing in these columns, this writer had earlier explained how more than 90 per cent of the cocoa farmers were living in extreme poverty, receiving only $ 1.30 as the average daily income. Like the coffee growers, cocoa farmers’ share of income in the end consumer price is hardly a fraction of the enormous profits the chocolate manufacturers make. Just because these farmers are poor no one has actually bothered till recently to look at their plight, to know how markets have destroyed millions of farm livelihoods.  

Coming back to the disruptions expected in international trade, and contrary to the protesting farmers demand, pressure continues to be built on India in the World Trade Organisation (WTO) to dismantle the Farm Support Programme, which means curtailing the MSP for wheat and rice to keep it within the prescribed limit of 10 per cent for product-specific support under the Aggregate Measure of Support (AMS). According to the US, India has for a number of years exceeded its 10 per cent support limit, and is actually under-reporting the extent of support. While India has contested these claims, it does explain why India is reluctant to commit on the farmers demand for extending the MSP delivery for 23 crops for which the prices are announced every year.  

The US and its allies have time and again said that the MSP regime in India disrupts domestic and global prices. Strangely, while the US points to Indian support to farmers as a hurdle in global trade, the product-specific subsidies being provided by the US, Canada and European Union actually distorts trade and makes agricultural exports from the developed countries appear globally competitive. In reality, it is the huge agricultural support that these countries provide for commercially important farm commodities that lowers the international prices. As a result of which the MSP being given to wheat and paddy farmers in India looks to be higher. Let us not forget, these subsidies are in addition to the $ 246 billion of farm subsidies the OECD provided in 2018.  

According to a joint paper some years back by India and China before the WTO, the three big layers -- the US, EU and Canada -- provide for 90 per cent of the product-specific support for agricultural commodities thereby grossly distorting global prices. The total farm support these countries provide – exceeding the 5 per cent AMS limit for rich countries – is to the tune of $ 160 billion. In many cases, this support is twice the total value of the crop produced (215 per cent for wool; 141 per cent for mohair by the US; and in the EU by 120 per cent for white sugar and 155 per cent for tobacco). This huge subsidy support depresses global prices. 

As if this is not enough, the Organisation for Economic Cooperation and Development (OECD) comes out with another shocker. Even against these depressed international prices, the prices Indian farmers get are still 13 per cent less. 

Developing country farmers therefore have in reality been silently bearing the true cost of such enormous market price distortions. The export competitiveness that we see is built on the massive subsidy support these countries provide to agriculture, year after year. The time to end these price distortions has come. Protesting farmers have now provided policy makers a direction to rethink and redesign economic policies to usher in sabka saath sabka vishwas by revisiting farm policies, to draw from inherent strengths rather than borrow failed policies from abroad.  

Farmers demand for making MSP a benchmark for domestic and international trade is expected to result in severe disruptions in international trade, and will also result in betterment of a large section of country’s population. What the protesting farmers are standing for holds the key to future growth, and provides a road map for bridging the huge income disparity the world has failed to address. 

Farmers agitation will impact global trade. The Tribune. Jan 16, 2021

https://www.tribuneindia.com/news/comment/farmers-agitation-will-impact-global-trade-199058?fbclid=IwAR23Os3eT4Lmg_579aFkuXzwc9I1r6b69exfYL5vnrPSD87uoFEkag2-eTw

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Farmer of no value in value-chains

Pic courtesy -- from the web

Inaugurating the National Convention of the National Growers Federation – group of associations of coffee growers in Karnataka – at Bangalore, I asked how much would be a farmers share from a hot cup of coffee that consumers normally drink in a trendy coffee outlet. It took them sometime to work out the cost, so much so that they even looked at some international analysis, and what they presented a day later would simply sound unbelievable.

For every cup of hot coffee that costs consumers Rs 250 on an average in any upwardly mobile coffee bar/lounge, the farmers share is only Re 1.

It didn’t however startle me. More so at a time when the international prices of coffee is a third of what it was about 13 years ago. The commodity futures market for coffee has remained depressed making the lives of producers more tenuous, forcing growers in many countries, especially the younger generation, to abandon plantations. In India, coffee prices have been on the decline for almost three decades thereby further aggravating the crisis in the picturesque coffee belt. To overcome growing debts, estimated at over Rs 8,000-crores, many growers have turned their homes into ‘home stays, some have abandoned plantations and many have moved out.    

Earlier, a British Economic Survey report had computed a farmer’s share in a cup of coffee costing an average of 2.50 pound sterling, at only 10 pence. In other words, the coffee value chain, whether in India or in Britain, offers little or no succour to the coffee growers. Strangely, while all other stakeholders in a value chain end up making profits, it is the primary producer who is left to bear the brunt. “Unlike producers of commodities such as oil and natural gas, coffee farmers have long suffered from being at the wrong end of the value chain - receiving only a small fraction of the retail price of their crop,” says a Reutersnews agency report. Knowing that commodity future trading has played havoc with coffee growers’ livelihoods, the Financial Times had even sought a mechanism to stable coffee prices, which only shows that trading in futures market is no answer to the declining farm incomes across the globe.

Coffee is not the only agricultural commodity to be on the wrong side of the value chain, most other agricultural products fare equally badly. Several studies have shown that in case of bananas grown in Central and Latin American countries and traded in America/European Union, farmers share from every dollar worth of sale of bananas is a paltry 2 pence. Even for the best of the value chains, workers earn around 5 to 7 per cent of the total value of bananas while the retail pockets 36 to 43 per cent of the value. This is true for all agricultural commodities. It is the retail trade that walks away with a disproportionate share of the profits. In the case of milk, some dairy farmers in UK say that they receive at best 19 cents from every litre of milk consumers buy, which is not even enough to cover the cost of production.

To illustrate how farm prices have been declining over the years, the US National Farmers Union worked out a farmer’s share from what the consumers normally spend on a Thanksgiving dinner. Accordingly, a farmer gets just 12 cents from every dollar consumers spend. The US Department of Agriculture (USDA) has meanwhile also worked out that in 2018 for every dollar a consumer spent on food, farmers share of the profit pool was only 14.8 cents, which has seen a five per cent decline over the previous year. Interestingly, USDA analysis shows that while more than 85 per cent of every food dollar spent in the country goes for marketing, processing, wholesaling, distributing and retailing, farmer’s share is too low.  

NFU says for one pound (0.45 kg) of tomatoes costing $ 3.19 in the retail, farmer gets only $0.54; for five pounds of potatoes retailing at $2.30, a farmer’s share is only $0.70; and for two pounds of bread costing $2.10 to the consumer, farmer share is only $0.10. Similar illustrations by the Indian Council of Agricultural Research (ICAR) are required showing what percentage of the retail price of vegetables, fruits and food products actually are passed on to farmers thereby helping consumers to understand the reasons behind growing indebtedness in agriculture leading to farm suicides and deepening of agrarian distress. Take the case of poultry eggs, a newspaper report quoted the Indian Poultry Equipment Manufacturers’ Association saying how in the past one year, the producer ends up making a loss of Re 1 on every egg consumers buy.

If becoming part of a value chain is an effective way for ensuring what is called ‘price discovery’ then there is no reason why farmer’s share in a food product available in the market should be declining. Further, linking these value chains with commodity futures trading is no assurance of price stability or a higher price as the coffee experience has shown. This is because to gain competitive advantage and high profit levels, companies are squeezing farmer’s price.

Since the farmer too needs a stable and appropriate income to survive, to maintain his family, to pay the health and education bills like all of us, the challenge is to find a workable mechanism that ensures the continuous viability of a farming enterprise. My first suggestion is to draw from the experience of Amul milk cooperative, which claims to pay dairy farmers nearly 80 per cent of the end consumer price, and to expand the cooperative farming network to include vegetables and fruits to begin with. The other approach should be to announce a minimum support price or intervention prices for every farm commodity, linked to inflation, and then credit the difference between the market price and the support price into farmer’s account as deficiency payments.

As far as the value chains are concerned, a cess on value added products can go towards providing direct income support for farmers. For this, it is time to look into a policy suggestion made by a Kerala Cabinet minister K Krishnankutty, who has himself been a farmer leader. Calling it Actio Apportum, his suggestion is to create a fund by fixing a cess on a value added product, say Re 1 on every kg of rice, and from the amount generated, which will vary depending on the profit margin, an income support can be provided for farmers. #   

Farmer of no value in chain. The Tribune. Jan 17, 2020
https://m.tribuneindia.com/news/farmer-of-no-value-in-chain-27300?fbclid=IwAR3cP9boJAAdATgih6A0NAutSQU9DAyl4n_dhI63b2_5hQoICQiL_wPvH6k

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